No Raw Materials Without Price Increases... "Must Prepare for Prolonged Inflation" [Supply Chain Crisis Realization 2]

Crude Oil and Thermal Coal Prices Surge... Nickel and Lithium, 4th Industrial Revolution Minerals
Companies Scramble to Secure Alternative Supply Sources... Concerns Over Sharp Rise in Consumer Goods Prices

[Asia Economy Reporter Oh Hyung-gil] There is no raw material whose price has not risen. From international oil prices to thermal coal, nickel, lithium, and other key minerals of the 4th industrial revolution, raw material prices continue to soar.

Warnings have been issued that raw material inflation will persist long-term unless the global supply chain disruptions triggered by the prolonged Russia-Ukraine war following the COVID-19 pandemic are resolved.

Companies are desperately striving to secure new sources of raw material imports amid concerns that profitability will immediately decline due to increased cost burdens. There are also concerns that the rise in raw material prices will, with a time lag, push up consumer goods prices and lead to a consumption slump.

[Image source=Yonhap News]

◆Stubborn Oil Prices... Only Room to Rise=International oil prices have remained above $100 per barrel for 10 consecutive weeks since the first week of March when the Ukraine crisis began. According to Korea National Oil Corporation’s PetroNet on the 19th, the price of West Texas Intermediate (WTI) crude oil in the first week of May was $106.68 per barrel, and Dubai crude was $106.39 per barrel.

Domestic gasoline prices have also risen again after the expanded fuel tax reduction was implemented this month. As of this day, the nationwide average gasoline price was 1,970 KRW per liter, marking 13 consecutive days of increase since hitting a low of 1,931 KRW on May 6.

The rise in international oil prices is offsetting the effect of the fuel tax cut. Although prices have somewhat stabilized compared to March when they surged to $120 per barrel, the expected imminent agreement by the European Union (EU) to ban Russian oil imports is likely to push prices up again.

The United States is further increasing uncertainty by moving to curb oil-producing countries through the ‘NOPEC’ (No Oil Producing and Exporting Cartels) bill. NOPEC is legislation that prohibits collusion among oil-producing countries, removing the exemption that the US had granted to the Organization of the Petroleum Exporting Countries (OPEC) under antitrust laws, thereby allowing antitrust lawsuits against OPEC for production collusion.

Petroleum products such as jet fuel, liquefied petroleum gas (LPG), and naphtha are also experiencing relay price hikes. This leads to increases in airline and taxi fares, worsening consumer sentiment and reducing profitability for petrochemical companies.

◆Rising Prices of Key Minerals... Urgent Need to Secure Alternative Supply Lines=With the rise in thermal coal prices, power generation companies, steelmakers, and cement industries are also facing emergency situations. As of the second week of this month, thermal coal prices reached $198 per ton, a 75.1% increase compared to last year’s average price. Fuel coal for power generation surged 97.3% from the beginning of the year to $397 per ton. The supply chain structure, which has heavily depended on Russian thermal coal, is also exacerbating the problem.

Coal-fired power generation is considered the largest power source domestically. If thermal coal procurement fails in the long term, expensive liquefied natural gas (LNG) will have to be used, raising power generation costs and reducing power companies’ profits.

The steel industry is breathing a sigh of relief as iron ore prices, which soared to $160 per ton in March, have recently stabilized at around $130. However, the weak steel demand in China due to the spread of COVID-19 has created concerns that prices could rise again at any time.

Key minerals of the 4th industrial revolution such as nickel, lithium, manganese, and cobalt are also facing tight supply and demand due to supply chain disruptions from Russia and reduced inventories at major exchanges. As of the third week of May, the international price of nickel was $26,180 per ton, a 41.6% increase compared to last year’s average price. Nickel inventories at the London Metal Exchange (LME) stood at 72,982 tons as of the previous week, falling below 80,000 tons again since March.

Lithium prices have surged by a staggering 276.9% compared to last year’s average, reaching $428, and prices of manganese and cobalt have also remained high. Although demand has temporarily decreased due to lockdowns in China, long-term supply shortages are feared due to demand for electric vehicle batteries.

Park Ga-hyun, senior researcher at the Korea International Trade Association, advised, "The government should strengthen monitoring systems for items with high import dependence and importance and support companies in detecting crisis factors." She added, "Companies should regularly analyze changes in the value chain of their production processes and establish flexible supply chain plans to enable quick responses when problems arise."

This content was produced with the assistance of AI translation services.