‘Much higher prices’ Coffee and car supplies at risk due to Putin war and China lockdown

Petrol prices: Haulage boss addresses supply concerns

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Supply chain disruption has been an ongoing problem since economies began emerging from the pandemic. Data at the start of the year had offered grounds for optimism with signs of improving stability. Consultancy RSM’s UK Middle Market Business Index previously pointed to less firms planning price rises in the first months of 2022 as pressures eased – however, the group is now warning this trend could be pushed into reverse. Thomas Pugh, an economist at RSM UK, told Express.co.uk it was “not far” from becoming a perfect storm given the combined impacts around the world. According to Mr Pugh, Russia and China in particular have sparked fears that future impact on supply chains are “definitely in the pipeline and working their way through”.

While Western economies typically have little direct trade with Russia, looking further back along the supply chain reveals the considerable role the nation plays in supplying basic commodities.

A key casualty is likely to be microchips which have already been exposed to severe supply disruptions since the pandemic and are now likely to be further impacted by a shortage of metals such as nickel and palladium from Russia and Ukraine.

Mr Pugh explained: “Ukraine produces something like 50 percent of the world’s argon and neon which is crucial to manufacturing microchips.”

With microchips coming under renewed pressure, car and electronics production could end up experiencing stoppages with a potential shortage of goods.

Mr Pugh explained: “Supply has been so disrupted over the pandemic that there’s no stocks whatsoever, they’ve got no fall back position, so if they get disrupted again you just have to stop production, there’s nothing else you can do.”

Italy has already seen factory closures due to reliance on Russian metals.

Mr Pugh suggested this could spread to the UK, warning: “The risk is we start to see some manufacturers which rely on those kinds of countries start to shut down because they can’t get the raw materials.”

According to him, cars would be the “number one” place this would be most obvious.

Car manufacturing has already been plummeting, according to trade body the Society of Motor Manufacturers and Traders (SMMT).

According to the SMMT’s figures, new vehicle registrations fell 14.3 percent year on year in March, with manufacturing output as of February at a six-year low.

With further impacts on microchips to come, Mr Pugh warned: “The automotive industry is in for another painful period unfortunately.”

Beyond vehicles, the electronics industry more broadly is vulnerable to shortages of microchips, with Mr Pugh suggesting audio-visual equipment such as computers could see a hit to manufacturing.

Another big area to feel an impact is likely to be food given the dominant role of Russia and Ukraine in wheat exports.

“The longer this drags on for the bigger the damage to the wheat market is going to be because Russia and Ukraine are such massive exporters,” explained Mr Pugh.

“So you’re going to be looking at first of all much higher prices for bread and that kind of thing and potentially shortages in parts of the world, mainly North Africa and the Middle East that tend to import a lot of wheat from Russia and Ukraine.”

Mr Pugh predicted the price of bread would likely rise by 15-20 percent for UK consumers which would add 30p to a £1.15 loaf.

He warned prices were also set to rise in unexpected areas such as coffee.

Coffee farmers, particularly in Brazil, have been highly reliant on Russia for fertiliser imports which has now become increasingly expensive.

Mr Pugh predicted coffee could likely see a similar percentage price increase to bread.

While Russia stands to leave a major hole in global commodity supplies, Mr Pugh suggested China was less of a concern given the efforts the Chinese government had gone to to keep factories running.

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However, he warned if Chinese factories were unable to import Russian raw materials this, in turn, would have a “knock on effect” for goods British manufacturers might use.

In particular, construction materials could take a hit with China a key source of materials such as steel and cement.

One area of good news from China’s shut downs could be in oil prices which have already fallen in response to lower domestic demand from China.

In theory, this could be extended to other areas, for example if China consumes less building materials for its own construction while still maintaining exports.

Mr Pugh said: “If they manage to shut down large portions of society without really damaging output in ports then that could actually be a net gain for Western economies that import a lot from China.”

So far, it is unclear how well China will be able to manage its zero Covid stance with shipping giant Maersk pointing to shortages of truckers, although ports themselves remain open for business.

Currently, Shanghai’s lockdown has continued for longer than originally expected with growing discontent from its 26 million residents amid reports of food shortages.

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