・The main factor driving up raw material prices is the extreme imbalance between supply and demand. The global container shortage is likely to last until 2022.

・Raw material prices forecast to remain high for the reset of 2021.

・While lockdown is being lifted across Europe, India is hit by serious second waves. This may cause delays in their infrastructure construction projects and have a further impact on global supply chain.


The past year has transformed nearly every aspect of our lives. COVID-19 pandemic has created a global health crisis and had direct impacts on global economic activity for both consumers and manufacturers. As a manufacturer, we’ve been witness to the implications on production, demand and supply chains since the spring of 2020. There’s no doubt, the rising cost of raw materials and unstable supply are main concerns in the manufacturing industries
What’s causing price increases and shortage of raw materials? There are a lot of different factors contributing to this issue, but the primary reason is the imbalance between supply and demand in the global supply chain which pushes the raw material prices to new highs since the start of the pandemic.

In May 2021, the copper price hits $10,000 per tonne for the first time in 10 years, and CME lumber futures price reached almost $1700 per mbf. Global pulp price has increased by 55% and seems to continue to rise. The oil price has risen by 70 percent, hitting $70 per barrel since November 2020. And so too are plastics, the U.S. export prices of PVC have nearly doubled to a record high of $1,775 per tonne over the past year and the prices of other plastics materials also increased by 20% to 50%.

To better understand what is driving up the cost of many raw materials, below we break down key changes in supply and demand in the global market which are responsible for a general rise in raw material prices from the start of the pandemic until now.


Shortage and Delay in Materials Supply

1.Reduction in productivity – Some factories have to close or reduce workforce to cope with the lockdown policies which leads to a fall in raw material supply.
2.Shipping container shortage – Many containers are stuck in ports without a workforce to process them which makes it difficult to book container space. This has led to the limitations on volumes that could be loaded, the increase in shipping costs and months-long shipment delays. And there is another incident worsening the container shortage and intensifying shipping delays. In March 2021, Egypt’s Suez Canal was blocked for six days by Ever Given, a massive container ship. The blocking of the canal led to major disruption for the global shipping industry. Even though the ship stuck in the canal has been set free, experts from Association for Supply Chain Management warn that the impacts from the shutdown of one of the world’s busiest waterways could last months.

The satellite captured this view of the Ever Given container ship stuck in the Suez Canal. Credit: Satellite image ©2021 Maxar Technologies.

3.Unexpected natural disasters in Texas, USA – Plastics plants in Texas have to suspend production due to the recent winter storm which caused up to 85% of U.S. production capacity of 3 of the most widely used plastic polymers in the world (PE, PP and PVC) has temporarily been disrupted.


4.New government policies in each country 
・OPEC extended oil production cuts into April 2021 and will gradually ease production cuts from May. This increased the prices of plastic materials derived from crude oil.
・Following the enforcement of environmental laws in China, calcium carbide-based PVC plants will gradually be shut down by Chinese government which accounts for 80% of China’s PVC production capacity.
・China has banned imports of waste paper on January 1, 2021. During the transition period as factories adjust to new waste paper sources, packaging material prices will rise and so does the price of cardboard boxes.


Surging Demand for Certain Products Driven by Pandemic & Lockdown

1.Rapid rise in the demand for medical plastics – The pandemic has caused a dramatic surge in demand for personal protective equipment (PPE) worldwide, including face masks, gloves, shields, head covers, shoe covers, and protective gowns. This, in return, is driving the demand for plastics since PVC, PE, PP, PS, PMMA, and EVA are commonly-used plastics in the production of PPE.

2.Pandemic home renovation trends in USA – COVID-19 lockdown has caused a spike in home remodeling and lower mortgage rates encourage home buying which drives construction demand of new homes in the U.S. Both are key factors to higher demand for lumber.
3.Recovery of consumption as lockdown rules ease – As one year of lockdown since 2020 and more people are now vaccinated, UK and many European countries are in the process of gradually lifting current restrictions. According to Kiplinger’s latest forecast on retail sales and consumer spending in May 2021, retail sales should rise 18% this year, and 8.6% for all consumer spending which is likely to boost yearly GDP growth to 6.6% at least.
4.New government policies in each country
.U.S. federal government responded to the COVID-19 pandemic with several massive relief packages. The latest $1.9 trillion relief package includes a $1400 stimulus check per person which will be sent to 30 million people, hoping to give a bigger boost to low-income Americans and U.S. consumer spending. According to a study by the New York Federal Reserve, households that received stimulus checks plan to spend 24.7% of it on consumption and will use the rest to either pay down debt or increase savings.

.China targets its solar and wind power generation to 11% of total electricity use in 2021 and reaches 16.5% of the power mix by 2025. The Chinese government has been encouraging solar panel installation which has led to a surge in demand for solar panels and EVA for production.
.To lead the post pandemic economic recovery, many countries have unveiled different construction and infrastructure plans since last year, including the UK, China, India, America, France, etc. This significantly increases the demand for copper and other base metals. According to a report from the Ministry of Statistics and Programme Implementation in January 2021, of the 1,687 such projects, 450 reported cost overruns and 558 were delayed. The average time overrun in these 558 delayed projects is 45 months. The report also cited state-wise lockdown due to COVID-19 as a reason for delay in implementation of these projects. However, India has been hit by a huge second coronavirus wave recently which may drive up more project delays.

The COVID-19 pandemic has long-term and far-reaching impacts on manufacturing industries. Supply shortages and excess demand are leading to higher prices of many raw materials, and there’s certainly no sign yet of any price decline for the next 3 months. According to a new survey from the Construction Products Association (CPA), inflation in raw materials will continue to push up prices for the rest of 2021. The supply of raw materials and components still remains a primary concern for most manufacturers, reflecting global supply issues for copper, lumber, pulp, plastics and other items. In the latest ISM (The Institute for Supply Management) report, it indicates that raw materials prices increased for the 11th consecutive month and the average lead time for production materials increased in April by four days to 79 days. The serious imbalance between supply and demand of raw materials not only impacts the operations and financial stability of manufacturers but also their supplier relationship management ability to secure a continuous supply of raw materials, and most importantly, to ensure a stable production by following the existing production schedule.