Affected by repeated global epidemics, geopolitical conflicts, supply chain imbalances, etc., Eurostat recently estimated:
Euro area PPI surged 31.4% year-on-year in February to 31.6% expected, while EU PPI soared 31.1% year-on-year.
PPI soaring, who is the pusher?
What is a PPI?
PPI full name: producer price index, is to measure the industrial enterprise products ex-factory price change trend and degree of change of the index, is to reflect a certain period of production field price changes in an important economic indicators.
According to statistics, the main driver of the soaring PPI in Europe is actually the rising price of energy commodities.
For example, in the Euro Area's February PPI, the energy sector alone increased by 87.2% year-on-year, and the price of industry-wide commodities excluding energy rose by 12.2% year-on-year.
In the EU's February PPI, the energy sector rose by 83.6% year-on-year, and the price of industry-wide commodities excluding energy also rose by 12.5% year-on-year.
Relationship between PPI and CPI
As we all know, the CPI measures the price trend of goods and services closely related to the living field, while the PPI reflects the trend of the factory price of all industrial products;
To put it in layman's terms, CPI belongs to the consumer side, and PPI belongs to the production side.
Once the PPI rises significantly, this is a precursor to an upward CPI. Because, the fluctuation of the PPI will be transmitted to the CPI of the consumer side.
For example, if a ham sausage processing plant produces a batch of ham, because the price of raw materials rises and other reasons, the factory wholesale price to the retailer in the processing plant increases with the price, which leads to the rise of PPI.
Wholesalers because the price of goods rose, the ham sold to consumers also have to follow the price increase, otherwise it will lose money, which naturally led to the rise of CPI.
European inflation "exploded"
Due to the over-dependence on energy commodities such as natural gas and oil, Europe has been affected by multiple supplies in oil, gas and food since the beginning of geopolitical conflicts.
Although recently, in response to these pressures, Europe and the United States have also introduced many stimulus policies, such as: Europe and the United States to accelerate the oil dumping plan; Europe in order to solve the shortage of natural gas supply, instead of importing liquefied natural gas from the United States...
Unexpectedly, since the beginning of the geopolitical conflict, the pressure on the European side has been one after another. At present, the oil dumping plan has not yet fully landed, and the steel crisis has followed, which is really a wave of unevenness, a wave of rise!
European steel crisis
As we all know, steel is not only a necessity for life, but also a must for national development. From washing machines and cars to railways and skyscrapers, all of them are the products of steel. For example, the proportion of steel in ordinary cars is 60% of its total weight.
Steel demand accounts for a relatively large proportion in many areas, but recently, steel prices across Europe have begun to soar, and the cost of steel has risen from 400 euros per ton in early 2019 to 1250 euros per ton now.
Last week, the cost of Rebar in Europe has risen to 1140 euros / ton, an increase of 150% compared to the end of 2019.
The price of hot-rolled coils has even increased by nearly 250% compared to before the pandemic. Ton prices hit a record high!
What makes steel a luxury?
Several reasons!
One: Russia and Ukraine
Russia is the world's third-largest steel exporter and Ukraine ranks eighth. The steel of these two bosses. Together, it accounts for one-third of EU steel imports. That is to say, russian and Ukrainian steel accounts for a large share of the EU market.
However, these two bosses are not very angry and always make trouble, and the United States has not been idle recently, always worrying about the affairs of these two bosses, and at the same time driving the European Union to participate together.
As a result, the supply is less, and the price of steel in eu countries has risen.
Second: energy shortage
At present, about 40% of the steel in Europe is produced by electric arc furnaces or small steel mills, and the steelmaking technology of these small steel mills is still relatively primitive, basically using a lot of electricity to melt scrap iron and then smelt it into new steel.
But since the two bosses in Russia and Ukraine have been in trouble. The supply chain that has been relying on Russian natural gas has suddenly been blocked, resulting in the price of electricity in Europe even exceeding 500 euros / MWh some time ago, which is directly 10 times higher than before the Russian-Ukrainian conflict.
With insufficient power supply and rising electricity prices, many small steel mills in Europe can only face the risk of reducing production or closing their doors, or can only choose to operate at full capacity at night when electricity prices are relatively cheap.
Steel and electricity prices further push up inflation
Steel prices remain high, and many European companies are worried that the rise in steel prices may further trigger a panic rise, which may make the already high inflation worse.
At the same time, due to the continuous soaring price of electricity, many small European steel mills are facing an existential crisis. Continuous electricity prices have led to many small steel mills can not afford to continue production, and once the closure rate of small steel mills increases, the supply of rebar will be further reduced, the supply will be reduced, the demand will not change, it is very easy to cause panic to buy, and further push up steel prices.
Today, European central mothers are also worried that under the double cycle of rising steel and electricity prices, the steel reinforcement used to strengthen concrete may soon face insufficient supply, which may also lead to Europe's future failure to achieve the goal of stimulating the economy with infrastructure.
No global crisis is immune. If European steel continues to explode, will it extend its hand to other supply pools? Will wolves with more meat and less meat further push up steel prices in other countries?
This is not easy to say, after all, it depends on the credibility of countries and enterprises.
But, no matter what, there is one sentence worth remembering: human profit is instinctive!
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