Raw material shortage: What are the causes?

Raw material is scarce – here’s why

For some time now, the shortage of raw materials has been one of the top subjects in the scaffolding and construction industry. In fact, a lot has happened on the market in terms of scaffolding and building materials recently. Delivery times for several raw materials are considerably longer and prices were also unprecendently high in recent months. As a result, many producers of scaffolding and building materials have had to adjust the prices of their products. But what are the reasons for this development? We want to answer this question by explaining the situation with the help of two materials that the scaffolding and construction industry can hardly do without – wood and steel. To get an overview of what is currently happening on the market in terms of raw materials first, click here.

Trade disputes slow down raw material processing

The construction boom is actually good news for you and us. But as is the way of things, there are also downsides here that are becoming more and more apparent: the demand for raw materials is higher than the capacity to supply them. But why is commodity production not keeping pace? The reason is not least due to trade disputes between the major raw material suppliers and buyers.

Ever wondered why the situation is especially striking in terms of wood? If you look at the current price development, you quickly realise that lumber is more expensive than it has been for a long time. In May 2020, up to 700 USD for a cubic metre of lumber changed hands. One of the main reasons for this sharp price increase are ongoing trade disputes. The main players here are the USA, as one of the world's largest buyers of timber, and its trade rival, China. Both countries have been repeatedly imposing punitive tariffs on imports from the other country for years. Importing each other's wood - no matter how much it is in demand – is therefore proving to be extremely difficult. It's good for the USA that it has its densely forested neighbour Canada - actually. But here, too, difficulties arise. For the USA is also fighting trade disputes with Canada. In order to prevent the subsidisation of the US wood industry, high punitive tariffs have been imposed on Canadian imports for the last four years. This also eliminates Canada as a lumber supplier for the USA. Meanwhile, the rush for wood in the USA is not abating. However, the American sawmills cannot keep up with the demand – an after-effect of the closures of many sawmills caused by the economic crisis in 2008.

An alternative supplier is therefore indispensable, and the USA finds one in Germany. But its big economic competitor, China, is also increasingly importing from Germany to compensate for its own economic growth. The demand for German wood is therefore higher than ever. And there is no shortage of wood in the country itself. The dry summers of recent years and a bark beetle infestation ensured that masses of dead wood were just waiting to be processed in German forests. German lumber was therefore initially cheap. A stroke of luck for the national construction industry, which is also booming at the moment. While German sawmills already have their hands full for this reason, the significant increase in export demand is now also pushing them to their limits. The result: here, too, lumber prices are now reaching record levels and delivery times are extending.

Delays in the production of primary products result in steel shortage

Not only the situation for wood, but also for steel has changed significantly in recent months. The construction boom and the overall change in export demand and people's buying behaviour during the pandemic also push the production of steel to its limits. Here, too, it is not possible to produce fast enough as should be delivered.

One of the reasons for the current steel shortage is that the steel mills in particular cannot ramp up again quickly enough after a low at the beginning of 2020. These, like many other operations, had been run down to minimum staffing levels at the beginning of the pandemic. Also, for example, the slump in the automotive industry, one of the core markets for steel production, caused a short-term drop in demand for steel and thus a low in steel production. However, it is not so easy to quickly restart the steel mills in order to keep up with the fast recovering Chinese economy and rising demand for steel. Because this process is complicated and can take several months. On the one hand, the personnel who were put on short-time work at the beginning of the pandemic or even had to be laid off have to be brought back or completely rehired and trained. On the other hand, the production sites themselves have to be prepared for normal operation again. This is because the smelters, blast furnaces and coking plants, which are essential for steel production, cannot simply be shut down, as they will inevitably be damaged by the expansion of the material when it cools down. Before steel production can resume at full speed, the production sites must first be prepared for normal operation again at great expense.

In addition, the primary products of steel, such as iron ore and steel scrap, are currently in short supply. Here, the effects of the slump in the core markets at the beginning of 2020 are also becoming apparent. For example, the automotive industry is once again playing a decisive role - but this time not as a consumer but as a source of material for steel production. This is because, alongside other industries, automotive production is an important supplier of the resource steel scrap. And the equation is simple: fewer new cars sold means fewer old cars scrapped that can be used to make new steel. Moreover, it used to be easier to get the materials for steel production to the factories. This is because transport costs, for example by inland waterways and sea, have also skyrocketed in recent times due to significant shifts in the container capacities. On top of that, there was bad luck. The already prolonged delivery times of long-awaited raw materials were further delayed in March by the Ever Given container ship that blocked the Suez Canal for several days. As a result, the whole situation became even more complicated and the prices for steel, which is otherwise a comparably cheap material, rose further.

Signs of slight improvement in the US

Although the price situation for raw materials is still tense at present, there is hope for an improvement. Reliable forecasts are difficult, but we know from the past that fluctuations in commodity prices are nothing new. As we could already observe after the economic crisis in 2008, prices, which had fallen sharply at the time, returned to normal levels. Economic experts also believe that the current shortage and soaring prices of raw materials will not stay at the current level forever. In the US, such a development is already becoming apparent: sawmills are now able to expand their production, so that the price of wood has already fallen sharply there.

However, it will probably take a while until the overall situation returns to normal. To help you cope with the current situation until then, we have three tips for you:

• It can be helpful for you to change your purchasing behaviour. Scaffold rental can be a useful option for you, as you are not using new, but existing material. Our team will be happy to advise you on this.
• Well-considered and forward-looking planning is more important than ever. Even smaller project sites should not do without it at present.
• Good communication with the scaffold and building material supplier is of great importance. This goes beyond simply placing an order. Share your plans and strategies with your supplier to coordinate processes effectively. More tips on how to deal with the shortage of raw materials can be found here.