Types of Commodities Tossed Around in the Russia-Ukraine Conflict
From wheat to barley and copper to nickel, analysts say that supply chains will be the victims of Russia-Ukraine’s current conflict, which has taken a turn for the worse. Although the conflict of the two may cause minimal impact on Germany’s and the US’ manufacturing sector, yet the two are major suppliers of raw materials and energy across many supply chains.
Not to mention Ukraine known to be the ‘breadbasket of Europe’ and an invasion would result in the food supply chain getting ‘hit hard’, said Alan Holland, CEO and founder at sourcing technology company Keelvar. Leave alone Russia and Ukraine being big suppliers of metals and other commodities, according to analysts.
At the moment, Russia has halted shipping in the Sea of Azov until further notice, as commodity and shipping markets assess the potential consequences of Russia's decision to commence military operations in Ukraine's Donbas region.
At International Energy Week, TotalEnergies CEO Patrick Pouyanne responded by saying that the Ukraine crisis presents a ‘necessity’ for Europe to maintain energy supply security.
According to S&P Global Platts Analytics, the base case demand forecast for 2022 continues to expect growth of 4.1 million b/d. However, in the event of a modest incursion in Ukraine, global demand growth might slow by 0.7 million barrels per day. Here's what's on the line if there's a military war or if severe sanctions are imposed.
Analysts say Ukraine produces wheat, barley, and rye, which are important crops in Europe. It's also a major corn grower. In reality, several countries in the Middle East and Africa rely on Ukrainian wheat and corn, and disruptions in that supply could risk food security in those regions, according to Dawn Tiura, president of the Sourcing Industry Group.
“Even though harvesting season is still a few months away, a prolonged conflict would create bread shortages [and increase consumer prices] this fall,” said Holland.
“China is also a big recipient of Ukrainian corn — in fact, Ukraine replaced the U.S. as China’s top corn supplier in 2021,” she said.
Food inflation has been rising, and if an armed conflict breaks out, it could get even worse.
“Rising food prices would only be exacerbated with additional price shocks, especially if core agricultural areas in Ukraine are seized by Russian loyalists,” said Per Hong, senior partner at consulting firm Kearney.
Furthermore, any disruptions in natural gas supply will have an impact on the manufacture of energy-intensive products like fertilisers, which will inevitably hurt agriculture, according to Holland. Last year, fertilisers were already in short supply, resulting in skyrocketing prices.
Metals and Raw Materials
“Ukraine’s currency began declining in value since Russian troops started gathering at the border. This will increase the cost of their exports,” Tiura added.
According to Hong, Russia also holds roughly 10 percent of world copper reserves and is a key producer of nickel and platinum.
Nickel is a major component of electric vehicle batteries, while copper, which is commonly regarded as an economic indicator, is widely used in electronics manufacture and home construction.
“The U.S. chip industry heavily relies on Ukrainian-sourced neon and Russia also exports a number of elements critical to the manufacturing of semiconductors, jet engines, automobiles and medicine,” Hong said.
Many European countries rely heavily on Russian energy, notably gas, which is transported through numerous critical pipelines, and this may have influenced their response to the crisis. The European Union's reluctance to remove Russia from the international payments system SWIFT, for example, has been attributed to Russian gas reliance, though it's worth noting that the Germans have put the new Baltic gas pipeline Nord Stream 2 on hold indefinitely.
While a complete shutdown of Russian gas exports is unlikely at this time, even minor interruptions will have a substantial impact. Due to the pandemic, global gas supplies are low, and energy prices are already skyrocketing, affecting consumers and businesses. Gas is a vital component of many supply chains, thus disruptions to this vital source will have far-reaching economic implications.
Ocean shipping and rail freight are two types of transportation that are likely to be affected. Trains are currently being redirected away from Ukraine, and rail freight specialists are optimistic that interruptions will be minimal. However, sanctions on Russia are expected to have a significant impact on rail traffic in countries like Lithuania. Ship owners began to avoid Black Sea shipping routes even before the invasion, and insurance companies sought notification of any such voyages. Despite the fact that container shipping on the Black Sea is a relatively small sector on a worldwide basis, Odessa has one of the largest container facilities. If Russian forces cut this off, the impact on Ukrainian imports and exports might be significant, with potentially dire humanitarian repercussions. Rising oil prices as a result of the war are a concern for shipping in general. Freight prices are currently extraordinarily high, and they may continue to grow.
Cyber attacks on global supply lines have also been a source of concern. Because trade relies heavily on internet information exchange, targeting vital shipping lines or infrastructure might have far-reaching implications. A supply chain cyber assault can have massive ramifications.
The US has threatened to cut off Russia's supply of microchips as part of its sanctions on the country. This is hollow, however, given that Russia and Ukraine are major suppliers of neon, palladium, and platinum, all of which are essential for microprocessor manufacturing. Chipmakers currently have enough inventory to last two to four weeks, but any protracted supply disruption caused by military action in Ukraine will have a significant impact on semiconductor production and items that rely on them, such as automobiles.
While the rising crisis would affect the entire European Union, Germany would be particularly heavily hurt.
According to Atul Vashistha, chairman and CEO of supply chain risk intelligence firm Supply Wisdom, Germany gets the majority of its energy needs for manufacturing and electricity from Russia's natural gas.