Russia’s continued invasion of Ukraine will cause further disruptions to the automotive industry’s supply chain, as well as impacting food supplies, Capital Economics said.
“Aside from the most energy-intensive sectors, vehicle production seems most exposed,” the economic researcher added.
Although supply chain links between the EU and Russia and Ukraine are small - just 6.1% of eurozone imports from Russia – some Russian products may be routed via other countries or used as intermediate inputs further down the supply chain.
Shortages of seemingly peculiar goods may cause the most disruption, for example, the lack of wiring harnesses from Ukraine forced several car plants to shut down globally.
Meanwhile, Russia produces 40% of the world’s palladium – used in catalytic converters – while the second-largest producer, South Africa, is unlikely to entirely pick up the pieces.
The impact on supply chains depends on how easily accessible substitutes are, the speed at which they can be obtained, and the level of stock of the good on an individual and global level, Capital Economics noted.
“A drying up of intermediate imports from Russia and Ukraine to Europe would complicate life for European companies.
“We suspect that most firms will be able to source alternative inputs before long and the total impact on output will be small – particularly compared to the wider post-pandemic disruption,” it added.
European governments were worried about imports of Ukrainian corn and sunflower oil products, which are also relied on for animal feed.
This increased the demand for soy, rapeseed, and palm oil comes at a time when supply is already heavily constrained.
“Increased demand for substitutes may push up the price of alternative inputs, even in countries with limited supply-chain links with Russia and Ukraine,” Capital Economics said.
Mining, utilities, and metal or chemical manufacturers will be most affected due to the highly energy-intensive nature of the activities and their reliance on Russian oil.
The automotive sector, a major consumer of semiconductors, used fewer chips as consumer demand for cars declined during Covid-19 lockdowns (read more).
This forced chip manufacturers to shift their focus to computer equipment and mobile devices, but once lockdowns were eased and car sales picked up it led to increased demand for chips in cars again.
Wheat prices touched a 14-year high yesterday on supply concerns, as Russia and Ukraine combined produce 14% of global wheat and supply almost one-third of all wheat exports (read more).