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The end of 2020 and the first quarter of this year saw a successive increase in the prices of raw materials used in the production of construction chemicals. This is due to their limited availability, resulting, among other things, from significantly increased demand in China, where the economy has taken off in full force. The disruption of supply chains as a result of the COVID-19 pandemic has taken its toll on container availability, which has found its way to various parts of the world. This in turn has resulted in a significant increase in shipping prices. These and other factors could affect the prices of construction chemicals products, including paints, polyurethane foams, sealants and construction adhesives (silicone, acrylic, hybrid and polyurethane).
For the construction chemicals industry, the last four months have been extremely difficult. The raw materials market has seen gigantic increases not seen for several years. They are a significant burden on the finances of companies producing construction products, as the price of raw materials accounts for the vast majority of production costs.
Unprecedented increases in raw material prices
Prices for epoxy resins – an important binder for many paints and coatings – have skyrocketed. In the last two months alone, they have risen by up to 60%. Prices for polyester resins, which are widely used in powder coatings, have also increased significantly – by up to 45%. There have also been problems with the availability of titanium white, one of the basic ingredients in paints. High demand for this pigment in all industries has meant that its supply is not guaranteed. In addition, the price of solvents, which are the base for some coatings, has gone up. Transport problems and plant breakdowns have caused price increases of up to 100%. Isocyanates, demand for which has increased in the automotive industry and which are used in maintenance paints, are also difficult to obtain.
The production of foams, foam glues, adhesives or silicones also saw significant increases in raw materials, mainly PMDI. In this case, supply in Europe is constrained by ongoing production problems at one of the major plants since July 2020 and by growing demand in the construction segment (thanks, among other things, to the economic stimulus packages following the Covid-19 outbreak). Not insignificant to the current situation has been both the higher price level in Asia, but also the lack of raw material availability in the US – where only around 40% of standard production capacity was recently available, which in turn exacerbated the shortage in Europe. Polyether Polyol and Propylene, also used in the production of foams and foam adhesives, proved to be further “problematic” raw materials. Large increases in demand, broken supply chains and production constraints had a negative impact on raw material availability and prices.
For Siloxanes, a key component in silicone production, the situation became global, affecting not only Europe but also China and other strategic regions, and was largely caused by a change in the allocation of base material for silicone production combined with a global surge in consumption in all application areas (influenced by the first wave of the pandemic). From the second half of 2020, we can observe a change in strategy in China, where raw material is allocated to more profitable industries (cosmetics, textiles, photovoltaics).
The main factor driving up raw material prices is growing demand in Asia and Europe. China’s industrial production – which has partially recovered from the COVID-19 outbreak – has taken off at full capacity, so demand for raw materials has also increased sharply there. This, in turn, caused shortages in the market. Demand has outstripped supply, which implies increases. The factories producing raw materials have also still not reached full capacity, and as there is a lot of uncertainty about COVID-19, it is not clear when they will reach their production maximum and replenish supply.
The pandemic has affected entire supply chains in unprecedented ways. Producers are seeing significant difficulties in sea and land transport. There is a shortage of containers on the market, which, as a result of the broken trade routes, have ended up in various locations and ports around the globe. Their prices have skyrocketed. For comparison, container transport prices between China and Europe have increased by more than 400% since Q4 2020. These restrictions significantly hamper access to raw materials and their free movement between different regions of the world.