The first quarter of 2023 is behind us and we are well on our way to the summer. 2022 was a mixed bag, but on the whole it was a good year for our industry. The problems in the availability of raw materials caused by the war in Ukraine were relatively minor, but the cost pressures caused by the sharp rise in steel prices are still being felt. The same laws seem to apply to the price level of steel as to the pump price of petrol: The price rises very quickly if the price of crude oil rises on the market, but returns to a lower level very slowly, always remaining slightly above the starting price!
As is well known, in spring 2022 steel prices almost doubled and electricity and gas prices increased even more. Steel prices started to fall in the summer, but rose sharply again towards the end of the year as energy prices increased. Fortunately, the electricity price spike was shorter-lived and lower than was forecast. There was a very slight downward trend in steel prices in the early part of the year, but we are still at a very high level. High inflation and wage increases are also driving up business costs. Both are at the European average in Finland. What is clear, however, is that costs will in no way return to pre-Ukraine war levels, and much of the increased costs will remain permanent. The market must therefore seek a new stable cost structure on which to build the economy for the coming years. I hope it will be a long-term one and that it will give us all peace of mind.
Predicting the future is still just as difficult. The positive thing is that the threats regarding energy did not materialise. There was no shortage of electricity or gas – in fact, gas stocks are at record levels and electricity prices are well below the forecast. Finland’s new nuclear power plant Olkiluoto 3 is finally in regular electricity production, providing around 15% of Finland’s electricity needs. It was 14 years behind schedule, but now it should have a lifetime of 60 years. In addition, thousands of megawatts of wind power will be built in Finland in the coming years, so there will be enough clean, fossil-free energy available to allow investment in more climate-friendly production.
Regarding steel, a more accurate prediction of the price development will be left for another time. Suffice it to say that from the current starting point, the trend should be downward. But as stated above, fast and big downward movements should not be expected and all kinds of surprises can be possible. On the positive side, steel availability is now at a satisfactory level and delivery times from the mills are shorter. Most relevant for economic development are future developments in interest rates and inflation. Already today, tighter financial policies and higher interest rates are clearly affecting investment decisions. The need to invest exists,but the above-mentioned reasons are delaying decision-making, which in turn is reflected in a decline in the order book in our sector.
Despite everything, the situation in our industry is still reasonably good. Since summer 2022, Jame-Shaft’s delivery performance has been very good and our overall delivery reliability has been at the 96-98% level. Our turnover has been on a par with the last financial year and we expect to achieve a slightly higher turnover in the financial year ending 30 June 2023 than in the previous financial year. However, this is a clear disappointment for us. In addition, our order book has been declining throughout the early part of the year. According to the forecasts we received and our budget, spring sales were expected to be growing and well above the current level. As a result of this forecasting error, we have already had to adjust our production to meet current demand. We also have some capacity available at the moment, which allows us to be flexible and, if necessary, to deliver at shorter notice. To be able to estimate the capacity needed for the autumn, all the information we have about our customers’ autumn needs is worth its weight in gold. If there have been any changes to your forecasts, please contact us and let us know.
We also ask you to take into account that the summer holiday season is approaching. We want to guarantee our customers a good level of service throughout the summer and, as in the past, we will not close the factory for the holidays even if the order book is lower than expected. All activities will continue uninterrupted but in weeks 25-32 we will operate with fewer staff due to the staggered summer holidays. It would therefore be very important if you could place most of your orders for summer products as early as possible, preferably already in May.
Despite a slightly calmer moment, our belief in the future is strong and investments will continue uninterrupted. The investments made in heat treatment are now all in production, most recently the carburizing furnace which was completed a few weeks ago. The investments made during the year ensure that we have the latest technology for nitriding, induction and case hardening. Together, these three brand new equipmet will also increase our capacity, enabling Jame-Shaft to grow to a new revenue level while improving energy efficiency and quality performance. More capacity is needed as our customer base is expanding significantly following the contracts signed last year. This in turn enables the company’s continuous growth and development, guaranteeing the use of the latest technology and developing know-how for all our customers.
Our next major investments will be in the grinding department. In week 7, the equipment for the centralized processing of grinding fluids arrived. It is now operational and more machines will be added as pipelines and other machine-specific modifications are completed. In June, a robotic cylindrical grinder and a robotic centreless grinder will arrive to increase our grinding capacity, both of which are just being finished in the factories. Increasing automation will make our operations more efficient and significantly increase our capacity in this area as well. More about these in the next newsletter when they have arrived at our factory. In addition to machinery and equipment, we are also investing in improving data management. At present, information is distributed in different systems where it is difficult to find and integrate. The aim is to gather information related to customers, quality, version management, etc. ‘under one roof’. More on this as the project progresses.
Let’s hope that the year progresses in a positive way, preferably on a growth path. After a long break, we have been able to meet several customers in person during the spring. We hope to have many more visitors to our factory during the spring and summer. Despite TEAMS, face-to-face meetings are an important part of building a network of cooperation.
We wish all our customers a successful and productive end of year 2023.
Best regards,
Mika Tuunainen
Managing Director
Jameshaft Oy