Surge in steel prices to make wind turbines more expensive, says Vestas

Vestas' blade factory on the Isle of Wight, U.K. Steel, a key wind-turbine component, has become more expensive, boosting the price of the finished product. Source: Vestas Wind Systems

A recent surge in steel prices is set to make wind turbines more expensive, executives at Danish turbine manufacturer Vestas Wind Systems A/S said May 5. The price of the core component has risen substantially during the first quarter of this year.

"We're not talking about a few percentages; we're talking about steel increases that in some markets in the last six months have been more than 60%, 70%. So for that reason, there are changes ... to pricing of the technology we deliver," CEO Henrik Andersen said on Vestas' first-quarter earnings call.

Rising demand for iron ore, the raw material used to make steel, sent prices to long-term highs in April, with economies across the world turning to infrastructure investments to stimulate post-pandemic growth.

Like many industrials, Vestas is forced to pass on higher component costs to its customers. When it comes to managing the cost of raw materials, the company has a 36-month view ahead, CFO Marika Fredriksson said, taking into consideration firm and conditional orders. "For the firm order intake, we plan for everything, including either hedging or [pre-buying] steel. And we also have indexation in the contract," she said.

Communicating the higher prices to customers has yielded some difficult conversations, but given that wind turbines are made overwhelmingly from steel, there is no alternative to passing on costs, Andersen said. "I don't think any customers call you and ask for a price increase. ... But the art of this technology is that it contains [a large amount of commodities]. When that goes up in price, there isn't a magic thing that can just take that price increase away," he said.

Vestas' turbine order intake and deliveries fell during the first quarter of 2021, compared with the same period last year.

While steel prices have so far largely left margins unaffected, Vestas has seen costs stack up due to supply chain disruptions, with some pre-booked transport solutions for large equipment not panning out as planned. The disruption partly relates to COVID-19, while a blockage of the crucial Suez Canal at the end of March may also feed into heightened logistics costs for components transported along the Asia-to-Europe route.

"When we need to change from [logistics] planning, that's when it's starting to cost us ... It is primarily on the transport," Fredriksson said.