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Manufacturing takes a hit

peak watch | 17.01.2006 03:21 | Free Spaces | Globalisation | London | World

Rising global energy prices are hitting UK manufactures, but the costs have yet to be passed down to the consumer...

If you've been following the newswire recently you will have seen loads of articles relating to the rising cost of oil. Today it was reported that the UK's largest manufacturing union was so concerned by rising costs that it will run a campaign to raise public support for the new nuclear power stations wanted by Blair.

Why is this happening? Raw material costs rose at a record pace in December, mirroring surging oil and gas prices last year. However manufactures have been struggling to raise their own prices and instead have taken a hit on their profit margins.

The Office for National Statistics said yesterday that input prices increased by 0.9% from November last year, taking the annual rate of increase to 17.2%. That's the highest since records began in 1991.

This massive jump is due to the cost of oil increasing by 61.7% during 2005. That's another record leap, the biggest in over five years. The rise in gas prices was even higher at an incredible 81.2%.

It's not bad news for everyone. Despite suffering a billion dollar loss due to the hurricanes in the gulf of mexico, BP made profits of over $21bn during 2005. That's the biggest annual profit in British corporate history!

Meanwhile the country suffered its fifth monthly oil deficit in a row - the last time it was so bad was before North Sea oil started to be extracted. Now the north sea reserves are in terminal decline Britain's trade deficit has surged to a record high - the worst figure since records began in 1697.
The Office for National Statistics reported a goods trade shortfall of nearly £6bn for November, over £1bn worse than the City had expected. This was mostly due to the need to increase oil and gas imports, representing yet another record high. The increase of imports sadly also coincided with record highs in global prices for crude oil and natural gas.

The explosion at the Buncefield oil depot and the increased demands due to cold weather have simply added to the chaos caused by the faster than expected decline of North Sea output.

Last week an organisation representing the National Health Service, Tesco and other major companies called for a cap on gas and electricity prices.
The Major Energy Users' Council (MEUC) urged energy companies such as British Gas to hold back further increases. More than 100 NHS hospitals are on interruptible gas contracts can be cut off with only four hours' notice.

Andrew Bainbridge, director general of the MEUC, said: "We need a moratorium because our members are already shell-shocked by a series of price rises and there is no way they are going to be able to claw back the extra costs. Further price increases will force companies out of business and suppliers must work in partnership with their customers through this difficult period."

The Association of United Kingdom Oil Independents has told the government that its members had never experienced such protracted and widespread problems. The Russian / Ukraine gas crisis and other factors leading to soaring prices have encouraged power stations and other gas users to switch to oil.

Statistics released by the Department of Trade and Industry yesterday underlined the fast rundown of local energy supplies, with imports of gas up by 80% in the third quarter, compared with the same period in 2004.

British Gas's parent company, Centrica, warned that surging wholesale prices would force all suppliers to raise their bills during 2006 following double-digit increases last year. This week, npower and Scottish & Southern Energy raised their prices and some industrial users started to close facilities for extended winter breaks to save money.

"Cost pressures in the earliest part of the supply chain remain intense. However, there is little evidence that manufacturers have been able to pass these cost hikes on to their own customers," said John Butler, economist at HSBC.

On the whole, none of these prices increases have fully filtered through to the end consumer - but soon they will.

If you would like to figure out what this all means, and how much worse it is likely to become over the next couple of years, you might be interested in a grassroot gathering being planned in London next month which plans to look at the issue of peak oil and it's implications. The organisers are asking anyone interested in attending, or helping put on the event, to email rampart AT mutualaid.org

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