The venerable business of commodities trading, already in the news about the impact of COVID on the supply chain, has moved to a central stage in the war in Ukraine. The effects of Russia’s aggression can spill over into all types of manufacturing, especially the clean energy shifts needed to meet climate goals.
Commentary
Within the first week of the fight, there were three issues in the commodity market. Energy is the focus of attention. Most people understand the magnitude of Russia’s dominance over Europe’s energy supply, and the weaponization of Russia’s oil and gas is not a shock.
Agriculture is understood to be under threat based on what happened when Russia invaded the Crimean Peninsula in 2014. The turmoil in major grain transport from the Black Sea region is once again seen. By surrounding Kyiv, Russia threatens the siege of the capital. Food shortages can exacerbate the tragedy there and destabilize Ukraine’s trading partners to North Africa. And the price of fertilizer rises with the energy used to make it.
The metal and mining complex in both Russia and Ukraine is the third section of this stool and is closely related to the first section. Sanctions and transportation bottlenecks can prevent the supply of key products from reaching the market and delay the adoption of clean energy. Electric vehicles and other forms of electrification and pollution reduction.
The International Atomic Energy Agency said Russian troops had taken over Ukraine’s largest nuclear power plant. See this article on powermag.com for more information.
Affected commodities are from major Russian exports such as aluminum, steel and nickel to neon, a key component of electric vehicle manufacturing and other electrification (a by-product of steel manufacturing used in the manufacture of computer chips). , Palladium, and platinum between them. Electric vehicles are manufactured using about six times as many minerals as internal combustion engines.
The mineral sector is important not only for the Russian economy, but for all other economies as well, so it can be an exception to sanctions. However, the prices of raw materials used for clean energy are already soaring, and some companies and countries are starting to stockpile, rapidly exacerbating market turmoil. And it’s not just the mining industry, but the endangered processing and refining capacities, areas where China is dominant and can still intervene during a global conflict with its ally Russia. am.
In the short term, European countries may be tempted to release their pledges to avoid subsidizing fossil fuels. It has been one of the most serious conflicts since World War II, and while the transition to clean energy is still accelerating, they may argue that security takes precedence over decarbonization. Shale gas is skyrocketing and could regain government support.
However, due to geopolitical uncertainties, energy can now be made from technology rather than fuel, making the case of a transition from fossil fuels clearer than ever. The United Nations has issued the most disastrous warning to date about climate. Europe has already led the adoption of clean energy, and the US government has just reaffirmed President Biden’s commitment to the State of the Union address. Cleantech has become a safe haven asset class for investors, and its growth seems to continue to accelerate unless hampered by shortages.
Clean tech makers already have strong incentives to diversify their supply chains, initially with pandemic production and shipping disruptions, and more recently with human rights issues in China’s Xinjiang Uygur Autonomous Region (where much of the world’s polysilicon is occurring). Given. The conflict in Ukraine provides another reason to find and secure geographically diverse sources.
The process of adding capacity everywhere, let alone bringing the supply chain back to the United States, can be categorized into upstream, midstream, and downstream, each with its own period. Further development of upstream mining capacity can take 8 to 15 years. On the other hand, midstream processing and refining facilities can take 6-18 months to operate using off-the-shelf equipment.
From electric vehicles to energy-efficient refrigerators and solar panels, semiconductors underlie many downstream products. The United States used to produce 50% of the world’s semiconductors, but it still has know-how and educational institutions. The focus of the Biden administration (and one of the second round of discussions) is the short-term domestic economy by accelerating clean technology, including rebuilding domestic manufacturing bases to allow more Americans to participate. It’s about maximizing profits.
This adds to all the usual pressure on midsize companies to spend capital to scale up their equipment to unfamiliar sizes. This is a common situation throughout the electrified supply chain. It helps to get the help of a sophisticated counterparty to fund the project with the highest utilization and the lowest cost of capital.
On the other hand, in order to secure a source, both parties to both short-term physical transactions and long-term off-take contracts need to set prices of uncertainty. Geopolitical challenges such as increasing market volatility, increasing security issues, and the world have not been seen for a long time. time.
The already fragile world economy requires wise leadership to sustain clean tech growth and avoid scenarios that blow away defined climate goals. This includes a new focus on the commodity market, which is the old way of doing business.
— —Nikolaus Laureder When Benjamin Van Wert Is a co-founder of Climate products Dallas provides physical trade, logistics, transportation, and commercialization services centered on the raw materials needed to enable energy conversion and climate economy. Rohleder is a former crude oil well digger in Oklahoma and Texas oil fields, a Wall Street climate technology analyst and a Forbes 30 Under 30 winner. Banwart has worked as a Commodity Portfolio Manager and a Natural Resources Investor.
