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Supply/Demand: The Supply Chain Crunch

01 March 2021   |  

Supply/Demand is a semi-regular feature of the Artisan Canvas rounding up interesting and quirky subjects from across the Internet with a focus on economic and business trends. A good rule of thumb among the Artisan Canvas editorial staff is “never reason from a price change.” With that in mind, we present our latest edition of Supply/Demand.

As much of the world attempts to get business back to pre-pandemic norms, global supply chains face an added challenge in the form of shifting consumer preferences. As consumers and employees do more from home, this “new normal” has had some interesting impacts. A sampling:

Chips Become a Hot Item
As consumers sit at home on electronic devices, rising demand for iPhones and game consoles like PlayStation 5s has stretched semiconductor production to its limits, slowing downstream output of finished products—not just in consumer goods, but in areas like autos, too. Even before the pandemic’s onset, semiconductor production operated at near-full capacity. Hoarding has also contributed to the current shortage—a byproduct of the Huawei backlash as the company attempted to survive US sanctions and consequently began stockpiling components.  And of course Texas’ cold snap hasn’t helped matters either as several manufacturing plants have been forced to temporarily halt production.

Global Ports Hit a Snag
Safe to say the pandemic has wreaked havoc on global supply chains thanks to numerous colliding factors—on both the supply and demand sides of the equation. On the demand side, consumer spending dramatically shifted to certain goods—such as games, recreational items, furniture—and having them delivered to their doorstep in order to avoid stores. And stores have experienced periodic bouts of shortages, requiring restocking (remember when you couldn’t find toilet paper to save your life?). On the supply side, varied capacity decisions during the pandemic by ocean carriers, severe container shortages and COVID-related port slowdowns, among other challenges, have caused significant disruptions.

Lithium Fundamentals May be Turning the Corner
Lithium prices have jumped as China’s demand for the metal is surging thanks to stronger electric vehicle (EV) demand. China’s economic recovery and its government’s broad support of EVs are helping fuel current demand and a constructive outlook. Lithium’s global fundamentals also appear to be improving. Lithium supply significantly outpaced demand, depressing prices in 2019—and the pandemic didn’t help matters in 2020 as producers globally curtailed production and shelved plans to increase capacity. Now, producers may fall behind demand as EV sales expectations imply a significantly greater need for lithium. What happens in the months and years ahead will depend on the interplay of actual EV sales, global lithium prices and producers’ responses.

Crude Oil Prices Surge
Oil has had a wild ride since before the pandemic even got really going—starting with the Russo-Saudi dust-up roughly a year ago. In February, Brent crude prices hit 13-month highs as supply understandably reacted to collapsing demand in 2020. As OPEC+ maintained its plans for supply in February, it also indicated members may not supply as much oil as they could under the OPEC+ agreement. The US’s ongoing  deep freeze, particularly in Texas, has also potentially helped boost prices as US production grinds to a temporary halt.

A “Dirty” Detail Behind Bitcoin’s Rise
Bitcoin prices have surged above $50,000 in February, and Tesla founder Elon Musk has played a not-so-small role in all of this. But greater demand has spurred digital mining activity for the cryptocurrency which, in turn, has driven up electricity consumption by the high-powered computers digitally digging for new coins and keeping track of transactions. At this point, annual bitcoin-related electricity consumption is equivalent to that of Norway or Pakistan—although still considerably less than the US’s total consumption by idling home devices. It’s no surprise electricity prices are a significant factor in determining where computers are plugged in. And here is one of bitcoin’s “dirty” facts, and a slightly ironic twist when it comes to Musk: More than 20% of all bitcoin output happens in China’s eastern Xinjiang territory, which happens to use its abundance of coal to generate most of its cheap electricity.

Tin Market Solders On
Scarcity has pushed tin prices to decades-long highs. Perhaps not since L. Frank Baum captured imaginations with the Tin Woodman in his allegorical novel The Wonderful Wizard of Oz has the conductive, malleable metal been so prominent. The tin man was a common motif in late 19th century American political cartoons, which is where Baum lifted the idea, reflecting popular sentiments about how industrialization was dehumanizing workers and turning them into heartless, metal machines. Turns out the discontents of globalization are nothing new. Still, in the era of silicon, it might be easy to forget how critical tin is to building electrical circuitry. With many mines globally shuttered during pandemic lockdowns, supply constraints mounted, while demand for electronic devices soared. Add in the jump in shipping costs from global supply chain disruptions, and tin is now among the most precious of metals.

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