Why are the raw materials constantly rising?

Starting from the second half of last year, the surge in raw material prices swept the country. After the Spring Festival, with various factors overlapping and increasing, the price hikes intensified, and the prices of raw materials such as emulsions, titanium dioxide, pigments, and resins have risen sharply every day, and the operating pressure of paint manufacturers has continued to increase. Some industry media have made a lot of reports on blogging, which has increased the panic in the entire industry. For a time, the sorrows are everywhere, and the sound of bad news is endless.

As an unusual and unexpected industry event, this year's price hike has lasted for more than half a month, and there is still no sign of cooling down. What are the specific reasons and deep background of this price increase?

List of recent price increases of raw materials

In summary, the recent price increase of raw materials has three characteristics:

Suddenness-For the first time in recent years, most categories have seen a substantial increase.

Comprehensiveness-Starting from the second half of 2020, domestic commodities have continued to rise. According to CCTV Financial Report: Copper rose by 38%, paper rose by 50%, plastic rose by 35%, aluminum rose by 37%, iron rose by 30%, glass rose by 30%, zinc alloy rose by 48%, and stainless steel rose by 48%. Soaring 45%, IC rose 100%.

Severity —— Entering the end of February, the price of raw materials has completely out of control, jumping wildly by 20% and 30%, showing a trend of overwhelming.

As of early March, more than 20 chemical products, including liquid chlorine, sulfuric acid, acetic acid, propylene oxide, bisphenol A, butyl acrylate, and isooctyl acrylate, have increased by more than 100% from the beginning of January, emulsions have increased by 70%, and titanium dioxide has increased 60%, solvents rose by 40%, and TDI rose by 80%. Raw materials such as titanium dioxide, adipic acid and butyl acrylate have broken new highs in many years.

After the resumption of production during the Spring Festival, raw materials such as resins, emulsions, titanium dioxide, curing agents, additives, and pigments continued to skyrocket, with a single price, and some materials were not quoted for the time being.

The raw material companies caught in the middle, on the one hand, have to face the crazy price increases of upstream raw material companies, and they may not be able to get the goods. On the other hand, in order to keep downstream customers, it is necessary to digest the cost and make profit to the customer to the greatest extent, and never pass on the cost that can be digested to the customer.

Why does it keep rising?

What is the cause of this round of price hikes? The analysis mainly has the following points:

1. The supply is tight
In mid-February, Texas in the southwestern United States experienced the worst weather in 30 years, with the temperature dropping to minus 18 degrees. With the rapid increase in residential heating power, causing the grid to not be overloaded, the entire Texas can only implement alternate power outages to reduce power demand and avoid more permanent "catastrophic power outages."

Due to large-scale power outages and tree lodging, Texas, as a major oil producing area in the United States, has closed a large number of oil production and refineries, and US commercial crude oil and refined oil inventories and refinery operating rates have reached extreme values. According to news reports, due to power outages caused by the severe cold in the south, many refineries in Texas closed or reduced operations, and the average daily output of US refineries fell below 10 million barrels for the first time in 39 years.

2. Reduced oil production
The geopolitical situation in the Middle East is turbulent, and Saudi oil towns have been attacked, which has exacerbated the decline in oil production. On the evening of March 7, a loud noise broke out in Dhahran, a major oil town in eastern Saudi Arabia. The port was attacked by drones and the port was shot down. Dhahran is a major oil town in eastern Saudi Arabia and the headquarters of Saudi Aramco, the world's largest oil company. The port is one of the most important oil ports in the Gulf region and even in the world. Saudi Arabia's output is reduced by one million barrels per day due to drone attacks, which has seriously affected the stability of global energy supply. After the attack, Brent crude oil rose 2% to US$71.16 per barrel, and WTI crude oil rose to US$67.86.

3. Price increase of chemical raw materials
Affected by the cold wave, news of foreign equipment failures and overhauls continued. For example, BASF’s MDI equipment was frost-damaged and Covestro’s MDI equipment dropped.

Due to the suspension and reduction of oil production, the prices of many chemical raw materials derived from oil have generally risen. Tosoh Specialty Chemicals (USA) issued an announcement stating that starting from March 1, 2021, the price of polymerized MDI will increase by US$0.35 (approximately RMB 2270/kg) per kilogram. The domestic heavy-duty truck MDI device was overhauled at the end of February, and the foreign Huntsman device was overhauled in March. The domestic polymer MDI market price has risen steadily. On February 18th, affected by the severe weather in Texas, Celanese announced that a force majeure event had occurred in the delivery of the Americas, Europe, the Middle East and Asia (EMEA), including acetic acid, vinyl acetate monomer, and ethyl acetate. Esters and ethyl acetate. On the same day, the Dow Chemical Company issued a notice stating that due to force majeure, the Dow Chemical Company and its subsidiaries will not be able to supply hexyl acrylate (2 EHA), butyl acrylate (BA), acrylic acid (MA), etc. for nearly 20 years. Kinds of products.

4. The United States crazy money printing
The epidemic continues to spread, leading to the stagnation and recession of the US economy. The Democratic Party of the United States is preparing to print large sums of money. The US$1.9 trillion economic stimulus plan was introduced before Biden took office, and a larger-scale money printing plan was subsequently announced.

The U.S. dollar currency used by all countries in the world, the United States prints a large number of banknotes, and the world is helping the United States share the pressure of inflation. The United States passed a $1.9 trillion economic stimulus package, but after Biden took office, it was still not enough to help the United States get out of trouble, and then it will implement an infrastructure plan worth $3 trillion. This means that the minimum amount of money printing in the United States is 4.9 trillion.

5. Inflation inflation
Due to the impact of the epidemic, the income of Chinese residents has dropped significantly. The housing business in the first quarter has been closed for a long time, and the total annual housing purchase expenditure accounted for 96.2% of the annual total income of urban residents. On the surface, the market has been in the first quarter for a long time. Stagnation. Inflation is the main reason for the surge in raw materials. In fact, under the massive issuance of RMB M2, the price increase is nothing more than a return to the actual value of RMB. According to statistics, in 1978, RMB 10,000 was equivalent to 510,000 yuan today. If calculated by credit expansion and currency distribution, 10,000 yuan in 1978 is equivalent to 14.47 million yuan today. In fact, the rise in oil prices is only an incentive, and everything is rising in price, which is obviously inflation. During the Chinese New Year, many daily necessities are increasing in price, and the price of chili peppers has risen to more than ten yuan per catty, which is incredible.

6. Global economic recession
In recent years, the global economic recession has been an indisputable fact, and the new crown epidemic has magnified the recession infinitely. During the global economic depression, the recession may reach 20% in 5 to 10 years.

Many countries led by the United States have adopted aggressive fiscal policies in the context of economic recession, which has caused the post-recession economy to spread and deteriorate globally.