Economic scenario and markets trend: criticalities and outlook

Skyrocketing prices and shortage of raw materials: a critical situation which has been affecting us for a long time. This long-last issues together with the increase in both Coronavirus cases and energy costs are raising concerns not only for the final consumers, but also for the companies of every industry, including the refineries like RMG which produce copper based alloys. What’s happening and what should we expect from the markets next year?

New event, same aim of providing the participating companies with information and data concerning both the economic dynamics and the trend of main markets. During its 36^th edition organised as usual by Confindustria Brescia, "Scenari & Tendenze" (lit. Scenarios & Trends) gave them food for thought, which could be useful to find an answer to the questions above.

To better understand the trends and the outlook of our industry, we should firstly analyse the main information provided by Scenari & Tendenze concerning the general circumstances, in which all the companies are working and finding themselves.

Economic recovery: what is the forecast?

Let’s start with good news: data are encouraging. Economies are recovering the loss of 2020 and the outlook for 2022 is positive. As explained by Achille Fornasini, Università degli Studi di Brescia (University of Brescia), during the event:There is no doubt if we analyse the latest projections of the International Monetary Fund, confirmed in Europe by other institutions. According to this forecast, global growth is projected to have a positive outcome in 2022, even though it won’t be as significant as in 2021. The advanced economies and the emerging markets will follow this trend as well. The projections for Italy and China are interesting:

• Italy is expected to close 2021 with an increase in GDP (5.8%). According to some projections, it’s possible that GDP rate could even reach a higher level. Forecast for 2022 is positive too, but not comparable to growth level of the current year;
• Chinese growth should slow down in 2022 and this trend is expected to have an effect also on raw materials.

These positive projections should be interpreted in the light of both the critical issues which arose from pandemic and the problems which have risen in the last weeks. All these criticalities are significant, not only for the economic development but also for the companies, especially for the small businesses.

What are these crucial dynamics? Let’s see them in short.

Main long-lasting and brand new critical issues

In our last contents concerning Scenari & Tendenze we dealt many times with the problems caused by the spread of Covid-19 disease. To outline a scenario as complete as possible, it’s important to analyse the topics at its base which were already debated during the 35^th edition of the Circumstances Observatory:

• The pandemic is not over. The fourth wave is hitting Europe: in the Eastern, Central and Northern countries the surge in cases is causing concerns once again. This scenario could trigger new restrictions, lockdowns and stops of production plants, resulting in a slowing down of growth; 
• The gap between demand and supply of raw materials has caused the extraordinary increase in prices which we have been facing since the second quarter of 2020. The shortage of raw materials doesn’t allow the supply to satisfy the strong global demand, which is supported by the growth;
• Continuous stops and restarts have been putting international logistics to the test when managing freight flows. The infrastructures in ports are seldom suitable for facing these irregular freight flows, thus causing further bottlenecks.

These critical dynamics are well-know and come up beside new issues:  

• Extraordinary increase in the costs of natural gas, oil, coal and CO₂ emission rights thus making the situation of the companies even worse. Suffice it to say that companies are facing not only a rise in energy prices, but also the consequent additional increase in raw material prices. Therefore, it becomes difficult for the companies to pass on such high supply costs to customer, thus resulting in a decrease or in a resetting of marginality despite a high quantity of orders. As a result, for many companies there’s no advantage to produce materials due to high costs;
• A rise in inflation of consumer prices, which is expected to continue throughout 2022. From the beginning of 2022 we should see a rate hike by the US Federal Reserve with a potential discrepancy between European interest rates. Although this scenario is supposed to be a temporary phase, which is related to the previously indicated increasing costs, it is enough to have effects on the foreign exchange market. The US dollar strengthens especially against the Euro and leads to speculation in the financial markets, including those of industrial commodities.

We have outlined a general scenario which includes complex dynamics, but we would like to dig deeper into the metal industry: what is the situation for the non ferrous metals at the base of our production of copper based alloy ingots?

Let’s see it in our next news.

Source: Confindustria Brescia - "Scenari & Tendenze", 25^th November 2021.