Explosive input costs set to flow on: chemicals, metal fabrication and machinery all lift sharply

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Any business doing maintenance or installing new equipment knows that in addition to lengthy delays, the price of new machinery and other equipment, of fabricated metal and a range of other inputs has exploded over the last year. Latest data shows the largest cost increases are yet to flow through to some downstream industries, including printing.

Year-ended September, the input costs for metal fabrication businesses lifted 19.1% and were up 10.1% in the September quarter alone. Machinery and equipment manufacturers saw input costs lift 7.7% annually and 5.4% in the last quarter. The trend is clear. The costs of manufacturing have been rising for more than a year, and the size of the increases is growing.

 

Selected Australian Manufacturing Industry Input Producer Price Indices: MQ’17 – SQ’21 (INDEX: MQ’17 = 100)

Source: ABS

 

These are very large input cost rises and they must be passed on by the manufacturers. That is already evident for the Pulp, paper and paper products manufacturers (annually input prices are up an average 4.6%, and in the September quarter, they rose 3.8%). However, even further downstream, as the chart shows, the Printing sector has largely avoided sharp input price increases.

Year-ended September, the Printing sector saw input prices lift 3.2%, rising 2.4% in the September quarter.

It may be that businesses undertaking capital works can absorb input cost increases into their balance sheet, making them less prone to appear in their manufacturing input costs. But that can only last so long.  The Printing sector is a relatively minor capital sector and there are comparatively few significant new investments in it currently. That may explain why to date, its costs have not increased as much as sector supplying it.

However, the costs of consumables cannot – by any business – be pushed down the road. In that context, the cost of manufacturing Chemicals in Australia lifted 8.5% over the year-ended September and a hefty 6.1% in the September quarter alone. That will impact many sectors when the chemical producers are forced to increase their prices.

Pulp, paper and paper products manufacturers will face further pricing pressure, and it appears that in addition to higher paper costs, the Printing sector will have additional input costs from Chemicals and other materials with which to contend.

Increased manufacturing costs will be a feature of 2022.

 

This item was first published in Edition 197 of Pulp & Paper Edge in November 2021

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