Inflation has been steady over the last 5 years, accelerating significantly in the last 2 years:
- PPI (Producer Price Index) is a family of indexes that measures the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures, such as the Consumer Price Index (CPI), that measure price change from the purchaser's perspective. Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs
- PPI - 33% increase vs pre-COVID levels (Jan 2020)
Commodities In More Detail
MRO-009 Ver 1.1 (April 23
Confidential & Proprietary | 2023 CBRE Inc.
Hardwood & Soft Pulp
Wastepaper
Resin
Transportation
Natural Gas
- Global pulp market supply remains exceptionally tight with sellers reporting no improvement in backlogs and buyers running out of pulp
- Supply side issues coupled with higher input costs have ensured pulp price increases across grades
- While pulp producers' revenues are at highs, costs have risen sharply - between 46-86%, due to inflationary pressure on key inputs such as chlorine and caustic soda
- Softwood pulp +47% (+25.8% - 2020-2022) - hardwood pulp +44.7% (+39% - 2020-2022)
- Generation remains low while demand remains increased, both domestically and export into India, Europe, Mexico, and LAO - adding pressure to domestic pricing
- Many competitors are raising their premiums to equal or higher than the Fastmarkets RISI index
- Freight spot-rates and availability are believed to finally be improving after ~18 months of inflation, but will be partially offset against fuel surcharges
- Several force majeures and Exxon outages (contamination) are leading to limited polypropylene supply and likely driving-up supplier margins
- Current conflict in Ukraine being watched closely as crude oil fluctuations are negating capacity expansion and offsetting any pricing decreases
- The Heartland Polymers (Inter-pipeline) startup in Canada is postponed to the 3rd quarter of 2022. This will shift supplier margin erosion to Q3. Exxon starting-up a line in Q4. Both adding a total of 2.2B lbs of capacity (10%)
- Transportation costs have increased by 30% since Jan 2021 - 63% vs pre-Covid Levels (Jan 2020)
- Contract rates for truckload van transport in the U.S. jumped to a record high in March
- Fuel prices remain inflated
- Current imbalance between loads vs. available carriers improving but equipment shortages now posing challenges.
- Natural Gas price continues to increase and inventories are low (Natural Gas costs have increased by 189% since Jan 2020 and ~150% since Jan 2021)
- Production is slowly increasing, but not as fast as demand
- LNG exports are at record levels to help offset EU reduced Russia gas
At a Macro Level:
- Demand for commodities remains strong across all categories, supply-chain constraints are driving commodity costs higher, while the crisis in Ukraine creates additional uncertainty - driving inflation and volatility higher
- Labour and logistics constraints continue to challenge supply-chains - creating significant risk of disruptions in supply