Ukraine, inflation, shortages…: the fronts multiply in the factories

Fate harasses the industrialists. After the Covid-19 pandemic that shook the world economy for almost two years, the war in Ukraine since February 24 has once again put pressure on the prices of energy, logistics and even raw materials. To this is added the management of inflation and wage increases. Non-exhaustive summary.

No respite on the electricity bill

Energy prices soared in the last four months of 2021. They reached its peak in december last, when gas cost 180 euros per megawatt hour (€/MWh), while six months earlier it was trading just above 20 €/MWh. The movement has taken electricity, whose price is indexed to that of gas, to unprecedented levels of more than €400/MWh. To clarify industrial energy bills Like private individuals, the government has implemented various measures (blocking gas prices, increasing the volume of Arenh, energy control, etc.) in the hope that prices will fall. Unfortunately, prices may well it will still be very high in 2022.

tensions with Russia related to the war in Ukraine, caused the price of a barrel of Brent, now installed above 100 dollars, to skyrocket. Although gas prices have fallen slightly, they are still very high (around €100/MWh) and the future of Russian gas in Europe remains unclear. Electricity prices are currently at unsustainable levels, around €174/MWh.

Raw materials in madness

The bill for raw materials has been seriously inflated in factories since the outbreak of hostilities in Ukraine, also raising fears of shortages.

The European sanctions against Moscow are, for example, derailing the nickel market, used among other things in the manufacture of electric batteries and of which Russia is the world’s largest producer. In a single night, in the middle of March, the ton of nickel also hit by speculation phenomena went from $30,000 to $100,000.

Palladium, used in catalysts for gasoline cars and semiconductor manufacturing, must find new routes after Russian planes were banned from European airspace, when Russia now accounts for more than 40% of global production. Finally, Moscow supplies 50% of the titanium consumed by the European aeronautical industry and could decide at any time to stop supplying Airbus and Boeing.

Nor should we forget the spikes in steel (price doubled since last summer) and aluminum . The latter saw his prices skyrocket. The production of this metal is very greedy in electrons, to the point of receiving the nickname of “solid electricity”. Its price is now around $3,500 a tonne, up from just under $2,000 a year ago.

Logistics: general inflation

Whether truck diesel, jet kerosene, low sulfur fuel oil (VLSFO) for container ships, and even the electricity used for climate engineering in warehouses, the entire transport logistics sector is experiencing an unprecedented rise in energy costs. With its share of uncertainties about the possibility of passing on these increases to customers or not. Price elasticity will quickly find its limits: transporting low-cost PVC garden furniture from China to hypermarkets in a rented container at a high price ($12,000 to $15,000) no longer makes much economic sense.

Especially since shipowners around the world apply fuel surcharges (Bunker Adjustment Factor), which considerably increase the bill, in a context in which no one can predict the duration of the Russian-Ukrainian conflict. In the air, prices are rising because several Russian companies active in the sector have stopped their offers, and the remaining companies are experiencing significantly longer flight times to Asia, with very expensive kerosene. As for road transport, the government has provided aid to offset the increase in the price of diesel, But professionals, including many low-margin SMEs, believe they always lose out.

The weight of wage increases

Manufacturers will also have to digest the revaluation of wages linked to the return of inflation, that the current shortage of labor in certain machining trades does not allow them to remain immobile. At Airbus, Management has just accepted the highest salary increase in twenty years. with +6.8% in 24 months. between truckers, salary table will increase by 5% in February, then again by 1% on 1is may. in the car, discontent begins to spread to French factories where the employer’s proposal is criticized for not covering the rise in inflation (+2.8% last year).

Flea shortage continues

When it’s not the microcontrollers, what’s missing are the analog chips. Either due to a resurgence of Covid-19 cases in Asia where these semiconductors are manufactured – Taiwan, South Korea, Japan, China and the United States being the main producing countries by order – or due to the war in Ukraine. The latter “now supplies almost 70% of the global demand for neon,” recalls the Taiwanese design office TrendForce. At the moment, microprocessor manufacturers have gas reserves, but these could be depleted if the conflict drags on.

The situation has dramatic consequences in certain sectors, starting with the automobile sector. Car production has been governed by the stock of chips for several quarters… And the crisis will continue. “Analog chip production capacity is expected to increase but is unlikely to be enough to meet increased automotive demand,” analyst firm IHS Markit said. As a result, the offer could be tightened again by “the end of 2023”.

The price of packaging skyrockets

Driven by the explosion of e-commerce and home delivery, the French paper industry, and in particular the packaging specialists, works at full speed . A large consumer of gas and electricity, however, it does not escape the increase in energy costs. What affects the price of products delivered to manufacturers…

“The price of food packaging, for example, increased between 20 and 30% on average last year,” explains Paul-Antoine Lacour, general delegate of the Copacel union. Graphic paper (newsprint, A4 ream, etc.) even shows increases of up to 80% in 2021. “Which will accelerate the transition to digital in certain industries, such as the media,” laments the president of the union, Philippe d’Adhemar.

The price of packaging could increase further with the price of starch, produced from cereals and, in particular, Ukrainian wheat. Starch represents 10% of cardboard manufacturing costs and its price has already doubled in France, from €300 to €700 per tonne.

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