A critical update on how shifting global market conditions are affecting us:
Raw Material Costs Hit Record High, Resulting in Sharp Price Increases
Raw Materials Costs & Shortages (updated: 22 March 2022)
As a manufacturer of end products, Elmich is positioned at the end of a long supply chain. Critical changes to those situated high up, beginning right from the raw materials stage, have a ripple effect that gets passed on down to affect stakeholders further along the supply chain.
Global market events and disruptions have forced the prices of raw materials such as plastic and steel to be at record high levels. These significantly higher costs as well as other resulting effects are then passed on downwards.
i. Covid-19 brought about a surge in demand for plastic products such as healthcare and medical equipment and food packaging, increasing the demand for their main factor of production: plastic
ii. The supply of plastic, however, is at a shortage recently as a result of numerous force majeure declarations by the US and European plastic producers, where they no longer have to meet production commitments due to uncontrollable circumstances.
As the US and Europe are some of the largest plastic-producing countries, this has led to drastically elevated prices of plastic and low output levels by plastic product manufacturers globally.
Freight Costs & Delays (updated: 22 March 2022)
i. Global container shortage, Increased freight costs, and delays
The pandemic has also led to a global container shortage, resulting in increased freight costs and delays. Besides directly impacting the costs of our logistics operations, this crisis also increases the costs at various stages of the supply chain which are compounded and passed on further.
ii. Coal supply drops, Prices surge, Delay in delivery time
In late 2020, China stopped purchasing coal from Australia. China’s cold weather drove up demand for coal. Thermal coal (i.e. primary fuel for electricity production) saw prices soar by more than 40% over 12 months in December 2020. Some authorities in China are ordering power restrictions, as such, there were sudden outages in many parts of northeast China. This resulted in delays in the delivery of products.
Supply Chain Disruptions Due to Russia – Ukraine Conflict (updated: 22 March 2022)
i. Land-based trade routes between Asia and Europe will be disrupted as transit through Russia becomes more difficult (or impossible from compliance, reputational, or safety perspective).
ii. Air ties between Russia and Europe (and, in turn, Asia and Europe) will be severely hampered following the decision of EU countries to close their airspace to Russian aircraft and cargo (and Russia’s reciprocal measure to close its own airspace to European planes). Airfreight costs may increase as airlines are forced to change their air routes to avoid the areas affected by the war.
iii. Sea freight routes through the Black Sea will be cancelled for several weeks following Ukraine’s decision to shut down commercial shipping and Turkey’s move to restrict transit through the Bosphorus.
The Ukraine Crisis Could Lead to Higher Resin Prices (updated: 22 March 2022)
In reaction to Russia’s military invasion into Ukraine, global financial markets plummeted and commodities prices rose on 23 February 2022.
As of 24 February, the price of West Texas Intermediate crude had risen about 6% to more than $97 a barrel. Natural gas prices in the United States also increased by about 3% to more than $4.60 per million British thermal units (BTU).
Higher oil and gas prices could have a macro impact on resin prices (i.e. Polyolefin prices in Asia are highly correlated with oil prices – As oil prices go up, polyolefin prices in Asia will go up)