Brace for more supply chain disruptions due to Ukraine crisis: EDC
- March 11, 2022
Although financial markets, numbed by episode after episode of the “unprecedented” during the pandemic, remain relatively composed about the economic impact from the invasion of Ukraine, the conflict threatens to exacerbate ongoing supply chain disruptions, warns Export Development Canada (EDC).
Despite the largest military conflict on the European continent since WWII, the famed “fear gauge”, provided by the Chicago Board Options Exchange, isn’t much different from where it was early last year. And it’s lower than where it was at this time two years ago, at the start of the COVID 19 pandemic, points out EDC’s interim chief economist and vice president, Stuart Bergman. But when it comes to the globe’s supply chains, it’s another story.
“Russia…supplies about 40 per cent of the world’s palladium, 30 per cent of titanium, is a key nickel producer, the third-largest exporter of steel,” says Bergman, adding that few industries will escape the pricing pressures caused by shortages of such critical material, including the automotive and aerospace sectors critical to job shops.
Ukraine is also a major exporter of metals and machinery. And depending on the scale of the conflict, “there’s a risk of disruption at neighbouring ports on the Black Sea, including Romania and Bulgaria in the west, Georgia in the east and Turkey in the south.”
Ukraine’s two leading suppliers of neon, a key ingredient for making semiconductor chips, produce about half the world’s supply, but have had to shutter their operations and halt supplies since the Russian invasion, according to a report in Reuters. Ingas, based in Mariupol, a city under heavy bombardment by Russian forces, produced 15,000 to 20,000 cubic metres of neon per month before the invasion, with 75 per cent of it consumed by the chip industry. Cryoin, located in Odessa, another city under Russian attack, produced 10,000 to 15,000 cubic metres of neon per month before the invasion. Further complicating matters is the fact that Ukrainian neon is a byproduct of Russian steel manufacturing.
Neon prices rose 600 per cent in the run-up to Russia’s 2014 annexation of the Crimean peninsula from Ukraine, according to the U.S. International Trade Commission. This time pricing for neon has spiked by 500 per cent since December.
There are companies around the world who cold initiate neon production to make up for the shortfall but there is no short-term fix. It would take nine months to two years to ramp up alternate sources of supply, according to the Reuters report.
Energy pricing is also expected to continue taking a beating. Russia produces 10 per cent of the world’s oi supplies.