Supply and Demand: Relationship Status Is Complicated
Tinplate prices increased quite a bit in the last few months. It wasn’t a local situation but a global one that started roughly around September of 2020. It also wasn’t specific to tinplate or steel in general but a similar increase happened to almost all raw material groups. It wasn’t just the materials that got affected by this but also transportation services. So what exactly is happening and when is it going to stop?
Before we get into detail, we have to talk about one very important theory. That is the supply and demand law which explains the interaction between the buyers and the sellers of a product. Generally speaking, when there are more sellers than buyers, prices tend to go down, and when there are more buyers then sellers prices tend to go up. Based on this movement, the price of that product is determined. I am sure most of you already know this but what we are seeing is a prime example of this law.
When Covid-19 started to spread globally, there were a lot of precautions taken. Most of those precautions included some sort of travel restrictions such as lockdowns and travel bans. At the same time, a lot of major manufacturers either totally shut down or slowed down their operations all across the world. The first few months, consumer demand for anything other than basic necessities was down but also supply was down because of shutdowns.
After the initial shock and panic, consumer demand started to come back. Manufacturers also started production slowly. The inability to predict the near future by companies required them to use their stock instead of ordering more raw material in our case. That was still ok because they could meet the demand. However, no one has an endless amount of stock. Through the summer, stock levels kept going down, consumer demand kept going up and the upcoming second wave of Covid-19 made fall look very unpredictable.
Right then the delayed demand for raw material came back all at once. Steel mills who idled most of their production weren’t able to respond quickly and even if they could, there wasn’t available capacity to produce 3-4 months of demand all at once in one month. Supply and demand got completely out of balance driving the prices up. Panic buying also didn’t help an already difficult situation.
So this is what happened but what’s next? In the last few weeks, we have participated in a meeting held by the Istanbul Chamber of Industry and in another one held by the Metal Packaging Industries Association of which we are a board member. Members of our metal packaging community, raw material manufacturers, the Turkish Ministry of Trade, and industry professionals were present at these meetings. The general view is that price increases will slow down and stop in the second quarter of this year but they will remain around these levels until the fourth quarter. Obviously, no one could say anything for certain but it feels like the worst is behind us. Let’s hope it stays that way.