top of page

What do we know about the raw material crisis

More than two years of the pandemic had already dealt a severe blow to the supply situation of raw materials. But then the war came to mess up the plans of entrepreneurs, companies and consumers. Here is what we know today, small certainties in a constantly changing situation.

A two-year stop to production field, struggling to restart, involving sectors such as automotive, consumer electronics, industry and agriculture.

And now the difficulty in finding materials to be allocated to the agri-food and energy sector. The curse doesn't seem to end. What lies ahead?

Stock up

At the beginning of 2022, everything seemed clear.

Companies, which had been hanging by a thread for more than two years, were breathing again. The luckiest ones increased production, prepared for a boom that would put them back on track with the pre-pandemic state and, at best, set them back towards fruitful growth.

But soon an undeniable reality had to be dealt with. Countries producing raw materials and components had been heavily hit by Covid and were trying in every way to return to previous production levels, with poor results. Paper, plastic, wood, microchips.

China’s import of semiconductors, essential for the life of any electronic device, saw a real surge in 2021, reaching $ 432 billion. And then copper, steel, iron. There was not enough stock, nor supplies that could satisfy the ever-increasing demand.

The consequences? Logistics haywire, exponential increase in prices, an increasingly frantic race to fulfill orders and maintain scheduled delivery times. At the end of 2021 the price of cotton had increased by 104% compared to the same period in 2020, paper had reached an increase of 70%. The images released recently also suggest the cargo ships stopped outside Chinese ports waiting to be able to load the goods, but unable to enter due to the new pandemic spread that has given rise to a new, very tight lock down in China.

And when it seemed like that the worst was over, the pandemic was opening the door to way to more.

The conflict

The pandemic had paved the way for a progressive process of de-globalization which had seen the balance and geopolitical dynamics to which we were used, to change abruptly. The gradual spread of a way of survival pushes players in the international logistics and industry to make decisions with uncertain consequences, due to the state of great uncertainty and the impossibility of making realistic forecasts.

In addition to the blocking of production in strategic areas, such as that of wheat, barley and corn in Ukraine, the sanctions imposed on Russia also weigh heavily, binding a series of supply operations, with a consequent enormous increase in prices. After the Russian invasion, the London Metals Exchange froze nickel prices, oil prices skyrocketed and wheat rose more than 60%.

Russia and Ukraine supply over 25% of the world's wheat. However, with Kiev already shipping two-thirds of its expected exports by November last year, the short-term impact is expected to be limited even as strong concerns remain for the upcoming season and the impact a prolonged war will have on the availability of laborers. agricultural.

Raw material

Specifically, wheat is one of the most important food reserves in the world, while the other is rice. Both of these matters are the basis of the livelihoods of populations in emerging economies, which, bent by the increase in interest rates by the Federal Reserve, are involved in a significant increase in debt service costs.

Russia produces 20% of class 1 nickel, which is extremely pure and essential for the production of stainless steel and electric batteries. The surge in prices and its difficult to find have now made it a rare commodity, like Palladium, an element used in the automotive and electronic sectors, but not only. Russia also supplies Europe with natural gas and of course oil.

The progress of the conflict and the sanctions have put a strain on supplies with consequent spikes in costs with consequent increases in prices in sectors such as transport, refineries and industry.

What we are facing

A study by Cerved on the predictions of the consequences of recent events is perplexing precisely because of the state of great uncertainty.

Of course, it could go well, with a conflict that is resolved by the summer, the continuation of global vaccination campaigns with a consequent return to normality, a constant, slow increase in GDP and a gradual return of sanctions against Russia.

In the worst case, however, the study shows that if the conflict were to persist, projecting consequences even in 2023, we would see a constant increase in the costs of raw materials. Part of the cause lies in the non-resolution of the supply of raw materials and an increasing de-globalization with protective and restrictive national monetary policies.

The International Monetary Fund, in its World economic outlook report, represents the conflict as a system of seismic waves, conveyed by globalization, which will strike with greater power precisely on the growing economies, the same producers of many of the raw materials from which we too benefit , which will soon no longer be able to pay the debts undertaken to tackle the pandemic crisis. The impact will be slow, but it will hit importing economies like an ax, with decades-long consequences. Economies such as Sri Lanka, Egypt and Tunisia, which seem geographically remote from the conflict, may be the first to pay the costs of the World Bank's fear of a domino effect that will affect individual state insolvencies. An economic crisis that starts from within, but which could spread like wildfire due to the increase in the prices of imports from these countries.

Everything, in this moment, is transforming.

And it helps, once you are aware of the transformation taking place, to be proactive and anticipate the consequences wisely. Reflect on the condition of your production situation, and act in advance, investing in retrofit, implementation and growth. At this moment everything is still possible, but the risk of being left behind exists. The upgrade of equipment and strategy will reward the most far-sighted players who have chosen the implementation even in a time of crisis. As Ken Poirot said "Right now is the best time to create your tomorrow."


bottom of page