Have you found that the consistent supply and reasonable prices in the Electrical Supply Chain that you were used to before COVID-19 hit have not returned as soon as you hoped, or as soon as some experts predicted?
Global events have created further obstacles in the electrical supply chain, but there are ways to work around them.
Only months ago, it seemed that the supply chain issues and price increases brought on by the COVID-19 pandemic were abating, but these problems persist due to recent events.
We will explore the impacts of such events, projections for component pricing, and how electrical contractors can overcome the challenges.
Supply chain problems explained
Earlier this year, before Russia invaded Ukraine and COVID-19 reemerged in China, it seemed we would finally enjoy relief from supply chain interruptions and price increases. But already high raw materials and energy prices have shot up again, and Ukraine-related transportation issues have further snarled the supply chain for electrical parts and supplies.
In addition, extended lead times still plague the supply chain. Adding to the misery, rising fuel costs drove prices up.
In the meantime, market demand for electrical parts and supplies surged in a bullwhip-effect recovery from COVID-19. Such a historically fast recovery, brought on by massive stimulus injections and Federal Reserve interventions, was a complete surprise.
Suddenly surging demand hit businesses that had scaled back production and lost workers because of COVID-19. To date, consumer demand remains strong.
The electrical supplies markets, with their global dependencies, were hit hard. Electrical contractors have felt the impact, which is predicted to continue throughout 2022. As a contractor, you will need innovative strategies to navigate the resulting supply chain challenges.
What to expect for the electrical supply chain
With the war in Ukraine inflicting more injury to an already weak global supply chain, you can expect high prices, product scarcity, and project delays through 2022.
Add a resurgence of Covid-19 in China near major ports for a further strain on shipping, and supply chains as we once knew them are a thing of the past. There is a hard new normal facing business, which is still evolving.
Causes
Both Ukraine and Russia are significant producers of aluminum. Both countries are also copper producers. But worldwide demand has slackened after a huge increase over the past two years. In addition to copper and aluminum, both countries are notable steel producers.
The Ukraine war shocked global energy markets just when the U.S. energy industry was caught flat-footed by surging demand after cutting production due to COVID-19. U.S sanctions against importing Russian oil and looming European Union sanctions drove oil prices even higher, to well over $100 per barrel.
Effects
The Russian invasion caused pricing volatility by generating fear in the markets. Aluminum reached record highs in March, and copper appears to have stabilized, but at high levels. Copper prices have risen 8.97% from one year ago.
World supplies are ramping up despite the Ukraine conflict.
U.S. steel prices skyrocketed on average 28.3% in April 2022 over March 2022. Based on West Texas Intermediate crude oil, oil prices fell 3.2% since April 2022, and diesel fuel prices in the U.S rose 71.47% from one year ago. Finally, gasoline prices climbed by 50.55% from one year ago as well. Natural gas prices have doubled this year and could reach 25% or more this summer.
The surge in global energy prices is especially painful because it is driving up transportation and production costs.
What to expect for select components
With the world in such a volatile state, accurate projections are difficult to make. The markets are fueled by fear at present. Thus, it is necessary to make some assumptions.
For the purpose of this article, those key assumptions are:
- The Federal Reserve Bank continues to carefully and effectively manage interest rate increases, and the U.S. economy avoids a recession and the drop in demand and industrial output that may follow
- The war in Ukraine does not escalate dramatically
Even under those assumptions, procurement of all electrical components will remain challenging. However, price increases for some parts should level off before the end of 2022.
Availability remains challenging to predict, and unexpected spot scarcities may occur. Nonetheless, the following are outlooks by product type, followed by some suggestions for procurement going forward.
1. Panelboards and switches — Galvanized steel is a major component typically used to make panelboards. Given the recent 28% surge in steel prices, expect significantly higher pricing, at least through 2022.
2. Circuit breakers — Circuit breakers use steel or aluminum and copper. With recently moderating copper prices, expect smaller price hikes over current levels in the remainder of 2022.
3. Switchgear — These are large and bulky items. Continuing shipping disruptions will add to lead times, and surging fuel prices will drive price increases in the near term.
4. Wire and cable — Copper and aluminum are the key components. Their prices are stabilizing after a huge increase, but expect them to hold near current high levels.
Overall outlook
Just as world markets seemed to be emerging from a perfect storm consisting of COVID-19, collapsing logistics networks, a sudden demand surge, production shortages and surging prices, the Russian invasion of Ukraine plunged global markets into a darker storm. The market for electrical supplies, with its dependence on global supplier networks, felt new shocks.
Electrical contractors now find themselves facing heavy demand for projects, rising costs, and growing lead times. Margins are under pressure. So, to survive, it is crucial to understand the history and to be fluent in market trends for the future.
Read on for some recommendations on how you can do so.
Navigating supply chain issues
Overall, electrical supply disruptions will remain until at least the end of 2022, and procurement of electrical components will be challenging. Customer demand remains higher than normal despite these issues, so as a contractor, here are a few tips to help you navigate these challenges:
- Subscribe to Raiven’s quarterly supply chain updates to get the latest pricing trends from the industry experts.
- Join a group purchasing program like Raiven or Avendra. Companies like these aggregate the spending of their members and use the group purchasing power to negotiate up to 25% discounts from suppliers and manufacturers.
Contact Raiven today for more information on managing your electrical supply costs in today’s stormy markets.