Raw materials on a rollercoaster ride
Transport prices are skyrocketing along with raw materials with inevitable repercussions on producers' price lists. The trend may be easing a little, but forecasts remain uncertain. We spoke about this with Fabio Bertolotti, director of Assogomma
About a year ago, six months after the start of the pandemic, every productive sector, more or less affected by a lockdown, wondered what the medium-and-long term consequences of this sudden halt to normal business practices would be. Now several elements are beginning to emerge, and the pandemic is showing the effects of its "long tail" with repercussions that are far more long-lasting than one might initially have hoped - as is inevitable in a globalized economy such as ours. Tire dealers and distributors, for example, just under a year ago complained of having to pay an increasingly higher bill for overseas transport costs, experiencing first-hand the global shipping crisis. As a matter of fact, last year shipowners have increased freight rates to an unprecedented extent, exceeding 600% in some cases. Not to mention raw materials! Starting with natural and synthetic rubber, both of which soared by double digits in just a few months in 2021 following the price hike already experienced in 2020, due to a drop in supplies following the pandemic, the huge strategic acquisitions made by China and, not to be overlooked, speculative investments aimed at exploiting market fluctuations. Clearly this applies to all raw materials involved in the tire industry. As an inevitable consequence, tire manufacturers and retreaders have announced significant increases in their price lists, in some cases even going so far as to announce several consecutive steps upward given the continuous escalation of supply costs.
In an attempt to monitor these developments, in January, March and May of 2021, Assogomma conducted several internal surveys among its member companies, taking a snapshot of the situation from the point of view of Italian manufacturing companies in relation to this complex scenario. We spoke about it with the director, Fabio Bertolotti.
For several months now, the supply of rubber and other raw materials needed by the industry has been plagued by innumerable issues. How are your member companies faring in all this?
Certainly, the rubber industries associated with Assogomma, which represent over 80% of the national production in the sector, have been experiencing all sorts of problems related to the supply of raw materials since last October. We mean that it is not just a matter of prices, which have gone through the roof, but also of the availability of materials and delivery lead times, besides other more general problems linked to logistics.
What are the root causes of these price hikes? What are the latest trends compared to the beginning of the year, and what are the forecasts for the coming months?
Prices have been going up for a variety of reasons including long periods of inactivity by some of the largest vehicle manufacturers. China, which restarted its production well in advance compared to the rest of the world, was able to benefit from a competitive advantage by purchasing raw materials with scheduled orders and effectively taking them away from others in the following phase. All this has generated a grabbing contest in order to restore stocks that are now at minimum levels. As for forecasts, it is difficult to give any certain indication. However, the current trends in raw material prices and their availability is expected to continue with a cooling down around September, and a possible reversal in the last quarter of the current year. This, however, is not expected to extend into 2022, which is still predicted to have higher raw material prices.
In addition to the issue of prices, there is a lot of talk about shortages and delays in deliveries: what feedback have you received on these issues? Are there companies that that might have to stop production?
In a recent internal survey, all our members have confirmed generalized phenomena of raw material shortages, delivery delays and soaring prices; even twice as high as those applied last December 2020. Production stoppages cannot be ruled out, even though they should not occur unless there are contextual problems with plant maintenance on the part of raw material producers.
For months now, tire dealers have also been experiencing higher cost of transportation and logistics in general. What has been the percentage increase there?
There is no doubt that the cost of transport and logistics in general has risen by two/three and even more times compared to the pre-Covid scenario. This is not typical of the rubber industry, rather it is a generalized phenomenon for all industries including ours and inevitably has an impact on prices.
Faced with unpredictable price variations, the choice seems to be between squeezing margins and passing on the higher prices to customers. How are the companies reacting?
Our companies are trying to make their customers understand that the higher prices they are charging are not justified by the will to recover margins, rather this is at attempt not to lose them. At a moment when the automotive market is struggling, accepting a revision of the conditions becomes problematic, but inevitable. The survey conducted among our associates shows that in most cases, it was possible to transfer part of the higher costs incurred. In some cases, even that was not possible.
Assogomma counts among its members producers of various types of products. In this critical scenario, are there any issues that specifically concern the tire industry? What are and what will be the repercussions on the tire industry in the coming months?
Tires, like other rubber products, are obviously affected by these issues, perhaps at different times or in different ways. From several press releases we understand that there is now a well-established general upward trend in all tire prices.