In 2021, the mining industry was hampered by supply chain interruptions and production halts caused by pandemics.
The epidemic has cast doubt on global integration’s inevitability and bolstered a more nationalistic approach to international commerce.
Citi anticipates that various disruptions will unwind at different rates, resulting in a gradual and lumpy return to normalcy.
In 2021, the epidemic undoubtedly made business more difficult.
Metal scarcity and rising metal prices put enormous pressure on costs, resulting in losses and, in some cases, bankruptcies.
Disruption to global supply chains was one of the issues, though far from the only one.
For years to come, analysts and commentators will be researching the causes and possible answers.
Citi Bank’s intelligent research, “GLOBAL SUPPLY CHAINS, The Complicated Road Back to ‘Normal,'” lays out a viable path back to normalcy that demands closer examination.
Metals and mining supply chain challenges
A graph shows the excessive impact supply chain issues have had on the metals and mining industry, with reports of disruption being twice as high as the next closest industry and a multiple of several times more widely covered issues, such as retail and auto, that tend to dominate the media.
Rather than pondering how we arrived here, we’d like to see how these challenges unfold.
When will global supply chains resume normalcy?
We repeatedly observed that “demand is running ahead of supply” and that “supply will take time to react,” as the study notes early on. However, what we have witnessed is unprecedented.
Previous experience isn’t proving to be a reliable predictor of recovery time.
Based on the findings in the research, it is now clear that continued progress in resolving these disruptions is inextricably linked to a reduction in the epidemic.
Every lockout reduces services and puts more pressure on commodities while also strain the source of those items: Southeast Asian industrial enterprises.
While vaccination programs are gaining popularity, they have yet to provide the complete protection that many people had hoped for.
While it’s tempting to oversimplify, it’s evident that these supply chain disruptions are caused by several connected coincident shocks rather than a single causal event.
Citi anticipates that different aspects of the disruptions will unwind at different rates, resulting in a gradual and lumpy return to normalcy.
Reasons to be upbeat
There are certainly some encouraging signals. On the Asia-West Coast and Asia-Europe routes, freight rates have lowered slightly. “Somewhat” keeps them at historically high levels and close quarters. The interplay of port and haulage manpower limits was overlooked in well-intentioned initiatives to relieve congestion at US West Coast ports.
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Moves to make ports open 24 hours a day were ineffective.
Similar to Europe, the United States is experiencing road haulage availability challenges. Those problems will not be fixed overnight, nor will they be solved by deploying the national guard.
On the plus side, energy markets look to be abating, if not addressed, after producing power concerns in 2021 with steeply rising costs and constrained supplies from the coal deficits in China, natural gas shortfalls in Europe, and an oil market in shortage.
All three regions could gradually improve by 2022, with oil supplies predicted to move into a slight surplus next year.
From a shortage to a surplus of semiconductors?
According to the Citi analysis, semiconductors continue to underperform, putting a halt to the electronics and automotive sectors’ rebound. According to a recent study, the semiconductor sector is generating more than before the epidemic, with billions of dollars going into even more significant industrial investment. By the end of 2022, we could be in a cyclical surplus, if not that year, then the following year.
That raises the question of whether present demand – for all products, not just semiconductors – will be as strong in 2022 as in 2021. As Citi puts it, how long can global goods demand, particularly for durables, continue to grow at such a breakneck pace? An eventual rebound, currently hampered by the growth of the Omicron variety, will be accompanied by a shift back to higher spending on services and lower spending on products, the rate of which will have a huge impact on the global supply chain recovery.
The role of central banks and inflation
Inflation and central banks’ responses to rising prices have focused on media attention this week. The Fed has begun to reduce its quantitative easing program, and the Bank of England has raised interest rates. Inflation, to the extent that it eats into wages, might decrease demand and lead to a slowdown in demand for goods, which would aid supply chain recovery. Much remains to be done, and the public’s reaction is unknown. Will it spend what could be a finite resource in the face of inflation? Or will they pay down debt when interest rates on mortgages and loans rise?
A lot of change
What is certain is that the interaction of these numerous components will not be seamless.
Omicron, and possibly succeeding waves, have already proved that they can impede the transition from commodities to services consumption and cause setbacks in the recovery. Labor shortages, notably in the road haulage business, will persist for the majority of next year. It appears that a steady improvement by the conclusion of Q1 2022 is likely. Normalcy in global supply chains may not resume until the end of 2022, or possibly even 2023. These interruptions have undoubtedly accelerated migrations to the nearshore or brought supply chains closer to home in the future.