Raw Materials, unprecedented cost increase (caused by Covid)

09/03/2021

The cost of polyethylene has grown by 160%, while that of steel has seen an increase of 123%; the oil has recorded a surge “only” of 100% (so doubled) and gas has registered a + 70%. These are just some of the numbers that illustrate the price rise of raw materials and semi-finished products that since April 2020, coinciding with the pandemic arrival and up till today, characterizes the main world markets. Moreover, the cost increase of the commodities is reflected on the entire productive chain inevitably influencing also the prices of “final” products that, in fact, have been constructed with those raw materials.
The health emergency is the first cause of this phenomenon, unique in its criticality, which affected almost all the goods, from wheat to timber, metals and fuel. The impact on the world economy and industry has been devastating: Covid, in fact, has caused a slowdown, in some cases even a production blockage that has caused a decrease of the relative supply, in the regression period of emergency, and a skyrocketing increase of demand (companies, in the fear of “running out”, have stocker up much more than usual). Moreover, the virus has put the international logistic systems in a difficulty, which has already had to adapt to new and more tightening sanitary dispositions, in occasion of the phases of "congestion" that occurred when declines in infections saw a full resumption of productive activities, favouring the "repartition" of markets.
In addition, on top of that, additional critical factors came into play, starting with the geopolitical tensions that made relations less fluid, especially in the final months of 2020 and in the initial months of 2021, between the United States, China and European Union.
Moreover, there has also been an increase of inflation in the USA, a phenomenon which has reflected in prices and markets, the problem with Suez Canal, which in March saw the stop to the cargo passage due to a stranded ship and the physiological complexities related to the adoption in companies of new “green” practices, more environmentally friendly.
The picture, in short, was formed by production problems, commercial difficulties and slowdowns in turnover, while in the background understandable fears at the business level remained. The economic and social uncertainly, but also markets volatility, have resulted into reduction of raw materials and semi-finished products availability, and the relative price increase.
Only the most virtuous businesses and those with a flexible organization, that is able to mitigate the repercussions of these oscillations, have been able to withstand the “impact” of costs increase trying to curb, as much as possible, the effect of prices increases on final products. Only the pandemic overcoming, it is obvious, will allow a gradual return toward normality; in the meantime, the situation could experience a reversal in in the fourth quarter 2021, as anticipated by “Materie Prime”, the observatory of Anima Confindustria on commodity markets, which supposes for the final month of the year a more “rational” performance of raw materials indices.

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Raw Materials, unprecedented cost increase (caused by Covid)

09/03/2021