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Economics

Raw Materials: A Global Crisis

Reading time: 3 minutes

The world has a problem of empty shelves and warehouses, as firms and shops struggle to get goods and raw materials from suppliers. While big companies announce price rises and diminished productions, the world wonders how to solve the situation. We tried to understand what’s really behind the problem.

The Shortage of Raw Materials

Coltan is the beating heart of modern world. This semiconductor is essential in the production chain of chips and circuits, and is thus fundamental to produce any piece of technology, from refrigerators to computers, mobiles, cars, and much more.

In the past year, though, coltan has been unfindable; for long periods, there was probably   not a single industrial warehouse in the world with stocks of this precious material. Big techs’ productive system was hit very hard. Samsung and Apple, for example, have struggled in the release of their new phones. General Motors had to shut down factories and decrease production. Tesla was forced to rethink the projects for its cars’ electric system. The list could go on and on. To understand the magnitude of the problem, it is enough to focus on the automotive sector: by the end of 2021, production is expected to fall by approximately 7.7 million cars, with a revenue loss that is expected to reach an astonishing 210 billion dollars.

Coltan shortage would be bad enough in itself, but data show it is just the tip of the iceberg. Over the last year there have been shortages of many kinds of raw materials, such as gold, aluminum, steel, silver, wood, plastic, and others. The world industry is on its knees, and no way out is in sight.

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What’s causing the shortages, though?

For sure, Covid-19 has played a big role by causing significant unbalances    in consumer demand flows. World firms follow precise schedules, whose specifics vary from sector to sector. Many, for example, know they will need to increase production during Christmas times, as consumer demand is normally expected to rise. Others may do the same in summer. What happens, though, when people are forced home by a virus, many lose their jobs and average per capita income drops? People start consuming less, and demand falls. The reasonable response of firms is to decrease purchasing of raw materials and work in progress inventory.

As the pandemic eventually started loosening its grip over the world, though, people have started consuming more.  Now businesses   need to rebuild their inventories, and demand for raw materials skyrockets: intuitively, supply just can’t keep up with the pace of the demand.

That is not the whole story, though.

Covid was the trigger of the problem, but the real cause of its effects being so detrimental to the markets of raw materials is to be looked for elsewhere; the real difficulty, in fact, regards the organization of the flows of goods.

Let’s look, for example, at ports, where 90% of world trade passes through. In the last year, the excess of demand caused by post-pandemic recovery has led to unusually high ship traffic, creating terrible bottlenecks in many world ports. Cargos used to wait on average no more than couple of days before unloading, but in the last year waiting time increased to even more than a week because there is no space for their containers to be deposited. Trucks are also too few to bring goods to their final destinations and back, causing them to arrive late and containers to hardly get back to ports, leading to a container shortage.

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The two American ports of Los Angeles and Long Beach, respectively the first and the second biggest of the country, are a perfect example of this, as they are having huge difficulties in dealing with the situation.

The Effect on Consumers

The ultimate burden of the crisis falls on the shoulders of consumers, as many products are either unavailable or more expensive than before. In the second quarter of 2021, the average inflation in OECD countries has been 4.36%, the highest since 2008; in the United States, in particular, it has reached 5.34%, and raw material shortages are the main cause of these numbers.

The logistics behind product distribution processes have to be re-equilibrated to go back to normal pre-pandemic levels. World policy-makers have been trying to solve the issue. Already in February, for example, US president Joe Biden signed an executive act to streamline chip production chains. Since then, world leaders have kept trying to solve the problem. ECB president Christine Lagarde, for instance, released on November 15th a public declaration on the problem of “supply bottlenecks”, showing her intent to help consumers with favorable monetary policy aimed at keeping inflation as low as possible.

Unfortunately, no clear solution is on sight: delays, high prices and empty shelves seem to be the new, unavoidable normality.

Author profile

First year student in Economics and Finance. Passionate about stories from all over the world, starting from Milan and our university. Keen on writing and, of course, journalism.

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