News Analysis | Chip Shortages "Deprive Oxygen," Manufacturing Industry "Bleeding" — Analyzing the Impact of Middle East Situations on the Global Industry

Xinhua News Agency, Beijing, March 20 - News Analysis | Chip Manufacturing “Running Out of Gas,” Manufacturing Industry “Bleeding” - Interpreting the Impact of the Middle East Situation on Global Industry

Xinhua News Agency reporter Yu Maofeng

Recently, the situation in the Middle East has continued to be tense, especially with disruptions to shipping in the Strait of Hormuz, causing widespread and significant impacts on global manufacturing. The transportation of global energy and industrial raw materials has been choked, leading to soaring energy prices, interruptions in the supply of key raw materials, and global logistics disruptions, which in turn raise manufacturing costs and threaten production across various industries from automobiles to semiconductors.

The “Industrial Framework” is Choked

Aluminum is an important metal in the global industrial “basket,” and it is also one of the non-oil commodities most affected by the conflict in the Middle East. The region is a major supplier of aluminum, accounting for about 8% to 9% of global output. Interruptions in aluminum supply could tighten the supply chains of advanced manufacturing, raising production costs in the automotive, aerospace, and construction industries.

Since the end of last month, aluminum prices on the London Metal Exchange have risen by more than 9%, reaching their highest level since 2022.

Thomas Strobel, a strategist at UniCredit in Italy, stated that since smelters typically only stock three to four weeks’ worth of alumina inventory, prolonged shipping disruptions will force factories to cut production, leading to tight supplies in the global market.

Bahrain Aluminum Company operates the largest single-site aluminum smelter in the world. Due to the near-complete disruption of shipping in the Strait of Hormuz, the company has begun phased production cuts, working to close three production lines, which together account for 19% of its annual total capacity of 1.6 million tons.

The production cuts at Bahrain Aluminum are the latest example of how the situation in the Middle East is impacting global supply chains. Citigroup analysts have raised their three-month aluminum price forecast from $3,400 per ton to $3,600 and predict that if the supply situation worsens, aluminum prices could climb to $4,000 per ton.

Industry insiders point out that even if shipping in the Strait of Hormuz resumes, aluminum circulation may take longer to return to normal. This is because aluminum is typically transported in containers rather than tankers, and rebalancing and adjusting the container network takes time.

Chip Manufacturers Face “Running Out of Gas” Risks

The situation in the Middle East has exposed another vulnerability in the global high-end manufacturing supply chain: major chip manufacturers are facing helium shortages.

Helium is a byproduct of natural gas processing and is essential in cooling during chip manufacturing. Qatar’s helium production accounts for about one-third of global supply. However, Qatar Energy previously announced that it had halted production of liquefied natural gas, aluminum, and some chemicals due to attacks on key facilities.

Anish Kapadia, CEO of market research firm Akap Energy, stated that since the escalation of the situation in Iran, spot prices for helium have doubled. Unlike oil or natural gas, helium is difficult to store, and reserves are very limited. Due to damage to Qatar’s natural gas production facilities, pressure on the helium market is unlikely to ease in the coming months.

Kim Yong-pae, a member of South Korea’s ruling Democratic Party, recently warned that the situation in the Middle East could disrupt helium and other raw materials supplies for companies like SK Hynix and Samsung Electronics, whose storage components are crucial for AI chip manufacturers. According to data from South Korea’s Customs Service, about 65% of helium imports last year came from Qatar.

Over the past year, the cost of semiconductor components has continued to rise, and new supply chain risks will exacerbate this pressure. An analysis by the U.S. website Politico stated that interruptions in semiconductor manufacturing or soaring prices could impact the global market, affecting sectors including computers, smartphones, automobiles, and medical devices.

Manufacturing “Blood Supply” is Threatened

Disruptions to shipping in the Strait of Hormuz have also affected the production and transportation of various petrochemical products, with surges in sulfur and naphtha prices highlighting the broader supply chain impacts of the situation in the Middle East.

Sulfur is crucial for industries like fertilizers, computer chips, and metal processing. The CRU Group, a metal and mining intelligence company, pointed out that the Gulf region accounts for about 45% of the world’s sulfur exports, and the recent surge in sulfur prices has exposed the vulnerabilities of the supply chains established around the Gulf region.

Clive Murray, CEO of a London-based commodities brokerage, stated that while some refineries outside the Middle East have sulfur for sale, the problem lies in finding ships to transport sulfur, as ship operators are uncertain about securing transport fuel.

American mining magnate Robert Friedland posted on social media that disruptions in sulfur supply will affect copper production in Africa, as the leaching costs of copper oxide ore in Africa’s central copper belt will become more expensive.

The prolonged conflict in the Middle East has led to a tightening of the supply of naphtha, a key raw material for plastics, prompting several Japanese petrochemical companies to cut production, while South Korea announced restrictions on naphtha exports. The downstream products of naphtha, known as polyethylene, which is referred to as the “skin” of modern manufacturing, are also at risk.

Usha Haley, a professor at Wichita State University in the U.S., stated that a polyethylene shortage will drive up consumer goods prices. “We are about to enter a period of intensified inflation and shrinking manufacturing.” (End)