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Overview
Consumers have experienced increasing prices and shortages of certain products for several months now. In many countries inflation is the highest it has been in the last 30 years or more. Raw material prices have been rising constantly, despite high consumption, full order books, and strong production. The impact of these increased prices on the development of the automation market is significant. It adds growth on top of the overall automation market development. This means that revenues are not only the result of more units being sold but reflects the price increases automation vendors must calculate in and pass through to their clients. This ARC Insight takes a closer look at the price development of raw materials (in this case metals) and its impact on the automation market.
Price Development of Metals
The raw materials market for metals can be divided into two categories: base and precious metals. Base metals are common metals that tarnish, oxidize, or corrode relatively quickly when exposed to air or moisture and are widely used in commercial and industrial applications, such as construction and manufacturing. Precious metals are rare, naturally occurring metallic chemical elements of high economic value. In our analysis for the price development of base metals we include aluminum, copper, nickel, tin, zinc, and molybdenum, whereas the precious metals include cobalt, gold, palladium, and platinum.
Looking at the figure below, we can see the indexed price development of precious and base metals, as well as the total metals market development. While precious metal prices increased only slightly, base metal prices have risen to unprecedented heights.
Impact of Material Prices on Producer Prices
The increase of material prices will spill over into the producer prices. Component manufacturers and suppliers for the machine building sector will have to increase their product prices as production costs rise. One of the resource materials ARC analyzed was producer prices of the iron and steel suppliers, which we compared with producer price developments in the general manufacturing sector. First, the increase of the material prices for iron and steel is significant in 2021.
While prices remained stable over the last 10 years, 2021 showed a completely different picture. The price index more than doubled by the end of 2021 compared to the average prices for the last 10 years. High demand and supply chain disruptions drove the price development, and we expect prices to remain on this high level for at least several quarters, if not increasing further. Iron and steel producers cannot ramp up their production on short notice, and while production output remains stable on a high level, demand is increasing, and the supply cannot satisfy this high demand.
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Keywords: Automation Market, Price Development, Raw Material, Resource Materials, Base Metals, Precious Metals, ARC Advisory Group.