18 Oct 2022
Macro-economic insights 2022. Part 2: Raw materials
Welcome back to macro-economic insights 2022 for large-format printing media. After discussing currency exchange rates and how they impact the printing industry, we examine the changes in raw materials prices.
Over the last few years, we’ve had aggressive trends in commodity markets. When we think about the main factors that determine “strong commodities”, it is typically the weak US dollar, strong China economy, and increasing global Gross domestic product (GDP) that are necessary for sustained commodities rallies. However, many of these factors are currently tilting the other way, so it’s no question we’ll have high volatility times.
Since their peak in 2008, commodities have already experienced 50% declines twice, and in 2022 we might expect a similar pattern too. Because the US dollar is getting stronger, the Chinese economy is slowing, and the world fears a worldwide recession, there is a risk of sentiment in the financial markets.
Our prediction? A potential decline in industrial metals and a high potential for most commodities to follow. As an indicator, copper is falling quickly, which should impact industrial metals and other products.
Regarding LFP-related commodities (PVC, polyester), we expect them to react the same way except for paper.
The latter is closely tied to energy costs and might stay high for a short while (up to 2 years). We still don’t know how the European Union’s financial support to local industrial manufacturers will help paper producers lower their costs. Despite the EU’s producers losing the competition to Asia and America, the poster paper is not easy to source outside the EU. Therefore, paper prices will most probably remain elevated.
Furthermore, the competitiveness gap between polyester and PVC producers in Europe and Asia will still widen. Asian manufacturers will become even more competitive and remain core LFP materials suppliers in the EU market unless the EU issues sufficient financial support to its local producers.
*The analysis was prepared by our FX risk management partners CorpHedge.