The deadlock between Ukraine and Russia – particularly over Crimea, the current battleground where the US and the EU have joined the fray – got us thinking, “Man, there must be some massive supply chain implications here.”
And there definitely are – for pricing, availability, lead times across a broad range of commodities, parts, components and finished products, far beyond the immediate region itself.
It is our view that the political front is the one to watch, as impending sanctions on Russia imposed by the US/EU would be the main catalyst for supply chain upheaval. On the non-metal commodity front:
- According to JPMorgan Commodities Research analysts, although Ukraine is neither a major oil producer nor oil consumer, it is the key “middleman” country for Russian energy exports. More than 70 percent of Russia’s gas and oil flows to Europe pass through its territory. In turn, Europe is the buyer for nearly 90 percent of Russia’s oil exports.
- If tension escalates, namely if military action is undertaken, pipelines could potentially be cut off and actual delays or shortages could hamper western (EU) supply.
On the metals front, several key US manufacturers’ supply chains could feel reverberations due to their business in Russia (especially if US/EU sanctions directly affect them). For example:
- Boeing Co. buys nearly a third of its titanium for its planes (translating into an $18 million total spend) from Russia, mostly from VSMPO-Avisma, which is the largest titanium producer in the world, according to the WSJ.
- If the supply chain is impeded in any way, the perception of “slow availability” could drive titanium prices to rise, even though Boeing’s long-term contracts with VSMPO-Avisma lock in price.
- VSMPO-Avisma also does business with Alcoa.
by Taras Berezowsky