The prices of agricultural raw materials have been steadily rising since last year, in large part due to the impact of the coronavirus pandemic. That impact saw supply chain shortages and material shortages as well, both of which contributed to increased demand and higher prices across the board.
Experts project that trend to continue into the end of 2021 until finally stabilizing sometime next year. In the meantime, commodities buyers can expect to continue to pay relatively steep prices for most raw materials.
Who Absorbs the Extra Cost?
These steep prices have put many manufacturers in an uncomfortable economic position. The increased costs must be accounted for somehow. If the price increases are temporary, it might be possible for manufacturers to absorb those extra costs until more stabilized prices prevail.
On the other hand, if these increases remain in effect for a prolonged period, businesses must find some method of reducing internal costs or perhaps passing along the price increases to consumers of finished goods.
None of these are desirable solutions since no company wants to expose itself to potential losses, nor are consumers in the frame of mind to pay even more for goods that have already been increasing in price.
Companies that hope to ride things out until stabilization occurs are in jeopardy of being swallowed up by changing market conditions. In contrast, those businesses that adapt to the changing conditions are more likely to survive and prosper in the new economic landscape.
In the present climate, companies have to devise effective strategies to adapt to new marketing conditions instead of hoping for the best in the future.
How Much Have Raw Materials Risen?
As recovery from the coronavirus proceeds, increased demand for steel has caused prices to soar for that commodity. Demand may trigger record prices for hot-rolled coil steel, used extensively in the automotive and construction industries.
Prices are already at $900 per short ton, and that benchmark is likely to be surpassed in the coming months. When that happens, consumers can expect the cost of many finished goods to increase since the raw material costs must be accounted for somehow.
Cotton prices have increased 35% above their 2020 levels, and these prices appear poised to rise even more. These increased costs reflect the anticipated demand for cotton all around the globe in the wake of recovery from coronavirus.
It’s also true that global production has dropped back a full 7%, contributing to the increased demand and higher prices. All this has resulted in prices averaging in the neighborhood of 21% more than last year.
Natural rubber is in the midst of a strong recovery from the coronavirus pandemic, and prices have soared by as much as 70% in response to greater demand, primarily from the auto industry.
Since two-thirds of natural rubber is used in the production of vehicle tires, the increase in demand for automobiles has triggered a considerable rise in demand for natural rubber. Overall, experts predict that natural rubber prices will remain about 30% higher in 2021 than last year before finally stabilizing in 2022.
Will Prices Actually Stabilize in 2022?
According to the World Commodity Forecasts for Industrial Raw Materials, prices will indeed stabilize by 2022. There has been a staggered increase in demand for raw materials globally as countries emerge from the impact of the pandemic.
With recovery having set in around the world by next year, experts predict that the surge in demand for raw materials will subside and drop back to more normal levels. As a leveling effect takes hold, global economic growth and the demand for raw materials are expected to resume former levels.
Many supply chain constraints should also have eased by then, contributing to the smoother flow of goods up and down supply chains. Those businesses attempting to ride out the storm on increased pricing of raw materials thus have a reason for optimism during the coming fiscal year.
Solutions for Sustainability and Resource Conservation
In the larger sense, companies that have been impacted the most by the increased cost of raw materials may be well advised to take a long-term approach to managing price increases. While some initial investment will be necessary, it may be financially rewarding to implement programs that feature waste minimization technologies and programs.
After the initial investment, there will likely be some significant savings on raw materials, which can be an essential economic factor for companies. Sustainability is another critical factor in reducing costs and ensuring an ongoing supply of raw materials for now and the future.
Some forward-thinking companies have already invested heavily in recycling strategies, re-engineered product life cycles, and a whole slew of innovative new products which meet the consumer demand for green products which do not significantly deplete earth’s resources.
In some cases, businesses have partnered with the government to create supply frameworks that facilitate ease of delivery and relieve pressure on supply chains.
There are even situations where long-time rivals or competitors have formed alliances to stabilize the sourcing of raw materials and gain cost efficiencies by volume so that both can better manage the long-term pricing of raw materials.
Given that current projections indicate there will be nearly a 50% increase in demand for raw materials and finished goods in less than 20 years, it behooves all companies to begin thinking about the future availability of raw materials and position themselves for commerce in the future business landscape.
Comprehensive HVAC Services from Design Mechanical
Design Mechanical is one of the premier mechanical service and commercial HVAC repair companies in the Kansas City area. If your business’s air conditioner is experiencing issues, or you want to have it checked for leaks, you can count on us to get the job done in a reliable and timely manner.