Financial Associated Press (Shanghai, editor Xiaoxiang) news, how high is the cost of global supply chain disruption under the Russian-Ukrainian crisis? For Toyota, that number is about $520 — the world's largest automaker's estimate of the increase in production costs per vehicle!
The recent Russian-Ukrainian conflict, which has thrown supply chains into chaos, has led to a sharp spike in raw material prices. And if the above figures are multiplied by the 10 million cars planned to be produced this year, it will undoubtedly be a huge blow for Toyota.
Seiji Sugiura, an analyst at the Tokai Tokyo Research Institute, said seven Japanese passenger car manufacturers will face about 1.4 trillion yen ($11.5 billion) in raw material cost increases in the year to March compared to the previous fiscal year.
He said companies such as Toyota, Nissan motor and other companies have recently struggled to increase production due to a global chip shortage and a super-strong earthquake in northeastern Japan in mid-March. Automakers are expected to digest some of the rising costs of raw materials by cutting cost spending, but it is clear that it will be difficult to absorb all the increases.
What bothers these Japanese automakers even more is that the current crisis is not only limited to the rising cost of raw materials, but even directly hits the "lifeblood" of the global automotive industry today: an ultra-efficient "just-in-time" procurement system that could have ensured that the 30,000 parts needed to assemble a passenger car were in place when needed, rather than having to stock up even a minute in advance.
Sanshiro Fukao, a senior researcher at ITOCHU Research Institute, warned, "The premise that parts will be delivered immediately is crumbling as soon as you place an order. ”
Previously, the lack of cores crisis at the end of 2020 has made companies question whether they need to start increasing semiconductor inventories to break the real-time production model. With the outbreak of the Russian-Ukrainian conflict and the increase in sanctions against Western Russia, people's attention is now more focused on metal.
Palladium nickel aluminum are all "urgent"
Prices of palladium, nickel and aluminum have all soared to record highs this month. Palladium is used in automotive catalytic converters, nickel is used in electric vehicle batteries, and aluminum is used in automotive parts.
About 40% of the world's palladium is produced in Russia, especially the Russian mining giant Norilsk Nickel. South Africa accounts for the other 40 percent of production, with the rest coming from Canada, the United States and Zimbabwe. The automotive industry accounts for more than 80% of the world's total demand for catalysts.
As it becomes increasingly difficult to source palladium from Sanctions-facing Russian exporters, many buyers are looking for alternative sources. Hiroo Suzaki, president of Impala Platinum Japan, a South African metal producer, said he was already responding to numerous inquiries about palladium.
However, Suzaki has also given buyers a "preventive shot": "The loss of Russian supplies will have a significant impact on the palladium market, and automakers and other buyers usually sign off-take agreements every year, so it is difficult to suddenly increase production to meet the needs of new customers." ”
If buyers continue to buy from Russia, buyers may be at risk of reputational damage. A metals dealer in Tokyo said the company typically buys palladium from Russia but is currently "carefully assessing the situation" and consulting with banks to see how the sanctions will affect purchases and whether they will target palladium.
"Our concerns are growing, especially after we've seen Shell get harsh criticism," the dealer added, referring to the British energy company's continued buying of oil from Russia in the early days of the conflict and being slammed by Western public opinion.
The overall trend in the automotive industry is also exacerbating the current urgency in the palladium sector. Mikio Fujita, senior market analyst at Johnson Matthey, said ironically, despite the recent price increase, palladium production is unlikely to increase significantly, as the auto industry is already abandoning the use of palladium at the moment. Fujita said, "As the automotive industry shifts to electric vehicles, demand for palladium catalysts is expected to shrink in the long run. ”
The case with nickel is different. According to Wood Mackenzie, Russia's Norilsk Nickel is the world's fifth-largest nickel producer, accounting for about 6 percent of global production. About half of this production goes to European customers, and most of the rest goes to China. As eviction sales accelerate, nickel demand is expected to grow significantly.
At present, nickel stocks are on the verge of depletion, and the nickel stocks of the London Metal Exchange (LME) have fallen from about 260,000 tons a year ago to about 73,000 tons, which is only about the same as global demand for a month.
A nickel trader at a Japanese trading company said his European counterparts and buyers had begun to buy less nickel from Russia. "This has made the market tighter and the premium in Europe has soared to record levels," the trader said. "The above premium is the difference between the price the buyer pays for the metal and the global reference price. Buyers and sellers typically negotiate on a quarterly basis to determine a premium or discount based on market conditions.
At the same time, the soaring price of aluminum also reflects buyers' fears that the situation will repeat itself in 2018, when the United States imposed sanctions on Rusal, Russia's main aluminum supplier. Russia is the world's second largest producer of aluminum, accounting for 5% of global aluminum production.
"These metals are not as important as oil, so they are more likely to be at risk of supply or targeted for sanctions," said Takayuki Honma, chief economist at Sumitomo Corporation Global Research.
Has the price increase of cars become a general trend?
Even before the Russian-Ukrainian conflict broke out, some Japanese automakers had warned that rising raw material prices were affecting their finances. Toyota said on February 9 that such cost increases had negatively impacted 630 billion yen in the fiscal year ending March, while Nissan motor said earlier that the rise in the price of key raw materials had a negative impact of 81 billion yen for the nine months ending december last year.
In any case, for consumers, this may mean that their future car purchase price may be higher. In March, Tesla raised prices in China and the United States twice in less than a week due to a surge in raw material and logistics costs. Now, the wave of price increases may spread to Japanese car companies.
Honda Motor said in February that it expects costs to increase by 290 billion yen this fiscal year due to soaring raw material prices. "We usually try to digest costs through internal cost-cutting practices, but now the increase is too big to digest at all," said Takeuchi, Honda's chief financial officer. He said the company plans to raise car prices in North America. If necessary, similar actions in the Japanese market may be considered.
Foreign automakers in Japan have already taken the move, with Volkswagen and Audi currently saying they will raise the price of their cars in Japan by about 2 percent from April. Given Japan's long history of low inflation and fierce price competition, it would be significant for domestic auto companies to follow suit.
It is worth mentioning that supply chain crises such as the Russian-Ukrainian conflict, chip shortages, and the new crown epidemic have occurred in a critical period of transformation of the automobile industry, which has further exacerbated the test faced by Japanese car companies.
Sanshiro Fukao of ITOCHU Corporation said, "The shift to electric vehicles has brought new market players, which means that the balance of power between suppliers and traditional automakers is changing. (Traditional) automakers are no longer suppliers' primary customers. ”
These new competitors don't always follow the same purchasing rules as their predecessors. Tesla, for example, has been working to secure the supply of key raw materials for future electric vehicles. In 2021, the U.S. company entered into a three-year supply contract with Ganfeng Lithium, a Chinese battery-grade lithium producer. That same year, the company also signed a four-year agreement with Australia's Syrah Resources for the supply of graphite anode materials.
Japanese automakers are also looking for any solution they can find. The Nissan-Renault-Mitsubishi alliance has said that reducing raw material costs is an "ongoing process" and that key materials such as nickel and lithium will be shared within the alliance. Other companies are investing heavily in research to find alternatives to raw materials that are difficult to obtain or have other risks, such as cobalt.
Naohiro Niimura, a partner at Market Risk Advisory, a Japanese commodities consultancy, said Japanese automakers need to make more fundamental changes in strategy. "The premise of the just-in-time system is that automakers can source the necessary materials at any time and any place," Niimura said. But this is really just to make their suppliers take the procurement risk, while they don't manage the risk themselves. ”