HomeMy WebLinkAboutCORRESPONDENCE - BID - 5671 CABLE UNDERGROUND 15KV 750KCM (14)March 14, 2003
Dear Valued Customer:
As you know, the two main ingredients used to manufacture wire and cable are insulating and
jacketing compounds (such as polyethylene) and a metallic conductor (such as aluminum or copper).
Over the last year, we have seen strong upward movement in metals prices and at the same time the
cost of insulating and jacketing compounds has skyrocketed. The primary cost drivers of compounds
are petroleum and natural gas prices. Over the last twelve months, the price of oil has nearly
doubled. During the same interval, and particularly since the beginning of 2003, natural gas prices
increased five-fold before recently settling back to a 150-200% increase.
In North America, there are two principal producers of the wire and cable grade polyethylene used to
produce insulating and jacketing compound, Dow Chemical and Equistar, a joint venture between
Lyondell Chemical Company and Millennium Chemicals. During the last 12 months, these companies
have announced enormous losses as energy costs increased faster than they could increase prices
(for example, see the attached letter from the CEO of Dow). Both these companies now view the
manufacture of many compounds, such as those used in wire and cable, as not economically viable
in the current conditions. In 2002, the companies announced a series of price increases, which
General Cable fully absorbed. Over the last four weeks, they have announced, effective immediately,
three separate price increases raising our costs for these materials by an additional 22-45%
depending on the compound grade.
Over the last twenty years with General Cable and as President for the last four, I have dedicated
myself to not only cost leadership, but also providing the best overall value for our customers, which
is the way we grow. Our lean training, productivity projects and strong integration with our
customers are distinguishing characteristics of General Cable. Also, our ‘One Company’ highly
focused business model allows us to provide ”best total value” for our customers with only 8.5%
selling, general and administrative expenses as a percentage of revenues -– the lowest among the
publicly reporting companies in our industry. Unfortunately, the staggering increase in raw material
costs has overwhelmed all the things that we can control in terms of cost reduction.
As a result of these extraordinary increases in raw material costs, we are compelled to raise our
selling prices to all our distributor and electric utility customers, including those under long-term
agreement. Over the next several days, General Cable will provide you with specific details
concerning the impact on our selling prices to you. Also, I urge our alliance customers to continue to
work with us as we jointly identify and eliminate unnecessary costs as a way of mitigating some of
the raw material increases.
Turmoil in the Middle East, a strike in Venezuela and too little natural gas drilling are elements out of
General Cable’s control. Despite these uncertain times, we do promise to continue to be unrelenting
in our focus on our most important asset -– our customers. On behalf of the 6,000 dedicated
associates of General Cable worldwide, I thank you for your understanding.
Sincerely,
Gregory B. Kenny
President and Chief Executive Officer