The World Trade Organization (WTO) identified risks for the supply chain of the automotive industry derived from the war between Russia and Ukraine.
While the resulting disruption in input supplies from Ukraine has caused a number of auto plants in Germany to be temporarily idled, manufacturers are likely to be able to adapt relatively quickly by moving production to plants outside the affected region.
“The situation is likely to be different for exports of raw materials and, in particular, metals (palladium, rhodium) or chemical gases (neon, krypton) used in the automotive and semiconductor industries,” the WTO said in a report released Monday.
Palladium and rhodium are needed to produce catalytic converters. Russia is the largest producer of palladium, supplying 6% of global import demand in 2019, with the largest shares coming from the United States (43%), Japan (45%), Japan (45%) and the Republic of Korea ( 38 percent). Other auto-producing countries are also exposed, such as China (29 percent) and Germany (26 percent).
Russia is also a key producer of rhodium, supplying 7% of world demand with high shares for Italy (34%), the Republic of Korea (23%) and Switzerland (20%).
Ukraine supplies more than 90% of the United States’ semiconductor-grade neon, critical for lasers used in chip manufacturing. The gas, a byproduct of Russian steelmaking, is purified in Ukraine.
“Disruptions in the supply of these inputs could affect automakers at a time when the industry is recovering from the shortage of semiconductors,” the WTO continued.
The WTO warned that prolonged disruptions in the supply of these goods could harm the recovery of car manufacturing. As background, in response to the 2014 Crimean crisis, companies began to diversify supply and increase reserves. In addition, in certain cases substitutes for these gases can be used.
“However, industry experts suggest disruptions will show before alternative suppliers can ramp up production,” the WTO said.