Manufacturers Across Europe Expect Continued High Growth in Key Raw Material Prices

The high growth in key raw material prices faced by the manufacturing industry across Europe and the world is a result of high demand growth this year, following depleted inventories and reduced production due to the Covid-19 pandemic worldwide, as well as extreme weather conditions and supply disruptions, such as the blockage of the Suez Canal and the blockade of one of the largest transport ports in China. Key raw material prices have risen by an average of 30 percent from autumn 2020 to early 2021 and then an additional over 20 percent last year, while secondary raw material prices have at times increased by up to 65 percent. This is particularly true for the prices of wood, steel, plastic, gas, and methanol.

A study by the consulting firm Horváth, an international independent consulting firm with over 1000 employees and offices in Germany, Austria, Switzerland, Hungary, Romania, the USA, Saudi Arabia, and the UAE, conducted on over 1000 managers in the manufacturing industry across 12 European markets, showed that managers expect continued price growth in the next year, at double-digit rates. This is a result of depleted warehouses, limited supply, and continuously high demand, which will affect the market in the medium term. The situation is further determined by extreme weather conditions, infrastructure disruptions, the situation in financial markets, trade conflicts, and logistical problems. The study was conducted from March to July, and the expectations for price growth by the end of the year have been confirmed, along with the establishment of trends at the beginning and continuation of 2022.

– Every two to three days, raw material prices increase, and this is particularly pronounced in wood prices. The trend is dictated by the markets of North America and China, where raw material prices are still a third higher than those in Europe. We expect this trend to continue into early 2022. The situation increasingly negatively affects European manufacturers, especially smaller companies that, despite increased demand, cannot access the necessary raw materials and cannot keep up with price increases –  said Maria Andreea Boldor-Flitan from the consulting firm Horváth.

Horváth suggests that manufacturers adopt intelligent price management strategies, through negotiating prices based on forward price indices, while they should control the effects through controlling. Consultants also propose three rules for price alignment. The first is that increases should be targeted and systematically planned. Second, price increases should be differentiated and selectively passed on to customers, for example, according to market segment, distribution channel, or product group. Third, early and transparent communication with customers is necessary, along with monitoring customer feedback, as well as a plan for rapid countermeasures in the event of pronounced negative feedback from key customers.