Why all the shortages?

Why all the shortages?
Fred Razak – Chief Trading Strategist at CMTrading

A trading and commodities expert comments on the global supply chain.

The Russia-Ukraine war, global economic uncertainty, heatwaves in India and Europe and rising transport costs have had a domino effect on several global supply chains. And as 2030 approaches, with Europe and the United States aiming to convert to cleaner energy, it’s not only food shortages causing significant discrepancies in supply and demand; several vital metals and minerals are also falling short. This article examines some of the global shortages the world faces, with comments from Fred Razak – Chief Trading Strategist at CMTrading. 

Razak comments, “One of the most glaring food security issues in the world at the moment is the wheat shortage, which is a direct result of the Russia-Ukraine conflict. According to UN data cited by the BBC, Russia and Ukraine collectively account for nearly a third of global wheat supplies. Ukraine’s contribution alone is almost 10%, and in 2019, Ukraine supplied 16% of the world’s corn supplies and 42% of sunflower oil.

“As the war escalates and Vladimir Putin holds the reins on the global wheat supply, a food crisis is imminent. Russia is also an oil-producing country, but in the case of oil, the major price fluctuations we have seen in oil have not necessarily been due to a shortage in supply as it is due to a toxic speculative climate. Recession is here, whether it has officially been called such or not. And many factors are affecting the global supply chain in our current reality.”

The metal and mineral gap 

The move from fossil fuel to renewables has created a dilemma for the European Union and the United States. The growing gap in critical metals supply will likely hinder these global powers’ outwardly noble intentions.

Rare earth elements like neodymium and praseodymium, widely used in constructing rare earth magnets that are critical components in wind turbines and electric vehicles, are in high demand. But China currently produces around 85% of rare earth magnets worldwide.

Razak says, “As we’ve seen with Russian oil, if a critical supply chain is disrupted, there can be a knock-on effect in supply and demand. China’s virtual monopoly on rare earth elements could be problematic due to geopolitical factors. US relations with China are precarious, and rare earth prices are on the rise.

“That said, western companies are racing to create their own rare earth supplies to counteract the Chinese monopoly. Canada, for example, has resources in the Athabasca basin, which has seen quite a bit of new investment. Whether it will be enough by 2030, however, is undecided. In the meantime, rare earth prices are steadily rising.

“Aluminium, a staple Chinese export, has seen price hikes and a supply chain under strain, too. And this lightweight metal is used in several items we use every day – from soft drink cans to aeroplane components and knives and forks.

“The reasons for the shortage include a decline in Chinese production, labour shortages and residual pandemic backlog. While industry insiders are hesitant to predict exactly when the supply chain issues will end, it’s unlikely to be a long-term problem. And the US is investing in additional supply plants to deal with the shortage.”

Baby food surprising the United States 

The United States recently saw a baby formula shortage, prompted by COVID-19-related supply chain problems, labour shortages and import restrictions. Razak adds, “The most illuminating thing about the baby formula crisis in the US – which still hasn’t quite normalised – is that we learned about America’s marked lack of preparedness for situations like these.

“In developing countries like South Africa, we see far more social resilience when supply and demand don’t quite go to plan. Perhaps this will serve as a learning experience for the US, which is not usually subject to supply chain issues of this magnitude.”

What next? 

Independent studies suggest that supply chain interruptions may well persist into 2023. Razak offers his final thoughts:

“Global supply chain gaps can often hit where you least expect them. If certain raw materials or even packaging materials – as is the case with aluminium – are in short supply, the public might be surprised at what they struggle to find at their local supermarkets.

“Besides baby food, the US saw quite a few shortages that probably seemed surprising to the average American. Among these were popcorn, tampons, and, oddly enough, Sriracha sauce. Certain pet food brands were also under strain, and Hershey experienced a candy shortage.

“The best we can do as consumers and investors is observe, consume frugally wherever possible and potentially seek out new investment opportunities where gaps exist. Times of crisis are often also times of opportunity – particularly for those who trade in commodities because high risk can also mean high reward.

“I have mentioned in previous interviews and articles that, even during recessions and economic difficulty, money does not disappear. It simply moves elsewhere. I stand by this and encourage people to watch the markets carefully if they are looking to capitalise on new opportunities.

“I would, however, caution anyone against panic buying. No one wants to end up with a garage full of popcorn, beans or chilli sauce.

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