PI Mines Index projects inflation above 20% for 2008

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 Alan Low.png"Increases in Steel, Electric cable and the scarcity of commodities such as timber, off-road tyres, etc coupled with the depreciation of the currency have been driving up the costs in the mining segment resulting in average cost increases of 14% in 2007. However 2008 has started with a  bang... Alan Low MD of Purchasing Index tells SmartProcurement.
"The chart below is the average monthly Mines Index of a large basket of items bought by many SA mines from 2001 till now. (Click to see full size version.)"

Thumbnail image for PI Mines Index.png
"Prices for commodities rose steeply at the end of 2001 and the first half of 2002 as the Rand sunk to an all-time low against major currencies. This suggested that many of the items were imported and subject to currency fluctuations. At the time PI did some benchmarking of the imported component of Bearings which revealed that suppliers had convinced many of their customers that as much as 85% of the sale price was imported and therefore subject to Rand-US dollars or Rand-Euros exchange rates!," says Low.

"As the Rand strengthened in 2003-2005 prices, however, stayed fairly flat (rather than coming down)."

"In the current round of price increases the situation is as follows:  Commodity price inflation has been driving price increases over the last two years, resulting in an average increase in prices over the last twelve months of just under 14% and over the last two years of approximately 21%. Electrical cable almost doubled in price over the last three years and steel increased by almost 20%."

Electric Cable                          

Electric Cable.png














Steel

Steel.png
















"However, 2008 has started with a bang - steel increased in the first three months of the year and have equated to more than 30% whilst the Rand has depreciated against all major currencies. In these volatile times, prediction is an invitation to embarrassment, but PI expects that the PI Mine Index (above) for goods in 2008 will show inflation in excess of 20%.  Coupled with these factors is the scarcity of such commodities as timber, off-road tyres, etc. "

"In such an environment those organisations which can accurately predict demand and buy forward will probably mitigate some of the inflationary effects (and keep their operations running!). Those that carry on buying on a hand-to-mouth basis are in for a very rough year," says Low.

Alan Low can be contacted on the details below:
Telephone: +27 11 803 0005
Cell: +27 84 890 0005
Email: alan@pricetrak.co.za


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