Skyrocketing prices and low availability: the problem of raw materials

It is well known that one of the unpleasant consequences of Covid-19 is the unstoppable increase in the cost of raw materials, which seems unstoppable as of now and to which the difficulty in finding the necessary raw materials available is added, even at high prices.

Sustaining the supply chain has created quite a few disruptions for industries that process raw materials, which has caused further delays, production stoppages, difficulty in meeting customer demands and a general increase in prices. In the first months of the pandemic, companies stopped or minimized their production and consequently their orders for raw materials. Consequently, with the restart, many found themselves in need of the same goods in the quantities necessary not only to cope with temporary production but also to replenish warehouse stocks. As can be easily understood, this has led to a vertiginous increase in the prices of raw materials due to their scarcity.

The Italian economy, in which the steel sector is very important, has been particularly affected by this situation. However, the problem does not only concern the steel industry, but also raw materials as a whole. Steel is a material used in many productions and is also subject to availability crises due to the lack of iron ore and scrap (the price of which has increased considerably in recent years).

From an interview with Flavio Bregant, general director of Federacciai, it emerged that in the last year and a half all countries have suffered a reduction in GDP with a consequent drop in steel production. An anomalous situation in this context is represented by China, which alone has more than half of the world steel industry and in this period has increased its production by 7%.

Another reason for higher prices is the way in which steel is produced, either from iron ore or from scrap. In China, as well as in most of Europe, production comes mainly from iron ore, driving up production costs. In Italy, on the other hand, 80% of production derives from scrap processed in electric furnaces, which is allowing for a recovery, even if the costs are still very high. This type of production also suffers from a problem deriving from the tensions on scrap due to the Green New Deal with which Europe wants to proceed with a procedure of decarbonisation of production. This measure implies an increase in the demand for scrap to which countries such as China, Russia and Ukraine are responding by imposing very heavy duties on this type of export.

It should also be borne in mind that the production chain is made up of a long series of players who are often tied to fixed contracts and are therefore unable to adjust prices to market trends with consequent erosion of profit margins.

In spite of everything, there are also positive data, such as the fact that the production level in our country reaches the maximum capacity currently available.

In view of all this, our company has been able to cope with production needs in a prompt and organized way by continuing to purchase materials and investing in warehouse stocks. This has however led to costs for maintenance and storage, but at least has allowed us to ensure a prompt response to the production needs of our customers.

Posted on 28 Jul 2021

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