For the past year or year and half, the metal prices have been relentlessly or even violently rising. The price increases are attributed to rapid recovery in consumer spending following the ease of pandemic lock down which triggers the wake of manufacturing capacity demand.
According to Financial Times, U.S. consumer alone have saved up about $5.4 trillion during the pandemic lock down which starts to flow back into the market as vaccines have rolled out and consumer sentiment improved.
The Damage Is Already Done
Although we are seeing signs of ease on the Covid-19 pandemic, the lockdown has caused serious woes to global supply chain on metals and other raw materials. United States adding anti-dumping tariff on 10 aluminum supplying countries earlier this year also serve as a major push on the shortage and price hikes. Meanwhile, aluminum flat rolled countervailing duties was also added within EU. As a result, aluminum supplies have really become scarce into the European territory.
Global logistic capacity constrains and shipping costs increases also further drives up the raw material costs. All logistic routes have either been overbooked for the next quarter or experiencing serious delay, no matter you are looking at air cargo, sea freight, long haul truck, or train. For the last 12 months, we have seen 300% increase on freight rates in some cases, and that’s if you can even get a booking at all.
The delays and price hikes among logistics are showing very minor sign of ease in some cases. For example, a 40-foot container shipping from China to Europe would cost roughly $5,000, down from almost $10,000 just 3 month ago. However, we are not suggesting further decline on shipping demands and rates soon.
Acquiring raw materials for production continues to be the greatest challenge for all manufacturers. Aluminum, copper, steal, and other metals continue to be highly scarce, and they have been predicted to show even greater price increase for the rest of the year or even into 2022. Everyone is also seeing the same thing among higher end components such as semiconductors, transformer, resistor, and etc.
The worldwide shortages on raw materials and components have caused idled production lines which increases the cost of doing business for manufacturers as they are unable to reach their economy of scale which also shows direct impact on general consumers and the retail prices also show signs of increases.
Major automakers, including but not limited to, Honda, Toyota, Mercedes, Volkswagen, and etc are unable to meet their demand since the automaker, since cars today are become more and more advanced in technology which requires good number of high-end components like semiconductors besides just metals.
Foreseeable Impact & How Manufacturers Should Respond
I believe that the raw material shortage will remain throughout the year and even into the first half of 2022, meaning we will continue to see price hikes on metals. The magnitude of the price increase might ease on some of the metals such as aluminum and steel, but it would be unrealistic to expect any significant price decline on them if you can even find them at all. As a manufacturer, Hi-Pro refresh and re-analyze our forecast and inventory plans, then adjust its procurement and production strategy accordingly. Our procurement team at Hi-Pro continue to explore strategic options to achieve 2 objectives: secure material and protect product gross margin by buying early and stock up.