Author Sam Lin
Updated January 10, 2023

Post-pandemic recoveries, surging freight rates, and Russia’s war in Ukraine sent raw material prices fluctuating dramatically in mid-2021. As a result, Vestas, Siemens Gamesa, Nordex, and other turbine suppliers raised pricing of turbine. Inflation seems to be reined in recently, thanks to rate hikes from the U.S. Federal Reserve and the European Central Bank. However, the Russia-Ukraine conflicts and higher oil prices will persist into the year’s end. The following paragraphs illustrate changes in raw material prices and how turbine suppliers took the blow amid surging inflation since 2021.  

Raw material usage of wind turbines

Raw materials make up 13-19% of the total production cost of a wind turbine. How much weight each material takes up in a turbine depends on the manufacturing technology. For example, pig iron accounts for 35% of weight of a squirrel cage induction generator (SCIG), but 40-50% of a permanent magnet synchronous generator (PMSG). The percentage also varies among direct-drive PMSG (PMSG-DD) and PMSG with gearbox (PMSG-GB). No matter which, the pig iron and steel together account for around 90% of the total weight. Therefore, prices for iron ore, the raw material of steel and pig iron, is a decisive factor in turbine prices. Copper accounts for 2-3% of weight, aluminum 0.9-1%, cobalt, manganese, nickel, and rare-earth element take up the rest. 

Each raw material’s share of weight in a wind turbine

How and why raw material prices changed?

Steel and cast iron: 

Iron ore and hot-rolled coil steel prices

Steel and cast iron are made of iron ore. There is a 0.9 high correlation between steel and iron ore prices. As the global economy strongly rebounded from the pandemic in 2021, iron ore prices hit a decade high at 1,337 yuan per 500 tonnes at the Dalian Commodity Exchange (DCE) before plunging in November, when the Chinese government announced to cut production. In 2022, iron ore prices surged amid the Russia-Ukraine war, as the world sought alternatives to iron ore supply from the two countries. Russian and Ukraine are the world’s fifth and sixth largest suppliers, accounting for 4% and 3% of global iron ore supply respectively. The DCE saw at least 20% of week-on-week price hikes in March. As the war escalated, sanctions affected demand. Doubled with central banks’ rate hike decisions that tamed inflation, iron ore prices started to drop. Recently, iron prices returned to 650-750 yuan per 500 tonnes. 

Future price trend hinges on global economic outlook and China’s recovery after the end of zero-Covid policy, for China is the biggest iron ore importer, accounting for three-fourths of import volume and half of steel demand worldwide. In 2022, the World Steel Association (WSA) cut its forecast for the growth of global steel demand of the year to -2.3% and expected prices to stay low until early 2023. Therefore, turbine prices are less susceptible to steel price hikes over the past two years. 

Copper and aluminum:

Copper and aluminum trading prices 2017-2022

Copper prices rose as the economy rebounded in 2021. London Metal Exchange (LME) copper futures rose from the $4,608.5/tonne low point in March 2020 to $10,557/tonne in May 2021 and stayed elevated amid the Russia-Ukraine war. Russian accounts for 3.5% of copper supply. In fear of supply disruptions, the LME imposed sanctions on Russian copper. As a result, copper prices rose again to $10,674/tonne in May, then dropped after June. The figure lingers between $7,500-8,500/tonne in recent terms, still slightly higher than the pre-pandemic level. The International Copper Study Group (ICSG) expects further declines, given several copper mine expansions this year that may lead to excess supply. 

Aluminum price trend was similar to that of copper. LME aluminum rallied from the $1,441.5/tonne low point when the pandemic eased. The price hike slightly slowed down in late 2021, then surged to $3,849/tonne in May as Russia initiated the war in Ukraine and cut off natural gas supply. During July and December, due to rate hikes from central banks and the gloomy economic outlook, aluminum pared gains to $2,000-2,500/tonne, close to the pre-pandemic peak in 2018.

Change of raw material costs

Steel, cast iron, aluminum, and copper prices all began to climb in May 2020, peaked in mid-2021, slightly dropped, rallied amid the Russia-Ukraine conflicts, then declined due to fear of economic downturns. Such a trend underlines how raw material prices are in line with macroeconomics and the unexpected transience of impacts from the Russia-Ukraine war, though rate hikes also did their part by cooling down inflation. The LME and other countries, having not expanded sanctions on Russian metals, also played key roles in preventing further price hikes. For now, both copper and aluminum prices returned to normal levels. Iron ore prices dropped but remain relatively high. Raw material prices will have smaller impacts on turbine production costs. 

Price index of raw materials (Index January 2017 = 100)

How did turbine suppliers respond? 

ASP wind turbine

Raw material prices stepped on an upper trend in the second quarter of 2020. But it was not until May 2021, when steel, copper, and aluminum prices peaked, did rumors of turbine manufacturers raising prices arise. However, either Siemens Gamesa, Vestas, or Nordex—maybe because they had yet to feel the pressures from the upstream, or because they see price hikes as a result of transitional shortage amid economic recovery and believe prices will return to normal levels once the shortage eases— had yet to make marked adjustments as of the second or third quarter of 2021 and kept prices unchanged to secure market share. In the fourth quarter of 2021, manufacturers finally raised prices. Siemens Gamesa made the most significant changes, placing prices 21% higher than the level of the previous quarter, while Vestas and Nordex raised prices by 7-8%. 

Turbine price hikes

On February 24, 2022, Russian forces entered Ukraine, signaling the ongoing instability of raw material price trend. Manufacturers kept raising prices during the first and third quarters of 2022. By the third quarter, turbine prices of the three major suppliers had experienced 25-28% of increases. Some re-negotiated contracts to have end users bear the pressure of inflation. Vestas and Nordex posted 7% of quarterly increases on average. Siemens Gamesa raised prices by 8% in the first two quarters, then 6% in the third quarter. Thanks to significant turbine price hikes, Vestas slowed down its gross margin decline, and Siemens Gamesa got out of the red in the third quarter.

During 2020 and 2022, metal prices rallied amid economic recovery. Prices for all raw materials rose by 10-60%, especially steel, a major component of turbines. Prices for iron ore, the raw material of steel, surged by 67%. Doubled with increasing freight rates, turbine suppliers were under pressure. Having invested enormous capex, manufacturers need sufficient sales volume to make up for production costs and after-sales warranty service over the coming 20-25 years. Therefore, turbine manufacturers are very cautious about price increases, even willing to take losses, despite the oligopoly.