Economic Forecasts

Business Spending: Geopolitical Impacts on Materials Costs in 2022

Kiplinger’s latest forecast on business equipment spending

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Take note of some key political and geopolitical events that are affecting materials costs. Prices of copper, steel, and iron ore will come down further. Copper supplies will be up, and demand from China down. Ditto for iron ore. Steel prices have begun the long descent from super high levels last year, but still have a ways to go to get back to “normal.” The rise in lumber prices is being tempered by a U.S. government plan to reduce tariffs on Canadian softwood lumber from 18% to 11.6%. However, aluminum prices will jump as Russian threats to invade Ukraine look more likely, because war would cause an interruption in Russian aluminum supply. Rare gases that are used in producing semiconductors—krypton, neon and xenon— would also be affected, since Ukraine is an important source. And lithium prices are stratospheric, as plans for numerous electric vehicle battery plants have been announced by multiple carmakers.

2022 should be the year that sees a slowdown in COVID-19 infections, and when supply chain issues work themselves out. Manufacturers will continue to purchase machine tools and other equipment, so that they will be ready to ramp up production when they can. Though 2022 won’t see business spending grow by the lofty 13% in 2021, investment in equipment should still rise by a robust 9%. Software: Up 5%.

Semiconductor shortages have reached their peak, and are beginning to gradually improve, but they will still be felt next year. These shortages have limited the sales of electronics, motor vehicles and communications equipment. Worldwide chip production capacity is expanding—good for sales of semiconductor manufacturing equipment. The auto industry will suffer the longest, as it uses older generation semiconductors, and only a few new manufacturing facilities will be built for these. But the industry’s needs will most likely be met by early 2023.

Spending on industrial robots is rising. Workers are in short supply in manufacturing. Robots can help, and they also reduce the need for social distancing among workers. Interest in collaborative robots is also high. These work in close contact with humans instead of as stand-alone ‘bots.

Buildings and structures construction should finally stop declining in 2022 and show a small increase of about 2%. Energy-related construction had seen the biggest drop during the pandemic, but upward pressure in the price of oil is pushing up the number of operating oil rigs in the U.S., boosting demand for oilfield equipment. The number of active drilling rigs is still 182 short of what was operating before the pandemic.

Sources:

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