The Impact of the Rising Cost of Raw Materials
Raw materials – they’re the key ingredient for almost everything you buy today from printer ink to new cars to docks.
Typically, manufacturers place orders for the raw materials necessary for their products months in advance, and sometimes, they’re locked in at a contract price.
If anything changes in the market, though, suppliers must often increase that price, and it’s up to the manufacturer to find a way to deal with the added cost. Over the past year, raw materials prices have increased across the board, and there are few products now that aren’t seeing the impact of the raw materials cost increase.
Why the Increase Happened
In the early months of the COVID-19 pandemic, demand for many of the most common raw materials fell sharply. With manufacturers across the globe shutting down and many obeying worldwide stay-at-home orders, the decline was a fairly natural one.
Unfortunately, it came with unintended consequences. Those early decreases in products pushed raw material suppliers to change their business models, and because of that change, raw material production fell as well.
The global market, however, came back strong, and many raw material suppliers were unable to increase production fast enough. Oil prices recovered in the fall and have since risen nearly 60%.
Global shipping containers began to suffer shortages, restricting the ability to ship materials from place to place, and new tariffs went into place across the world. It was a convergence of trends that pushed the price of raw materials much higher than anyone expected, and the result now, though, has been a complete surprise to nearly everyone – a raw materials price increase of proportions few have seen in the past.
The Consequences for Consumers
For many consumers, the raw materials cost increase will have one major consequence – higher prices on almost everything.
From cars to home improvement projects, higher raw materials costs mean higher manufacturing costs and consumers will not only face shortages of the products they want most, but also a higher cost for those products.
Will The Cost of Raw Materials Go Back Down?
While the outlook for rising raw materials costs is certainly high at the moment, it will absolutely level off at some point.
Over the next year or so, it will begin to go back down, and consumers will see the prices for things like waterfront docks that they did before COVID-19. Until raw materials costs begin to decrease, most can expect to pay higher prices for almost everything.