Rise in raw material costs: the warning from Confartigianato and Confindustria

The upward trend in prices shows no signs of slowing down, now reaching 70% for cellulose; and while we have been witnessing unprecedented increases in raw materials (such as steel, wood, and gas) for six months, we are forced once again to question the future of production supply chains, put to a severe test by prices that are now skyrocketing.

Italian companies are further burdened by increases regarding energy costs, making it necessary to find solutions to avoid halting entire production chains. In particular, the companies facing the greatest difficulties are micro, small, and medium-sized enterprises, upon which falls a double sword of Damocles represented by the cost of raw materials and energy.

Data from Confartigianato shows that the most "expensive" effect is evident in the North-East of our country, home to numerous companies and businesses, including family-run ones. In this area, the rise in raw material prices weighs on micro and small enterprises by 3.3% of GDP. 

The impact has also swept through the North-West, affecting it by 2.8%, while for micro and small enterprises in Central Italy, the impact drops to 2.3%; the lowest impact is recorded in the Mezzogiorno, standing at 1.8%.

The issue of the unavailability of raw materials puts the very existence of companies to a severe test, forcing them to turn down orders both due to the difficulty of sourcing raw materials and the impossibility of honoring quotes made months ago. 

Confartigianato announced that the percentage of companies operating in the construction sector reporting materials shortages as an obstacle to production rose to 9.5% in September 2021.

Raw materials: how they affect economic recovery

The high cost of raw materials and their unavailability represent an obstacle to recovery. Despite increasing orders, we are witnessing a slowdown in investments as well as innovation processes, and the demand for labor is falling. Some are even attempting to access social safety nets. 

There is a growing need to monitor speculative maneuvers; therefore, the introduction of price control mechanisms, as in the case of the energy sector, would be appropriate.

How the packaging sector is facing the crisis 

The restart within the packaging sector brought about an increase in requests, but successive lockdowns and restrictions had previously forced businesses to slow down. In doing so, a gap was created between market demands and actual response capacity.

Currently, the packaging sector is weighed down by price increases in cellulose, in addition to the costs of waste paper and gas costs, which have now skyrocketed. Some paper mills are thinking of countering the situation by temporarily suspending operations, all to avoid producing below cost.

The overall picture of increases puts production to a severe test: for instance, long-fiber NBSK has seen increases of 60%, while it amounts to 70% for short-fiber eucalyptus. These increases translate into a price per ton of 1,350 dollars for long-fiber and 1,150 dollars for short-fiber, according to Assocarta data.

Paper and cardboard for recycling have risen by 138% and 143% respectively, marking prices from 155 up to 170 euros per ton. Therefore, anyone wishing to purchase raw materials for recycling pays much more for them.

What are the reasons for the price increases in paper and cardboard for recycling?

The advent of the pandemic changed our purchasing habits. On one hand, there was a greater demand for packaging due to the explosion of e-commerce and the creation of packaging destined for takeout.

Furthermore, the increased demand for sustainable containers led to paper and cardboard being identified as the primary candidate for replacing single-use packaging.

It must also be considered that the paper sector is among the most energy-intensive. The increase in the cost of gas, as also reported by Assocarta, has been rising since the summer of 2020 and unfortunately tends to grow without showing signs of slowing down. This has significantly impacted the finished product. At times, price increases are equal to 5%, and even up to 10%.

For this reason, according to some paper mills, it will be necessary to halt production, at least until more affordable gas costs can be accessed.

How much does the cost of energy impact the cost of packaging?

According to estimates reported by Il Sole 24Ore, energy represents 30% of the total costs incurred, and therefore, even if turnover tends to increase precisely because of a greater demand for paper and cardboard packaging, profit margins tend to narrow due to high energy costs.

Among the most affected sectors is tissue: we are talking about sanitary and household paper, because this segment, due to its type of production, needs to secure agreements lasting at least six months, a timeframe too long to allow for the forecasting of final prices.

How much do the new EU regulations on packaging influence price increases?

As we have repeatedly explained in previous articles, packaging is at the center of a revolution. The need to reduce or eliminate plastic volumes within packaging has caused the demand for cardboard to soar.

Faced with a stable production capacity, an increase in cardboard demand was generated, which in turn, in this delicate situation, caused a general price hike:

Linerboard with corrugated medium → +65%

Graphic paper → +15-20%

Tube paper → +55%

Paper and cardboard are among the most recyclable materials. In our country, we have achieved a good level of circularity regarding paper collection and recycling, giving life to a more sustainable production cycle.

At the moment, a large volume of orders is being recorded, but it is impossible to fulfill them. As pointed out at the beginning, the e-commerce boom made manufacturers aware of the need to provide a massive amount of packaging. 

How should packaging production be rethought?

The crisis in the paper sector also asks us to rethink our relationship with packaging which, especially regarding primary packaging, carries aesthetic value, product recognition, and so on.

At present, efforts are being made to review the concept of packaging, particularly based on functionality, so as to align production and optimize it solely and exclusively to meet specific needs.

While we have already talked in the past about packaging design in terms of resource savings and waste reduction, this requirement has now become a true diktat to be followed.