ROI Calculator
It’s going to get worse before it gets better. That’s the prognosis from experts—including those at Resilinc—about the chaos that is swamping global supply chains and undercutting the economic recovery. One central indicator is the escalating shortages and price increases of rubber, steel, aluminum, silicon and other raw materials that are needed to make everything from artificial Christmas trees to Xbox consoles.
“We’re likely going to see a lot of things that just are not going to make it to the shelves in time for Christmas,” said Rob Handfield, supply chain expert at North Carolina State University and co-author with Resilinc’s advisory board Chair Tom Linton of the forthcoming book, The Living Supply Chain.
As Resilinc has monitored the shortages and price increases of raw materials for our customers, two commodities have stood out as especially sensitive and vital to a wide range of manufacturers: silicon and aluminum.
Aluminum in the spotlight
Since January 1, Resilinc’s commodity tracking tool has alerted customers to more than 100 events that signaled or portended tightening supplies and rising prices for aluminum. While many of the supply issues are associated with COVID-19 outbreaks, some arise from the types of events that typically affect supply chains, from fires to labor issues to geopolitical conflict. In that last category, mounting tension between Australia and China, the world’s largest aluminum producer, has led to reduced Chinese imports of Australian bauxite and alumina. At the same time, Chinese imports of bauxite from Guinea, the world’s largest supplier, were threatened by political unrest there.
Meanwhile, the accelerating recovery of consumer demand in the United States has fueled demand for aluminum, with accompanying price increases. Then came energy rationing in China, accompanied by rising natural gas prices worldwide. By October, aluminum smelters in Europe were cutting back production in response to energy costs and the rapidly rising costs of carbon allowances, which had reached €60 per tonne by September. It all adds up to “less production [of zinc and aluminum] right when demand is booming,” reported the Wall Street Journal on October 14.
Silicon: long bumpy road ahead
The road for silicon supplies this year has been made bumpy by the surge in semiconductor demand, as well as constraints on supply. “There are few places in the world that you’ll be far from a computer chip. But every single one of those chips is made from this material silicon. And there aren’t actually that many places in the world where silicon is found in the ground pure enough to use to make computer chips,” said Douglas Heaven, MIT Technology Review editor in an interview on WBUR.
As is the case for so many commodities, China is the world’s leading producer, with about two-thirds of global production in 2020. And issues in China—especially the energy price increases and rationing—have helped drive prices of silicon metal up by 300% since August (2021). Not that China is reducing production overall; at the beginning of September S&P Global quoted estimates from the state-run consultancy Beijing Antaike that China’s production of silicon metal would rise 32% year-over-year from 2020.
That statistic underscores the fact that despite supply issues, the main driver of silicon price increases is recovering demand, and not just for semiconductors. Silicon materials are widely used in life sciences, infant care, medical devices requiring electricity and many more types of products due to its flexibility, biocompatibility, resistance to bacteria, high temperatures and radiation. Add to that list solar photovoltaic (PV) panels which are in growing demand worldwide—and in China, where President Xi Jinping recently announced the country would soon commence a first phase of new solar PV projects in desert regions totaling 100 GW of generation capacity. For reference, that’s about how much capacity was installed worldwide in 2020.
Building more wind and solar power are key pillars of the country’s commitment to begin reducing its greenhouse gases by 2030. Some might find it bemusing that China’s aggressive GHG mitigation goals, blamed in part for the short-term crisis in electricity from coal, are further straining its capacity to supply world demand for solar PV panels. But supply chain professionals will be too busy figuring out how to adapt to this chaotic situation to appreciate such ironies.
Resilinc expects the shortages and price volatility of aluminum and silicon to continue well into 2022.
