Jame-Shaft-costs-of-steel-nickel-induction hardening machine

Newsletter March 2022

By most measures, 2021 was a very good year. The whole year was a period of strong growth that filled the order books and produced a good economical result. Production in the Finnish metal industry recovered faster than expected to precorona levels and even above it. However, growth began to be constrained by shortages of labour, components and materials, with the strongest growth slowing towards the end of the year. In addition to long delivery times, another significant factor in the slowdown in sales was the rapidly rising costs that machine manufacturers were forced to pass on to their sales prices. Despite the slowdown, the outlook for 2022 was exceptionally bright at the turn of the year and forecasts promised continued growth.

For Jame­Shaft Oy, 2021 was a year of very strong growth. Turnover increased from around €17 million in 2020 to around €26 million in the calendar year 2021. Profitability remained at a reasonable level thanks to volume growth, but started to decline towards the end of the year as purchase prices started to rise more sharply. As noted earlier, demand and order backlog grew unexpectedly and very rapidly in early 2021. The response was to start investments and training and recruiting new staff in January. Without these rapid actions, such large growth would not have been possible. Special thanks must go to all the staff who contributed so much and so actively to the growth. Despite stretching and increasing staff, the whole year was marked by a shortage of capacity compared to demand. As a result, our reliability of delivery did not meet our targets, although it has improved significantly in recent months.

Common concerns in the sector have been a severe shortage of skilled workers, the availability of raw materials and components, and soaring costs. The war in Ukraine at the end of February made the situation even worse. A significant proportion of the steel used in Europe comes from Russia, Belarus and Ukraine, and must now be replaced by raw material from other sources. It should be noted that Jame­Shaft Oy has not used any steel from these countries and therefore the situation has no direct impact on our sourcing of steel.

In the current situation, it is not easy to find replacement suppliers and, in any case, prices will rise significantly in a way that is currently unpredictable. The shortage is probably worse for flat steels than for the steel grades used by Jame­Shaft, which are less likely to enter Europe from these countries. For steel plates, there are already rumours that prices will be fixed on a batch­by­batch basis at the time of delivery and that the actual price lists can no longer be used if the situation changes constantly. Hopefully, the steel grades used by Jame­Shaft will not end up in the same situation. In addition to finished steel products, many of the raw materials needed to make steel are imported from these countries. This will make it much more difficult for steel mills in Western Europe to operate. These impacts cannot yet be reliably estimated due to the complexity of supply chains, but they could have a very significant impact on the production and costs of steel mills, at least in the short term. As one example, the price of nickel jumped several times in two days to an all­time high.

To make matters worse, a significant proportion of the gas and oil used in Europe comes from Russia. We have already seen peak prices for these which will further increase costs for steel mills as well as the rest of industry. At least as critical for steel mills is the price of electricity, which is currently very high. Hopefully, as spring progresses, these pressures will ease a little as other consumption falls as the weather gets warmer. But keep in mind that the next winter is approaching and we can’t make such big changes in one summer!

For Jame­Shaft Oy, the most significant production risk in the coming months is the availability of raw materials. Long­term contracts have been used to minimise the risk, but the situation is so confusing that problems may not be unavoidable. Availability of gases used in production and other auxiliary materials and tools is expected to be reasonable. On the cost side, the most significant increases will of course be for steel. At the moment, it is not possible to give a reliable estimate of price increases. However, it will be very significant. Other costs are also on a strong upward trend, with several commodities showing increases of several tens of percent. The most important of these for Jame­Shaft are the gases and electricity used in heat treatment. As an example, here is the quarterly price development of ammonia used in nitriding according to the Ferteco index. What is your quess, the price level for the next quarter?

Jame-Shaft-costs-of-steel-nickel-induction hardening machine

Despite the uncertainty of the unsure general world situation, we will continue our own development work and the training programme launched in the autumn as normal. Similarly, recruitments and investments will continue as previously planned. There has been great interest in our jobs and we have attracted the number of new recruits we wanted to our team. Our customers order books are strong and although the sanctions against Russia are taking some of that away, the situation still looks good. Uncertainty has of course increased, but it is not yet time to take our foot off the gas so we’ll go full steam ahead.

We have announced new investments in every newsletter. This newsletter is no exception, as things are happening on this front all the time. The investments announced in the last newsletter are well underway and are being implemented. The most significant new investment not mentioned before is the purchase of a third nitriding furnace. It will arrive at our factory during the summer and will be in full production in early autumn. Preparatory lay­out modifications have already started in our factory. The latest equipment to arrive at our factory is a new induction hardening machine (picture above) and installation work has just begun. Together, this equipment will make a significant contribution to our heat treatment capacity.

Let us hope that the war raging in Europe will end quickly so that we can move from a time of increasing human suffering and distress to a time of reconstruction. But there is no prospect of a return to the past; the war will certainly leave a lasting mark on our confidence in Russia and thus affect all trade. Hopefully, despite the war, the good activity in our sector will continue and the European industry will not be severely disrupted by problems of access to materials and components. There will certainly be new challenges ahead, especially with regard to the availability of materials, but with good and open cooperation we will certainly find solutions. Our third wish is that, despite the war and COVID­19, we could also meet in person as soon as possible. It’s now been two years in variable lockdown and there have been very few face­to­face meetings. These have, of course, been partly replaced by remote meetings. Remote meetings will certainly continue to work, but it is not quite the same.

We wish all our customers a successful and fruitful 2022!

Best regards,

Mika Tuunainen
Managing Director
Jameshaft Oy

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