Race for raw materials
The world is currently not only facing a health pandemic but also an immense shortage of raw materials for a number of reasons, including the panic-buying and a shudder in global economies. Causing an unstable situation in recent months, whether in prices or delivery times. Almost all sectors of the economy are now feeling the consequences, and customers are increasingly seeking price guarantees for 2022, as some companies report to us. Therefore, it is even more important as a raw material company to understand these triggers.
How could this bottleneck occur?
Global demand – Chemical market
In this case, Covid-19 plays a major role, as the pandemic first brought a slump in orders and reduced production capacities in numerous sectors and is now meeting with increased international demand. This is also being boosted by various economic stimulus programmes in specific countries. A lack of freight capacities and the resulting massive increase in transport costs is another effect that exacerbates the current situation. Across Europe, industrial companies do not expect the price spiral to end in the medium term. Whether chemicals, steel, plastics, gas or methanol – companies expect further double-digit price increases for almost 85% of all raw material groups. In particular, the coating market is causing concern with the shortage of red and yellow iron oxides as well as the associated packaging of 5-litre paint cans experiencing a 10% price increase.
Transportation and non-tariff barriers
Most of these raw materials are exported from China and Australia, causing a drive for transportations, especially container ships as well as air transport. This means that supply chain managers are particularly affected by unforeseen events and are facing price increases by more than 400% due to the transportation shortage. These limitations significantly hinder access to raw materials and their free movement between various regions of the world.
Alongside the dependence on China, Europe is still reeling from Brexit and the associated border formalities, companies in England have to be more patient with longer transit times for shipments resulting an increase in import costs in raw materials. Not only the prices of the products are rising, but also the enormous shortage of employees, especially in the truck industry. At the moment, the country is lacking more than 100,000 truck drivers due to the stricter immigration rules, which is leading to a severe delay and loss of some necessary resources such as petrol or food, but also raw materials for various companies.
A year ago, when the coronavirus pandemic was declared, the whole world witnessed a turn that oil prices slipped into negative figures on the market. Nevertheless, this historical occasion didn’t last long, as we are currently experiencing just the opposite, with oil prices rising to £59 per barrel. Explained by the current recovery of many countries’ economies from the Corona slump, meaning there is a high demand for oil, petrol and diesel. Furthermore, many oil associations such as Opec+, the ally of Russia and several other countries, have been producing less than originally agreed for months. These rising prices affect us not only directly when refuelling our car, but also subsequently the bill for gas and electricity for companies as well as private individuals. According to experts, the energy price cap, which protects consumers, is expected to rise by £400 in the spring.
All these factors had an enormous impact on the commodity market, especially in recent years as well as in the future, with each company taking different measures to meet the demand. To keep up with the current situation, find out what actions companies have taken in our blog next week.