Price levels and inflation
After 2021, a year in which supply chain disruptions caused unprecedented price increases, we originally expected stabilization and greater calm in the market for 2022. Prices were relatively stable in the first two months. However, this quickly changed after Russia's invasion of Ukraine. The market was affected by the impact of the sanctions imposed on Russian suppliers, even more rapidly increasing energy prices, renewed supply chain disruptions and the limited availability of materials. The sanctions imposed on Russia drove up the price of steel pipes even further; not so much in relation to the production of steel pipes in that country, but because the sanctions affected other steel products. These disruptions caused major uncertainty and unrest in the market, resulting in very strong price increases. The sharply increasing energy prices, in part due to the war, further compounded the situation. These directly affected the price of steel and steel pipes. The production of these materials requires a great deal of energy. Moreover, transportation costs also increased.
Over the course of the year, the situation concerning the sanctions imposed on Russia became clearer and the market calmed down somewhat. However, disruptions in the supply chain continued to affect the market. Prices stabilized somewhat, but stayed high. Many steel plants partly cut down on production capacity after the summer. As a result of high energy prices, it was no longer possible to profitably produce steel. By removing capacity from the market, suppliers hoped to achieve better returns. However, this caused a renewed upwards pressure on prices, for example due to the introduction of energy surcharges.
Toward the end of the year, prices for welded materials decreased somewhat, but prices for seamless materials and derived products stayed high. Over the year as a whole, market prices were 30% higher than in the previous year. The prices of our trade goods increased tremendously, as did the prices of virtually all other products and services, resulting in significant cost increases in our business operations. Transportation costs increased considerably and the cost of wages throughout the world increased significantly as a result of labor market scarcity on the one hand and compensation for the sharply mounting inflation on the other.
Disruption of supply lines
A large part of our deliveries is directly from stock. Our strong global stock position is a key success factor. The depth and breadth of our product portfolio is decisive in this respect. Following the major disruptions of the supply chain in 2021, we successfully had brought our stocks up to the desired levels by the beginning of 2022.
However, the many disruptions on the supply side once again made constantly resupplying our stocks a complex and intensive operation. By deploying our global procurement network and the knowledge and expertise of our purchasing teams, we once again succeeded in keeping our stocks and our product portfolio at the right levels. As a result, we were able to maintain a constant and reliable level of delivery to the market and our customers. We achieved this by effectively aligning needs and opportunities together with our suppliers. Our excellent long-term relationships with permanent and trusted suppliers were a very important factor in this respect.
The closure in Germany of two Vallourec plants for the production of seamless pipes was remarkable. This not only marks the end of a 135-year history of producing seamless pipes, it also means that expertise and knowhow relating to the high-quality production of pipes will be lost to the Western European manufacturing industry. For many buyers, the certainty about the supply of high-quality products for their business operations will be partly lost over the short term. Together with other pipe manufacturing plants and suppliers in Europe, we will devote our expertise to ensure the continued availability and production of these high-quality materials elsewhere.
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3336 LE Zwijndrecht
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