By: Rhona O'Connell, Head of Market Analysis
Semi-conductors -this crunch could last a long while yet – from wafers to circuit boards
The semi-conductor crisis is likely to ease in the next six months. Oops, no it isn’t, it’s likely to intensify. It all depends on who you speak to. A recent authoritative report from IHS Markit suggests the second half of next year, while some comments in the United States are suggesting 2023.
What is for certain is that the auto industry, which has been living on a hand-to-mouth basis, is really struggling in the face of the bottlenecks in the semiconductor industry and the issues are now affecting the performance of the electronics giants as well. Much of the world’s semiconductor supplies come from south-east Asia and lockdowns in this region, where vaccination rates are low, have caused hefty disruptions to production and export of electronic goods and semi components.
Vaccination rates in Malaysia, for example, a key producer in this sector, are now at 43% fully vaccinated, but in Thailand it’s only 8% and in Vietnam, just 2%. In the United States, by contrast, it is 52% and in the UK, 63% (source: “Our World in Data”).
This, along with the U.S.’ concerns that south-eastern nations’ exports may become increasingly absorbed into China, is one of the reasons behind the current south-east Asian tour of Vice-President Kamala Harris, currently in Vietnam having been to Singapore.
In Singapore Vice-President Harris had several meetings with the Singapore Prime Minister Lee Hsien Loong, as well as a round table with a number of local industry leaders, in an effort to strengthen supply chains, highlighting the suggestions that the recovery from the pandemic gives fresh opportunities to strengthen ties and “find solutions to long-term issues that have challenged us”. This will include a new alliance between the Department of Commerce and the Singapore Ministry of Trade and Industry.
The semiconductor shortage is now turning into a vicious circle because the assembly equipment components themselves need chips, according to the IHS Markit report.
The impact on the auto sector in particular is vicious. We have reworked our supply-demand balance from the platinum and palladium markets on the back of the latest raft of information from individual auto companies as well as comments from some of the electronics giants. At the moment we are assuming a 7% cut in light vehicle production and a smaller contraction in heavy duty vehicles, and with a heavier impact on palladium than platinum – partly because of the fact that the auto sector has almost twice as much market share in the palladium market aa it does in platinum, but also because there is now evidence of some substitution for palladium by platinum in light vehicles.
Anecdotal evidence from within the industry is varied.
General Motors and Ford are both talking of producing some of their models without “certain parts” in the case of Ford, and a fuel management module on the part of GM, which may affect fuel consumption rates.
Volkswagen sales are up (H1 deliveries worldwide up by 500,000 or 23%) and the effects of the semiconductor shortage has been “minimised through smart management of the markets and warehouse management” but a “very challenging” third quarter is expected.
Nissan is expecting the shortage to ease in the October-March period.
Renault is looking to be down by 100,000 vehicles, while Honda’s North American production target is also reduced by 100,000 vehicles
Stellantis has been hit in Germany and Spain and furloughing workers in Italy.
While Toyota is to slash output in September by 40%.
And car lots are heaving with unfinished vehicles; it will take time to run off these inventories.
This 7% reduction on our part may yet turn out to be an over-generous assessment; IHS Markit appears to be suggesting that the cut could be as much as 11% against 2020 numbers, close to seven million vehicles. For now, though, we are working on the basis of 7%, which puts the platinum market into a likely surplus this year equivalent to roughly two weeks’ global industrial demand while palladium is still likely to post a (reduced) deficit of roughly one week’s global demand. There are some signs of fresh industrial interest in palladium and rhodium at present following recent price falls, but there doesn’t appear to be any tightness.
The 17th century theologian Thomas Fuller wrote in 1650 that it is always darkest before the dawn. At the moment, it is hard to know when the sun will rise.
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