May 22 Raw Material Price indices

Today the world is passing through significant turbulent times. There is high uncertainty about what the war in Ukraine might inflict further, there is uncertainty about what Brexit might add more to the UK business landscape, there is a high risk of further deepening of trade conflicts between major world economies, and the Covid-19 pandemic is expected to continue to be a risk multiplier for some time in the future. The Covid-19 crisis highlighted how difficult it is in a globalised world to suppress the spread of a pandemic and spotted the weakness of existing supply chains. After a fragile recovery from the pandemic in the 2021 year, the world economy in 2022 is facing market conditions of a “perfect storm”. Starting from August 2020, raw materials used to manufacture cables have experienced a steep rise after major countries started reopening their economies post-Covid19. For example, copper rates dipped down in 2019 due to the sharp decrease in demand caused by global Covid-19 restrictions, but after that initial period, we saw a global trend of price increases. Copper was traded for $4670 per ton in March 2020, while on 7 March 2022 its price went up to the record price of $10730 per ton. All cable making industry are heavily affected by the actions of governments and businesses around the world. We are operating under conditions of fast price increases of commodities and services. As a direct result of the above, the cost of producing cables has increased significantly. In this publication we share with its valuable clients some important information about current market conditions and outlook for the future, hoping to provide some insights that could help to better face the current and future business challenges.

Overview

According to the latest IMF World Economic Outlook1, published in April 2022, the invasion of Ukraine has generated significant headwinds to the global economy, as well as adding more uncertainty to an already uncertain outlook. The global economic prospects have worsened significantly, largely because of Russia’s invasion of Ukraine—causing a tragic humanitarian crisis in Eastern Europe—and the sanctions aimed at pressuring Russia to end hostilities. This crisis unfolds while the global economy was on a mending path but had not yet fully recovered from the COVID-19 pandemic, with a significant divergence between the economic recoveries of advanced economies and emerging markets and developing ones. In addition to the war, frequent and wider-ranging lockdowns in China—including in key manufacturing hubs—have also slowed activity there and could cause new bottlenecks in global supply chains. Higher, broader, and more persistent price pressures also led to a tightening of monetary policy in many countries. Overall risks to economic prospects have risen sharply and policy trade-offs have become ever more challenging.

Market Conditions

The ongoing war in Ukraine adds to the series of supply shocks that have struck the global economy over the course of the pandemic, contributing to more shortages beyond the energy and agricultural sectors. Russia is a major supplier of oil, gas, and metals, and, together with Ukraine, of wheat and corn, the current and anticipated decline in the supply of these commodities has already driven their prices up sharply. Through closely integrated global supply chains, production disruptions in one country can very quickly cascade globally. Firms in Russia and Ukraine supply specialized inputs and shortfalls in some of those inputs are already having an impact on European car manufacturers. Some countries in eastern Europe and central Asia have large direct trade and remittance links with Russia. Activity in those economies is expected to suffer. Primary commodity prices rose 24 % between August 2021 and February 2022. Energy commodities, especially natural gas, drove the increase, due first to rising geopolitical tensions and later to Russia’s invasion of Ukraine, while the Omicron COVID-19 variant created short-term volatility in late 2021. Base metal prices increased by 2 % and precious metal prices rose by 3 %, while agricultural commodities increased by 11 %. This special feature also analyzes the pace of fossil fuel divestment. Anticipation of lower fossil fuel demand has likely reduced capital expenditures in oil and gas globally over the past three to four years—especially for publicly traded companies— reducing their investment by about 20 %. Crude oil prices increased by 36 % between August 2021 and February 2022, driven by a strong recovery in oil demand, with short-lived effects of the Omicron variant in late 2021, followed by geopolitical tensions and Russia’s invasion of Ukraine in February 2022. Brent crude oil temporarily reached $140 in early March as markets started to shun Russia’s Urals oil and several countries banned imports of Russian oil. Supply was already tight before the war, as OPEC+ (Organization of the Petroleum Exporting Countries, plus Russia and other non-OPEC oil exporters) members continued to ease supply curbs at a measured pace and production in major non-OPEC+ countries increased slowly. Non-OPEC+ producers had been focused on cash generation rather than investment, partly because of the energy transition. More countries are now seeking to reduce dependence on Russian energy, so supply disruptions have so far been buffered by globally coordinated releases of strategic petroleum reserves, while spare capacity has not been tapped. Global demand for oil in 2022 is projected to increase to 99.7 million barrels a day (mb/d) in 2022 (up 2.1 mb/d from 2021), according to the International Energy Agency—a downward revision of 1.1 mb/d compared with demand before the war in Ukraine. The risk of a major decline in Russian oil exports has caused a significant upward shift of the futures curve, with a spike in front-month futures prices. Futures markets suggest crude oil prices will increase 55 % in 2022 and fall slightly thereafter, while short- and medium-term upside risks to oil prices remain elevated and include long-term downside risks from the energy transition. Natural gas markets were driven by energy security concerns in Europe and low average storage levels going into last winter. This led to greater competition with northeast Asia for spot cargoes of liquid natural gas, resulting in a global increase in natural gas prices, except in North America. Natural gas prices are expected to remain high until mid-2023 amid supply and energy security concerns, while Europe plans to reduce dependence on Russian natural gas. Coal prices rose 55 % and reached historic highs in early March, reflecting tight supply-demand balances, production disruptions, and the shunning of Russian coal. Metal Prices Rise to 10-Year Highs. The base metal index initially retreated from a 10-year high in July 2021, mainly owing to iron ore prices falling 13.8 % amid temporary restrictions on steel production and slowing construction activity in China. The index began to recover in December as steel production curbs were lifted. Increased demand for electric vehicle batteries sent prices higher for cobalt, nickel, and lithium. The war in Ukraine and sanctions partially disrupted metal and mineral exports from Russia and Belarus. Precious metal prices increased thanks to an upward shift in inflation expectations. Base metal prices are expected to rise by 9.9 % in 2022, compared with a decline of 6.5 % in the October 2021 World Economic Outlook, and to remain unchanged in 2023. Risks to the outlook are to the upside due to continued disruptions of trade in metals with Russia and higher energy costs. Precious metal prices are expected to rise 5.8 % in 2022 and 2.1 % in 2023.

Price indices

Copper- During May 2022 LME Copper Mean Price on 3 months contracts varied from high $9,540.00 to low $9,002.50, with an average price of $9,357.80 per ton. Often seen as a barometer of the world economy, copper has slipped 15% from a record high set in March as investor focus shifts from concerns about tight supplies to weaker consumption. Fears are rising that US monetary tightening, shaky European economies and stringent Covid-19 measures in top user China will hurt metals demand. Goldman Sachs has predicted that copper's remarkable price surge is set to continue next year and could break records because of resurgent demand and capped supplies.

Primary Aluminium

During May 2022 LME Primary Aluminium Mean Price on 3 months contracts varied from high $2,974.00 to low $2,714.00, with an average price of $2,854.00 per ton. According to Bloomberg, aluminium traders in China are hurrying to sell metal held in third-party warehouses, as allegations that inflated stockpiles are being used to secure loans reverberate through the world’s largest metals market. Allegations of “over-pledging” -- in which the same pile of metal is used as collateral in multiple loans -- have prompted sweeping inventory checks and a slump in confidence across the supply chain. Market participants worry that they might face issues including ownership disputes or logistical difficulties offloading the metal later on.

Polymer Price index May 2022

Despite weak demand, prices for all engineering thermoplastics saw triple-digit rises in April. It was the same as the previous month except for increases for all materials were even higher. The reasons were massive uncertainty from the geopolitical situation and related cost rises for raw materials, energy, and transport. However, the prices during May started to moderately fall.

Economic outlook

The ongoing war in Ukraine has exacerbated difficult policy trade-offs: between fighting inflation and safeguarding the pandemic recovery; and supporting those impacted by rising living costs and rebuilding fiscal buffers. Meanwhile, the pandemic remains stubbornly persistent, and structural issues, such as inequality and climate change, remain unresolved. And with high public debt, space to respond is severely constrained. It also poses new multilateral policy challenges—the most pressing is the growing humanitarian crisis in the region. The displacement of more than 5 million Ukrainian people to neighbouring countries, especially Poland but also Romania, Moldova, and Hungary, will also add to economic pressures in the region. Beyond the immediate humanitarian impacts, the war will severely set back the global recovery, slowing growth and increasing inflation even further. In April 2022 the IMF report projected the global growth at 3.6 % in 2022 and 2023—0.8 and 0.2 % points lower than in its January 2022 forecast, respectively. The downgrade largely reflects the war’s direct impacts on Russia and Ukraine and global spillovers. Even prior to the war, inflation had surged in many economies because of soaring commodity prices and pandemic-induced supply-demand imbalances. Some emerging markets and developed economies’ central banks, such as the US Federal Reserve and those in Latin America, had already come under pressure before the war, bringing forward the timing of their monetary policy tightening. War-related supply shortages will greatly amplify those pressures, notably through increases in the price of energy, metals, and food. Although bottlenecks are expected to eventually ease as production elsewhere responds to higher prices and new capacity becomes operational, supply shortages in some sectors are expected to last into 2023. As a result, inflation is now projected to remain elevated for much longer than in our previous forecast, in both advanced and emerging market and developing economies. In many countries, inflation has become a central concern. In some advanced economies, including the United States and some European countries, it has reached its highest level in more than 40 years, in the context of tight labour markets. There is a rising risk that inflation expectations become de-anchored, prompting a more aggressive tightening response from central banks. In emerging markets and developing economies, increases in food and fuel prices could significantly increase the risk of social unrest. Global growth is projected to slow from an estimated 6.1 % in 2021 to 3.6 % in 2022 and 2023. This is 0.8 and 0.2 percentage points lower for 2022 and 2023 than in the January World Economic Outlook Update. Beyond 2023, global growth is forecast to decline to about 3.3 % over the medium term. Inflation is expected to remain elevated for longer than in the previous forecast, driven by war-induced commodity price increases and broadening price pressures. For 2022, inflation is projected at 5.7 per cent in advanced economies and 8.7 per cent in emerging market and developing economies—1.8 and 2.8 percentage points higher than projected in January.