Spanish industry is suffering from rising energy prices and higher costs for materials such as aluminum. Economists now believe that the shortage of raw materials will not be resolved until the end of this year
After months of focusing on China, the manufacturing sector is now turning its attention to Ukraine. The crisis that has erupted in Eastern Europe has sent markets into a tailspin and put more than 600 million in annual Spanish investments at risk. But it is also reigniting one of the most pressing problems facing Spanish companies: the shortage of raw materials.
The instability in the gas market has set off all the alarms. But the reality is that this isn't the only raw material Spain imports from these countries. Products such as aluminum and even wheat are also vulnerable to the crisis.Fears that Russia will cross red lines have put pressure on the marketsand have led to
to derail the stabilization forecasts in various industries, which had expected to return to pre-pandemic levels by midyear.
“Any conflict involving geopolitical risk creates instability, which leads to the hoarding of resources and, in turn, a direct surge in prices. This applies not only to metals and energy butalso to foods such as grains—Ukraine is one of the largest wheat producers—; within six months to a year, prices are multiplying, rising two- or threefold,” explains Andrés Gómez Funes, an expert in international relations and professor at ESIC. In other words, the uncertainty generated by these conflicts leads companies to hoard products “so they can have raw materials to work with in case supply chains break down.”
“Aluminum prices surpassed $3,100 (€2,820) per metric ton this week, hitting a new high since October 2021 amid falling inventories and expectations of large deficits,” explains IG analyst Sergio Ávila. In his view, “geopolitical tensions are driving up energy prices due to potential supply disruptions,” which leads to higher production costs. “Against the backdrop of the tightest inventory levels in decades and low spare capacity, this conflict is putting upward pressure on the prices of raw materials and energy,” investment bank Goldman Sachs explained in a recent report.
Miguel Cardoso, BBVA Research’s chief economist for Spain, predicts thattensions in Ukraine will have a “widespread short-term impact” on commodities. “The rise in the cost of electricity generation will increase costs for businesses. Companies that produce raw materials will feel this particularly acutely, as their processes are typically energy-intensive. As long as the recovery continues—driven by increased mobility and the easing of restrictions in the coming months—companies will be able to pass this increase on to prices,” says the BBVA Research expert.
Supply Disruption
Gómez Funes also points to“the emergence of new, non-traditional models of warfare,”such as potential supply disruptions. Countries like Russia have a major influence on oil and gas prices, as major exporters of both commodities, and cutting off supplies could perpetuate the energy and supply crisis. “And even if alternatives such as shipments by ship from the United States are being sought, this has a direct impact on energy prices and inflation,” he adds. This could lead, in the short term, “to inflation levels remaining at or exceeding current levels throughout this year and defying all government forecasts,” concludes the ESIC professor.
Spanish industry is already on high alert for potential collateral damage. The sector is, in all likelihood, the one suffering the most from the energy and raw materials crisis. In fact, just this week, the National Institute of Statistics (INE) released December’s industrial price index, which showed yet another all-time high: it recorded a year-over-year increase of 35.9%, the largest since the series began in 1976. This rise is directly attributed to increases in production costs driven by the prices of electricity, oil, and gas, as well as the cost of imports of other raw materials—all of which have been caught in a “perfect storm” caused by excess global demand and bottlenecks in maritime transport, exacerbated by last year’s economic recovery. As if that weren’t enough, just this week, the General Council of Industrial Technical Engineering of Spain warned in a report that this crisis could now extend through the end of the year.
The construction industry is facing a similar crisis. The tensions of recent days are taking their toll on a sector that already suffered from raw material shortages last year. According to the National Construction Confederation (CNC),energy prices have risen 38% in the last quarter, wood prices by more than 125%, and stone and copper prices by 70%. The CNC itself acknowledged a few days ago that it was viewing the situation in Ukraine with great uncertainty. “A political decision involving gas cuts drives up costs, and the prices of products such as roof tiles, bricks, and ceramics rise. But it won’t just affect costs,” explained the organization’s president, Pedro Fernández Alén.
Job Losses and Investment Cuts
Faced with a possible worsening of the economic situation,the industry remains cautiousand believes it is too early to know the consequences. “Industrial companies are waiting to see what might happen. The impact will differ depending on whether the tensions ultimately result in the imposition of trade sanctions or lead to armed conflict. Nor do we know how long these tensions might last—whether they will be resolved in a few days or whether we are entering a longer period of conflict,” says Joan Tristany, executive director of the Spanish Association of Internationalized Industrial Companies (Amec).
Cardoso also highlights the uncertainties raised by the current situation. “If this becomes a permanent situation or leads to a protracted conflict, the effect will be negative, andcompanies will begin cutting costs to offset the rise in energy prices. This would lead to job losses and canceled investments,” he explains.
ABC News Report
