Will the rise in raw material costs last long?

In our section dedicated to articles we don’t want to talk only about home or renovation but also about collateral topics to our business and news that have an important influence on our mission, that is to renew where this is possible.

We cannot exclude a mention to what seems to be the next global tsunami but which, given the complex period due to the coronavirus emergency, still remains a bit muted.

We are talking about the increasingly discussed “increase in raw materials” which since April 2020 has been putting Italian and American companies in difficulty.

Although it may seem out of place, this phenomenon has an impact on practically any sector and you will understand at the end of this article why it has also involved our sector. We will try to make a small summary of the past months.

Let’s start from the beginning.

April 2020.

Full boom of coronavirus panthemia. Total lockdown in Europe and the USA with attention to the containment and supply of sanitary and protective material. In this phase that began in March, production demand (excluding the production of sanitary material) suddenly collapsed. Most of the companies that import from the East in the old continent find Chinese companies closed in many regions, and the collapse of demand due to the lockdowns present almost everywhere. The result was a drop in the prices of raw materials and of the entire economic sector. The pandemic in the months of March / April 2020 has sunk the share value of many companies, we can practically say that the whole economy has collapsed.

The transports that normally moved goods around the world stopped and for a short time it seemed that everything was about to collapse. But as always during a period of severe crisis there are those who look ahead, understand the opportunity and take advantage of it.

In fact, with the fall in prices, producing countries like China in the first place, bought up raw materials by investing precisely in the fact that prices had dropped sharply. Unlike other countries (especially Europe) which have a rotation policy and not a storage one, there is a tendency to order little and not to increase one’s stock based on an “on demand” offer.

May 2020

In mid-May 2020 there was a glimmer of recovery. The companies reopen and the demand for consumer goods resumes … but as soon as the demand is abruptly interrupted, the demand exceeds expectations and European producers used to optimizing their warehouses (avoiding excess material) burn in a short time the materials available for production that they soon empty.

Summer 2020

This has led the demand for raw materials (resulting from the demand for consumer products) to resume abnormally, more than expected. And this prompted those who held these materials to increase their price. Not only that .. due to the block for almost two months of transport (we are talking about goods in this case) all the containers that normally have a cyclic circulation remain unavailable as they are stopped in the various ports around the world. Obviously, if the demand for transport increases and containers are scarce, the transport companies have seen fit to increase freight costs.

To give you a practical example. If at the end of February 2020 you would have asked for a new bicycle, you would have found it at lower prices than normal. The same bicycle in May would have had a much higher cost and in August you would probably have gone on foot, since there was no longer any availability of bicycles in the shops.

And this has happened for many sectors ..

Autumn 2020

Now, if the rules on behavior to be kept in the pandemic have now been absorbed and the lockdowns are still there, most of the companies remain open anyway and it is thought that slowly production will resume and everything will return to normal … .. the countries that have stocked up on precious raw materials, indispensable for the production of electronic components, necessary to produce anything, (from tablets to cars, from shoes to appliances) have seen fit to take advantage of the situation and make their prices .

This mechanism was triggered primarily on metals for hi-tech production .. we are talking about copper, nickel, lithium, rare earths, etc. .. and then moving on to all the other raw materials .. we are talking about paper, wood, steel … pretty much everything.

Winter 2020

Being quoted in dollars, commodities have become an excellent investment for those who decide to stock up on them, since the dollar is weak and for those who buy this is even more a great deal. This pushes the increase in prices and the lack of supply even further.

If this were not enough during 2020 The International Maritime Organization has required transport companies to lower fuel emissions by passing these costs directly on transport prices.

Already around December we at Artesive too, in our small way we realize that something is wrong .. the prices of cardboard packaging for example, undergo an almost unjustified increase and not only .. we struggle to find them !! Raw material prices still seem normal but we still understand that long-term planning is needed, even if on some points, unfortunately, when we decide to act, we are already very late.

To give you another example .. our PopCorner (aluminum corner cutter) which is produced in Italy has undergone a 30% increase in production only in the last year .. and not only. The company with which we collaborate that physically realizes the pieces that compose it has difficulty in making prices, as aluminum undergoes variations in the order of tens in percentages from one week to another .. and many companies are in the same situation. . Some companies cannot understand if a quote made today could lead to a gain or a loss when the material is ready for delivery to the customer.

January 2021

By now the prices of almost all raw materials are all constantly increasing .. we are not talking only of precious metals, but also of plastics, PVC first of all undergoes a 100% increase in a short time and does not seem destined to go down. Countries like China that have mines in Africa and Asia have made the crisis an opportunity and during the previous months they have made a lot of investments even going so far as to buy additional raw material from Europe. In this way, Europe itself was soon left without the little raw material it produces and without what it normally imports.

Europe in this period has to do with the third wave of the pandemic, given by the variants that bring the concentration on the vaccination campaign which seems to be the only short-term solution to ease the health crisis.

Determined to keep prices low, we move trying to plan our production with a broader vision by increasing the volume to allow us to cover as many months as possible and not reduce these increases directly on our customers.

Spring 2021

In the last year the freight price of a container from China to Europe has gone from 700 dollars to almost 7000 dollars !! A 1000% increase to carry the same material !! It is valid for those who import material from China, but also for those who import from Japan, Australia, USA .. in short, transport has contributed heavily to all the companies that transform the material and that need supplies from abroad.

We are beginning to talk about this crisis in a more marked way, but still many governments prefer to focus on communication towards the health emergency and the importance of getting vaccinated. And it is understandable.

May – June 2021

Currently, all raw materials have undergone strong increases, due to both the lack of supply and financial speculation.

Finally with the covid emergency that for now, and only for now, seems to be easing, even the newspapers are starting to talk about the topic. But obviously they are careful not to create new social alarms. A very interesting article by Milena Gabanelli who talks about the main reasons related to price increases.

As always, summer tends not to make you think about problems, and since we have come from over a year of restrictions it is normal and understandable that we prefer to think about something else .. but as few countries have done so far, it would be appropriate to ours I advise that we begin to understand this phenomenon and to intervene in a univocal way so that this ridiculous speculative maneuver ends as soon as possible.

And if you think that the price increases concern only “physical” raw materials such as metals and other inert materials .. read this article which talks about the increase in the price of food.

And how does Artesive behave?

As previously written, our goal is to keep prices stable as long as possible. We kept the prices fixed for the whole of 2020, making a small increase in January (an increase that we had planned at the beginning of 2020 but that the covid crisis prompted us to postpone) only on some material cuts. We tried to procure the necessary material to cover the end of 2020 and the first months of 2021, but this was not enough. The costs of transport in continuous rise throughout the last year and of raw materials such as PVC and paper in our case have weighed heavily on production costs. On some costs, not even the best planning can manage to control. With increases this high compared to the previous year, we can no longer afford to keep prices at these levels for much longer.

It was therefore decided to make a minimum increase starting from August 2021, trying to understand if by the end of the year prices will return at least in part to the values ​​of the pre-panemia period.

This news of the hikes in commodities has also gone quite viral online. The exact numbers and reasons for the various price increases are still confused. You will read different percentages depending on the sites you visit, but it is clear that during a global health crisis someone took advantage of it in an absurd way, soon leading to an increase in inflation and a new economic crisis, since all increases always go to end up in charge of end customers and small businesses.

From August onwards, prices will experience a small increase. We invite you to take advantage and take advantage of the current prices now.

08/07/2021 - Articles

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