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The Russian invasion of Ukraine is starting to take its toll on the automotive supply chain and also on pricing for base metals.

Shops serving the automotive sector were hurt over the past year by OEM production slowdowns caused by the shortage of semiconductors. They have much to be concerned about once again. The Center for Automotive Research (CAR) is warning that the invasion is likely to hurt semiconductor production.

Both Russia and Ukraine are critical suppliers of palladium and neon gas, which are used to produce engine after-treatment parts and semiconductor chips. Palladium is an essential metal used in the production of catalytic converters. Techcet, a market research firm based in California, estimates that more than 90 per cent of neon used for U.S. semiconductors is sourced from Ukraine and nearly 35 per cent of palladium used in the U.S. comes from Russia, CAR reports.

“The global automotive industry faces considerable risk following the invasion,” CAR states in an opinion piece posted on its website. “The price of palladium jumped by over 6 per cent when the invasion began and has increased by over 80 per cent since mid-December.”

CAR also points out that the palladium price increases are part of a large surge among other base metals of which Russia is a key supplier, including aluminum, nickel and platinum.

Another area of significant concern is the impact of the Russian invasion of Ukraine on energy pricing. Russia is the world’s third top oil producer (behind the U.S. and Saudi Arabia). Even if the current sanctions imposed on Russia do not explicitly target the energy trade, sanctions on banks and other entities will impede Russia’s oil and natural gas exports, impacting global energy markets, CAR warns. It points out since Russia invaded Ukraine the produce of crude oil has reached U.S. $105 a barrel, which is its highest level since 2014.

“Should gas prices continue to rise, automakers could see a significant impact on consumer buying habits,” CAR predicts.

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