12. RESPONSIBLE CONSUMPTION AND PRODUCTION

Citigroup warns the supply chain crisis is ‘deep-rooted’ – The Australian Financial Review

Written by Amanda

In 2021, it was trade routes between China and the US that were at the “centre of the storm”, Citigroup said. Chinese manufacturing and shipping remains unpredictable – Shanghai, one of the world’s biggest ports, resumed lockdowns last weekend only weeks after opening up.

But in 2022, it is trade links between Russia and Ukraine – which are among of the world’s biggest exporters of oil, natural gas and commodities such as wheat, nickel and fertilisers – that are disrupting energy and food supplies as well as manufacturing.

Combined with demand for consumer goods such as cars and furniture, a shortage of workers globally, rising interest rates and the continued pandemic, “the underlying macroeconomic environment has not shifted appreciably toward conditions that would support supply chain healing,” Citigroup said.

The financial group has developed a global supply chain pressure index that includes data on shipping, logistics, inventories and the performance of purchasing managers’ indexes.

While the index has dropped from its peak in late 2021, Citigroup warns that it continues to signal “remarkable tensions” in global supply chains.

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“The stresses that were in play last fall are not dissipating quickly … we see the risks for supply chains in the months ahead as skewed toward further deterioration,” it said.

The Organisation for Economic Co-operation and Development (OECD) has warned that countries are struggling with higher commodity prices, which is adding to inflation and curbing real incomes.

Its June economic outlook estimates world growth will be 3 per cent in 2022, down from the 4.5 per cent the group was projecting in December.

“The war in Ukraine has quashed hopes that the inflationary surge experienced in much of the global economy in 2021 and early 2022 would subside quickly,” the OECD said.

“The additional impetus to food and energy prices, and the aggravation of supply chain issues, imply that consumer price inflation will peak later and at higher levels than previously foreseen.”

Russia and Ukraine account for one-quarter of global exports of iron and non-alloy steel semifinished products; half the world’s exports of pig iron; and one-third of the world’s nickel exports, according to the OECD.

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Russia alone is responsible for one-quarter of global palladium exports (used by car manufacturers) and is a big exporter of ferro-alloys (used to make low-carbon steel) while Ukraine is a big exporter of neon gas (used to make semiconductors.)

Countries are already battling high oil and gas prices, and now fears of a global food crisis are emerging.

The Food and Agriculture Organisation’s (FAO) most recent outlook, released in June, said the rising cost of producing food, driven by soaring prices of fertilisers, energy and other inputs, “gives much cause for alarm as it increases consumer prices, imperilling food security”.

“The spike in the price of inputs raises questions about whether the world’s farmers can afford to buy them, to the extent that productivity and hence global food supply could be adversely affected in the 2022-23 season and beyond,” FAO said.

Citigroup says that many big companies have managed supply chain pressures by drawing down on existing stocks of goods, but believes managing inventories will become more difficult as stocks are depleted.

Morgan Stanley analysts say that while companies are trying to diversify their supply chains and make them more secure, including bringing production back “onshore,” it will cost money – hurting profit margins – and take time.

Source: afr.com

About the author

Amanda

Hi there, I am Amanda and I work as an editor at impactinvesting.ai;  if you are interested in my services, please reach me at amanda.impactinvesting.ai