Pressures on the Global Raw Material Market

Latest News Calendar Date 18/05/2022
Pressures on the Global Raw Material Market

Like us, many businesses are continuing to feel the strain of these energy and raw material price increases and the impacts that has on customers.

It will come as no surprise as everyone can see energy, food and fuel prices increase, and the impact of this is felt across the world.   

The Organisation for Economic Co-operation and Development said

"changes in the trade structure caused by the COVID-19 pandemic in a single year were similar to changes otherwise typically seen over 4-5 years."

Analyst/Economic Modeller, Christine ARRIOLA

 When the pandemic began in 2020, there was an expectation that trade would significantly reduce in all industries worldwide. However, this was not the case, and the recovery came much faster and in higher volumes than expected. Global trade volume recovered to pre-pandemic levels almost immediately from around mid-2020. Effects of this impacted different sectors in varying ways, some worse than others.   

From a global trade perspective, the recovery was so fast and continued to grow beyond the average trend that industries struggled to keep up with demand. Still, everything that came with this demand meant other supply chains had to catch up. Predictions of increasing raw material prices became a reality, and even now, the personal care industry and many other industries still feel the effects of this.   

Img

A clear parallel would be the automotive market, specifically cars. At the start of the pandemic, as many countries went into lockdown, there was a significant reduction in car use and car purchases. The demand for new vehicles slumped, and manufacturing decreased. When countries came out of lockdown and began to recover, there was a surge in car purchases. Demand increased, but the original supply ground to a halt meaning a backlog, long lead times and increased retail prices. Along with this came other challenges, computer chips were suddenly in high demand, but production could not increase any further. The result essentially meant customers were waiting months, if not years, for their new car. As demand surged and car parts became harder to source, prices increased. The knock-on effect was the second-hand car market boomed. 

We've given a snapshot of a much bigger picture, giving some context on why market prices continue to increase. To understand the effect on the Personal Care market, we need to understand how this has specifically affected the raw materials we use to make our products.   

Raw materials in demand but in short supply  

It's worth mentioning that when the demand for materials increases (for whatever reason), alternatives often become desirable. As a result, prices begin to rise, creating price surges.

Glycerine  

European markets saw a decrease in Glycerine availability, a by-product of the production of Biodiesel. This was due to a European regulation change that has seen an increase in more environmentally friendly Hydrotreated Vegetable Oil (HVO) Biodiesel production and a decrease in Biodiesel.
Source, Greenea.com, Is HVO the holy grail of the world biodiesel market?

Sunflower Oil  

Ukraine is the world's largest supplier of sunflower oil. As a result of the Russian invasion, supply has been drastically hit, and concerns for future supply have meant a significant increase in demand. As manufacturers scramble for supply, other vegetable oils (such as Rapeseed oil) have increased in price. Along with Sunflower oil, Wheat & Corn harvested from Ukraine have seen a decline in production, which has impacted the supply of Sorbitol, a derivative of these crops. We don’t know what the future holds here, but the knock-on effect from this situation could influence the next few years supply and price.
Source, Chartered Institute of Procurement & Supply (CIPS), Soaring sunflower oil prices leave crisp makers scrambling for alternatives 

Palm Oil  

On the 28th of April, the Indonesian government imposed an export ban on Palm Oil. Food shortages across the country meant the supply of Palm Oil would be used for domestic use only. With demand for alternative vegetable oils already rising, the ban on Palm Oil exports has come at a really bad time and will impact the food and personal care industry. The ban is due to be lifted on the 24th of May bringing welcome relief to the global market.
Source, Guardian, Indonesia’s palm oil export ban sparks concern over global food prices 
Source, Bloomberg, Indonesia Lifts Palm Oil Export Ban in Relief to Global Market

Img

Energy  

As the supply of crude oil and natural gas moves away from Russia, the price for both raw materials is at a 10 year high which has a knock-on effect on manufacturing, transport and packaging costs. 
Source, International Energy Agency, What is behind soaring energy prices and what happens next? 

Transport  

With a shortage of containers and drivers, the transport industry struggles to recover. Ports are yet to recover from the pandemic, and the backlog created as countries came out of lockdown and the increase in global trade has meant the demand for shipping has continued to surge. As a result, container availability and shipping are both timely and expensive. 
Source, Supply Chain Dive, ‘Every ship is full’: Ocean issues expected to continue through 2023 

Img

Our top priority continues to be maintaining supply to you, as part of our Never out of stock strategy. The world supply chain continues to fluctuate, but it's our number 1 focus to maintain a consistent supply of products.  

To maintain production and delivery, we will continue to collaborate closely with our customers and distribution partners.  

If you would like to know any more on these topics or to discuss your upcoming needs, please speak to your Stephenson contact. 

Tagged in:
Supply Chain Stephenson Trendscovid Supply Chain Manufacturing
share
Timothy Pulleyn
Timothy Pulleyn Customer & Market Insights manager

Tim uses data and trends from the likes of Mintel and other market-leading research companies to understand where brands should focus on future new product development.