“No industry is unaffected by the demanding international situation we currently find ourselves in. Several factors are interacting in what many describe as a perfect storm sweeping across the international economy and trade,” says Arne, listing the main reasons affecting the price of technical insulation.
- Increased raw material costs
- Energy costs are increasing
- Increased transportation costs
- Reduced production capacity
- Increased demand
Increased raw material costs
Some of the raw materials used in the production of technical insulation have increased in price, partly due to reduced availability and partly due to higher extraction costs. A good illustration of this development is the price index for aluminum, which increased from 166 to 227 from January to June this year. For our product range, this means that all mineral wool products covered with aluminum foil are rising in price.
Another example is how Russia's bombing of one of Europe's largest steelworks in Mariupol has reduced the supply of steel and thus caused sharp price increases.
Expensive energy
We all know how high electricity prices affect our personal finances. Several factors come into play here, most notably the war in Ukraine, as Russia has shut down large parts of its gas exports to Europe and both electricity and gas prices have reached record highs. Technical insulation is most often produced through energy-intensive processes and is therefore particularly sensitive to high energy prices. Manufacturers must pass on the increased production costs in higher product prices.
High transport costs
Petrol and diesel prices, like energy prices, have reached record highs around the world. In June 2021, the average price of a liter of diesel was NOK 15.21. In June 2022, it was NOK 24.58, according to figures from Statistics Norway. Both local and global carriers are experiencing significant cost increases that they must pass on to their customers. As a result, freight costs for all products are rising, resulting in higher prices for the end product.
Fuel isn't the only thing affecting costs in this sector. We have experienced a shortage of drivers, a shortage of containers, a shortage of pallets, and the world's largest container port in Shanghai has been closed due to the pandemic. All of this has had a negative impact on the cost picture and thus the prices of the end products.
Imbalance in the market
Arne reports high demand and activity in the market after the pandemic, and many players are sitting on unrealized or postponed projects that they now want to get started as soon as possible. At the same time, the pandemic has led to a movement in the workforce where workers have moved from industries that were hard hit to industries that could offer jobs.
Many industries are struggling to staff up to full production again, and production capacity has thus been reduced. When demand is greater than supply, prices rise. In addition, there is greater competition for labor, which means you have to pay more for it,” explains Arne.
“In our industry, we have so far escaped the high prices that have been seen for wood, for example, but Arne believes that the time of peace is over.” ”It's inevitable that there will be some sharp price increases for technical insulation in the short term. We're hopeful that the capacity challenges in production can eventually be solved, but energy and transportation costs are the biggest problem. Until these return to normal levels, we must expect prices for technical insulation to remain high,” concludes Arne Schultz, CEO of Isopartner.