The challenges of industrial manufacturers during post-Covid recovery

Raw material prices, starting from the end of 2020, have quickly increased during 2021 with a trend never seen before and, in addition to this, industrial manufacturers are facing severe challenges due to suppliers’ weak delivery times and availability. 

Oil prices have increased more than 50% since the end of 2020, and prices of other commodities have registered a double-digit increase spanning from 10% up to 40%, if not more. Even if oil prices now seem to recover, industrial manufacturers had to face rising energy cost for production, mainly during the first months of the pandemic. 

Raw material prices have risen steeply for metals. Iron, from which steel is produced, but also copper, aluminum, noble metals, and steels are showing significant increase. 

Among the reasons there is certainly the fact that the supply of certain materials has been scarce, as many parties reduced their production during the pandemic, and material stock have quickly reduced as consequence; shortages of many products have caused manufacturers to cut down production, leaving them in trouble at the time to rebuild stocks to meet new demand. The impact was felt hard in certain industries, including chemicals, metals, mining, automotive, basic materials as the prices of raw material imposed higher burden cost on manufacturing. 

The economic recovery in China, well ahead the recovery in Europe, generated a sound demand for raw materials for manufacturing which stressed the supply chains globally, and the situation has not been favored by limited availability and cost increase in shipping containers which has driven increasing transportation costs more or less everywhere. 

The negative consequences of raw material shortages and price increase have seriously also impacted the production of plastic products where, in the EU for example, polyethylene and polypropylene prices have risen above 20%. 

Production has started to re-increase recently, after the drop due to Covid and related lockdown measures, but the supply of raw material has not yet grown accordingly. 

Furthermore, manufacturers are sometimes passing higher costs to their customers, resulting in more expensive manufacturing goods.  

Industrial Producer Prices in the Euro Area (EU) in July 2021, compared to July 2020, increased by 28.3 % in the energy sector and by 13.1 % for intermediate goods as shown by Eurostat (*), with all the main industrial countries (including Germany, Italy, France, Spain, Poland, the Netherlands) being impacted by significant increases. 

The outlook for the future is positive but still uncertain, and this is posing questions about how quick will be the reprise of the different economic activities globally, but also which will be the effect on the industry because of the pandemic. 

GMM Pfaudler Group, like other manufacturers in the industrial value chain, is facing challenges resulting from the cost increase of raw material, energy and shipping. We, as a Group with a global manufacturing footprint, are working since the beginning of the pandemic to keep production running in all our manufacturing sites with stable supply chains; due to the exceptional nature of the situation our prices will be impacted, and this besides all the initiatives currently in place to mitigate the mentioned cost increases.

(*) Eurostat Euroindicators (Industrial producer prices in EU and in the euro area; August and September 2021 reports)