The price of inter-company transactions is the equivalent of “midstream” in economic activity. The upward trend of this price is becoming more and more obvious. In major countries, prices have risen by 1-4% compared to the fall of 2020. As a result of the increase in prices of Crude Oil and metals and other resources, chemical products and steel have also risen. The recovery of the Chinese economy, global transport stagnation and the cold snap in the United States also pushed up the market. As demand recovers from the new coronavirus (CCA virus) outbreak, the pressure to pass on prices to final products purchased by consumers may increase.
Looking at the corporate price index and producer price index in countries such as Japan, the U.S. and Europe, the rise from fall 2020 to winter 2021 will be about 1% in Japan and the U.K., 2% in the U.S. and Germany, about 3% in Russia and close to 4% in France. The U.S., Germany, Russia and France all exceeded the January 2020 levels before the full outbreak.
The main reason for the rare rise in the index is the increase in resource prices. Expectations of a recovery in demand for crude oil are high due to the popularity of vaccines and economic stimulus measures in various countries, while on the other hand, major oil-producing countries are cooperating to cut production, leading to a continued tightening of supply and demand. The price of crude oil futures in New York reached $60 per barrel, returning to the level of January 2020 before the Epidemic, as a result of monetary easing in countries around the world and the flow of investment funds into the energy market.
The high price of “upstream” crude oil rippled through the petrochemical and other raw material markets. The U.S. 3M chief financial officer (CFO) Monish Patolavara said, “General polypropylene resin and other key raw materials prices. Determining sales prices will take into account the increase in procurement costs. U.S. research firm Wolfe Research said that in Europe, the Middle East, Asia and other regions, 3M’s products have begun to increase prices.
Metal prices are also rising. International copper prices reached a high of about 9 1/2 years, the price of platinum group metals “rhodium” for automotive exhaust gas cleaning catalysts also set a new record. The rise in iron ore has pushed up the steel market.
Demand for raw materials was driven by China, and polypropylene in Asia traded more than 10% higher than at the beginning of the year. With China and other countries driving demand, some voices say that Germany’s plastic packaging film industry “will experience an import shortage starting in December 2020 and becoming increasingly critical after February 2021.
On the other hand, supply-side constraints due to the epidemic still exist. Due to poor logistics, shipping costs for container ships at sea remain high, putting upward pressure on the prices of raw materials and products carried. Logistics stagnation has also led to shortages of goods everywhere, such as delays in the procurement of raw materials. British research firm IHS Markit said the inventory shortage in the manufacturing sector reached the highest level in about 10 years.
Another factor that has recently been added to the supply stagnation is the severe cold snap that hit the southern United States in February. From the Federal Reserve Bank of Philadelphia released the manufacturing price payment index (the value obtained by subtracting the rate of answer up from the rate of answer down), it was 75.9 in March, up sharply from 54.4 in February and the highest level since March 1980 (when the second oil crisis caused prices to rise).
According to Yoshimasa Maruyama of SMBC Nikko Securities, “The cold wave caused power outages in Texas, shutting down semiconductor plants and petrochemical plants, and increasing the shortage of materials. Companies competed with each other for limited raw materials, leading to higher procurement costs for the manufacturing industry.
Rising midstream prices have hit end-product manufacturers and others. “While automotive demand recovers, higher raw material prices will put a squeeze on earnings,” said Paul Jacobson, chief financial officer (CFO) of General Motors, who presented earnings expectations for fiscal year 2021 (ending December 2021) at an earnings press conference in February.
In addition to steel, the purchase price of platinum group metals has risen to 2.2 times that of May 2020. This is said to result in a multi-billion dollar increase in costs for one year.
Under the epidemic, savings are ballooning, centered on developed countries. Countries, including the U.S. Biden administration’s $1.9 trillion stimulus package, are stepping up their economic countermeasures, and there is a view that consumption will increase significantly in the future under such circumstances. Against the backdrop of constrained supply, an increase in demand would not only cause an increase in the price of final products, but could also lead to an increase in the consumer price index (CPI) in the short term.
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