Infinish Media Library
We have been asked many times by our customers at Infinish about the supply issues facing the metal finishing industry. Although this news article is not specific to our industry, it gives a little insight on the topic.
What’s Behind The Global Supply Chain Crisis and Increased Pricing? And How It Will Affect Our Industry (Metal Finishing)
Looking inside supply chain issues and logistics within a geopolitical context.
2023
The global supply chain crisis continues to be a significant issue in 2023, with the Russia-Ukraine conflict, geopolitical implications, and ongoing COVID-19 restrictions in China exacerbating the situation. Fuel costs have been impacted due to restrictions on Russia, and the potential for further restrictions remains a concern. Global logistics are grappling with numerous risk factors, including airspace restrictions, consumer demand uncertainty, and bottlenecks related to China's COVID-19 response.
Supply chain problems were already prominent during the COVID-19 lockdown due to a combination of demand shifts, labor shortages, and structural factors. These issues have been further aggravated by the Russia-Ukraine conflict and COVID-19 lockdowns in China, affecting supply in sectors such as consumer goods, metals, food, chemicals, and commodities.
Will Supply Chain Bottlenecks Continue?
Despite signs of easing supply chain disruption earlier in 2023, evolving global factors and geopolitics are causing new risks and pockets of stress. Potential risk factors include a possible rebound in U.S. port congestion, spillover from the Russia-Ukraine conflict at Northern European ports, limitations on airfreight transportation, particularly along the Asia-Europe lane, COVID-19 lockdowns in China, and disruptions to rail freight.
Russia's dominant role in global energy, industrial metals, and soft commodities supply has pushed commodity price inflation to the highest levels since around 1960. The EU and the U.K. have also banned Russian ships from docking at ports, posing a significant risk to European supply chains and commodity prices.
Metals and Mining
In the metals and mining sector, most Russian mining companies have not experienced significant logistics disruption during metal export from Russia to Europe. However, logistical bottlenecks are increasing, pushing up export costs and extending delivery times. A high concentration of industrial metal supply relies on Russia, specifically nickel, palladium, platinum, rhodium, aluminum, and copper. Aluminum faces the most significant and immediate disruption risk, as around 60% of Russia’s traditional alumina import requirements are closed off or disrupted.
Chemical Supply
In the chemical supply sector, the direct sales and earnings exposure to Russia for most European chemicals companies is low. However, the supply of fertilizers is likely to be impacted as Russia is a significant producer/exporter of potash and ammonia. Low or no supply from Russia combined with high energy prices is likely to result in a significant disruption to the supply of fertilizers in the foreseeable future.
The Automotive Sector
The automotive sector is facing disruption due to rising costs and the availability of nickel, copper, platinum group metals, aluminum, and steel products. Escalating Russia risks, complex automotive supply chains, and dependence on key metals could make the situation volatile in the coming months.
Semiconductors
The semiconductor sector is also affected, not by the geopolitical situation directly, but by the supply of palladium to the auto industry and nickel to battery makers. The autos end market is key for European semis, with major device companies having 30-45% exposure. Currently, semiconductor supply is a major bottleneck for the industry.
Technology
The technology sector is facing renewed supply constraints due to the industry-wide silicon chip shortage and disruptions related to COVID-19 lockdowns in China. For technology giant Apple, the main focus is still on supply despite concerns about inflation affecting consumer purchases and the pausing of sales in Russia.
Finding a Way Out of Supply Shortages
To solve the ongoing supply chain issues, either an increase in capacity or a fall in demand is needed. On the capacity side, increased U.S. trucking capacity and reduced working restrictions related to COVID-19 should help. The shipping fleet is also expected to expand faster during 2023 and 2024. On the demand side, a recovery in inventories seen in many importing countries and a shift in the mix of consumer spending back to discretionary services may help. Increasing pressures on consumer budgets may also force a slowdown in import demand.
*Some information for this article was taken from Samuel Bland, European Transport and Logistics Analyst, J.P. Morgan