Raw materials: why have prices risen so much?
Following the pandemic, the price of raw materials increased dramatically, mainly due to the long period of inactivity that mines were forced to undertake, as well as a sudden economic recovery in countries such as China and the United States.
Those two events in particular have led to an uncontrolled rise in demand for commodities, the scarcity of which has brought rising costs, resulting in panic among businesses, leading to a significant slowdown in production.
Increased consumption and rising sea freight costs
In the early months of lockdown last year, many economists were concerned that post Covid-19 consumption would fall dramatically in the long-term. However, this scenario has not materialised: in fact, events have moved in the opposite direction.
The strong Chinese and US recoveries have caused an uncontrolled increase in consumption and an all-out race to obtain the few available resources. Considering that mines are still not yet fully operational at the moment, costs have spiralled out of control.
To make matters worse, the transport sector, especially sea freight, has recorded an astonishing increase in the price of shipping goods: estimates place the increase at around 628% compared to figures for May 2020.
Another fundamental issue, which is affecting quite a lot of countries and their economic recovery, involves the so-called ‘safeguarding measures’: a series of rules introduced by the European Union to discourage the import of steel from outside the EU, through the imposition of duties of 25% on steel imports.
These measures were adopted in response to duties imposed by the former US President Donald Trump, but in an emergency situation like the current one, it would surely be appropriate to suspend them temporarily in order to facilitate the movement of raw materials.
Which raw materials cost most nowadays
The sequence of events outlined above has led to an increase in demand for raw materials and a corresponding rise in costs. Despite the fact that all sectors are affected by this wave of price increases, the most worrying data relates to steel.
The price of iron (which is fundamental in steel production) has risen exponentially, reaching peaks of +117%. This rise is largely due to Chinese industry, which on its own absorbs around 50% of global resources.
Another good example to illustrate this phenomenon is Italian laminate manufacturing, with firms increasing the price of heat laminated coils, which has jumped from 370 euros per tonne in June 2020 to the current 1000 euros per tonne. Another example is the cost of stainless steel which has risen from 1900 euros per tonne in the second quarter of 2020 to the current 3000 euros per tonne.
As mentioned, it is not only steel which is causing concern. Among other metals which have endured price increases are bronze (+47%), nickel (+51%) and aluminium (+26%). Wood is one of the raw materials most affected by the fallout of the economic crisis, with wood to be made into pallets undergoing a price increase of 20%, which is expected to rise to 30% in the coming months.
Not even the plastics sector has managed to keep costs down. The main cause is the rise in the price of Brent (+148%) and important industrial polymers used in manufacturing, such as ethylene (+58%), propylene (+34%) and PVC (+34%).
Translated by Joanne Beckwith
