Leap in cost of raw materials: products must be rethought and production chains reorganised

With prices soaring and supplies short, the production system is in a challenging situation, but this is an opportunity to evolve and innovate.
In Friuli cases of reshoring are already appearing


In recent months, industries have had to deal with a run on the price of raw materials and, in some cases, a shortage or even a complete lack of supplies. For example, wood imported from within Europe has increased in price by 30% since the beginning of the year, likewise scrap iron destined for processing in steelworks. Coil, a semi-finished steel product used in the production of electrical appliances and furniture components, has increased by 40%, while in the chemicals sector, products such as methanol, urea and melanin have gone up by as much as 80-90 percent. The plastic material ABS (acrylonitrile-butadiene-styrene) has actually doubled in cost in the space of a few months. This run is a world-scale phenomenon, and is combined with an upsurge in transport costs, particularly for shipping, and ever-longer waiting times for container availability: truly the perfect storm.

“The shock of the pandemic in spring 2020 obliterated demand, so timber harvesting came to a standstill, pushing suppliers to use up the stock in their warehouses,” explains Alessandro Calcaterra, proprietor of Legnonord in Basiliano, Italy, and chairman of Fedecomlegno. “Then, after six months, production resumed, and with it, the demand for raw materials. Unfortunately, our production chain is not very flexible in the short-to-medium term, and it requires longer time spans to get back up and running.”

A similar analysis is given by Stefano Scolari, Managing Director of ABS steelworks in Cargnacco, Italy, part of the Danieli group.

“Scrap is subject to peaks and troughs in price even more than other materials, due in part to speculative dynamics,” he explains. “The reduction in the production of steel between March and June 2020 led to an erosion of stock, after which the strong upswing in the sector from last autumn sent producers on a frantic search for scrap. Trade is affected by dynamics worldwide. Take Turkey, for example, which has a huge impact on the market: it imports almost 20 million tons per year, around 80% of its total requirements, thereby influencing price trends in Italy and throughout Europe.

“This difficult period is likely to last another 6-12 months, and could also recur periodically in the future. We need to take this opportunity to review both our products and our production chains,” comments Paolo Fantoni, managing director of the Fantoni industrial group in Osoppo, Italy, that is a leader in the production of MDF panels, and is investing heavily in the circular economy. “The main way forward as regards products is the green economy, utilising recycled and reused materials. As regards production chains as well as a certain number of products, on the other hand, the time has come to think about reshoring manoeuvres, in other words, bringing processing back to Europe.”

“The wood chain, for example, needs to be reassessed with an eye to sustainability,” agrees Calcaterra. “Both restructuring production processes, and, earlier in the chain, with sustainable forest management, and shorter, strictly certified chains.”

Some companies are already investing in reshoring operations. One such company is Compotek, in Manzano, which produces components for chairs and office and contract furniture.

“For the past decade we have been designing in Italy, but outsourcing production to China using our designs and moulds,” explains the proprietor Manuele Danielis. “However, the past year conditions have become disastrous. Container rental alone – and we transport 400 of them per year – has gone up from 3,600 to over 9,000 dollars. In addition to this, the increase in domestic demand has pushed prices upwards in China. Until a few years ago the gap with Europe was 20-30%, but now it has dropped to 10-15 percent, and at the same time, payment is now required in advance.”

Compotek were forerunners of a strategy – that of reshoring – that is now attracting the attention of a range of production chains and companies. As far back as five years ago, it moved part of its production, previously outsourced to China, into one of the group’s factories in Bosnia. Then, a year ago, it embarked on a major investment of 2.5 million euro at its headquarters in Manzano, Italy, where in the next 3-4 months a brand new moulding line will be brought into operation.