Reasons behind global raw material shortages and price hikes

Price increases in the entire world are inevitably going to affect Elit OÜ. While we’re doing everything we can to make the rise in the prices of our goods gradual, most of the factors causing it are outside our control.

Due to the lack of raw materials, everything is getting more expensive, including rare-earth elements, plastics, timber, chip components, etc. Imported building materials are due for a price rise, and climbing prices of new, electronics-laden cars imply an imminent rise in the costs of microchips.

Supply chains that crashed due to the pandemic are under additional pressure now, as demand is quickly rising; logistics are hectic and materials are in short supply.

Production of electronic goods depends on a flawlessly operating mining sector, which is unable to meet the current extra high demands.

The logistics crash caused by the pandemic peaked with the sudden tripling of the prices of maritime transport last December. This was exacerbated by the deficit of shipping containers in China — the country that recovered first from the coronavirus-related crisis —, and the piling-up of same in the US and Europe. Raw materials necessary for producing goods no longer reached China, and produced goods could not be shipped to Europe.

International relations also play a role on this — Western countries, unwilling to depend on China and Taiwan, are trying to create new supply chains, which brings about sanctions and refusals to cooperate. Geopolitical factors especially affect the microchip market. Building full industrial cycles complete with everything from mining operations to microprocessors in all regions of the world is estimated to cost nearly a trillion dollars. Developing and implementing this new, more flexible system has already begun, but getting it to work seamlessly takes time.

Tight competition in the industrial metals market together with the boom in Asia’s construction market has reduced margins and made big investments into new equipment and factories unprofitable. The current price rise of rare-earth elements needed to produce batteries, as well as the price hike of timber in the future are also caused by the “green turn” — i.e., implementation of more environmentally friendly industry policies.

Prices of raw materials, which fell already before the pandemic, have now, as the economy keeps gearing up, reached levels similar to the peak a decade ago. Also prices for energy and, accordingly, transportation have risen, while the stock market boom is driving up the prices of industrial metals.

Together, these and other factors have caused a new crisis, but also an opportunity for development. By seizing this opportunity, we can survive the crisis together and reach a new, better-functioning commercial-industrial future.