Russia-Ukraine battle rattles stretched provide chains

RUSSIAN troops’ current shelling of Europe’s largest nuclear energy station in Ukraine exhibits that the nine-day battle may get uncontrolled and presumably flip right into a nuclear nightmare for the remainder of the world.

The geopolitical tensions between each the international locations accompanied with intensive sanctions would add extra chaos to the stretched international provide chains, disrupting the provision of products similar to pure gasoline, crucial metals and agriculture merchandise.

You will need to observe that Russia is the second-largest exporter of crude oil and can be one of many largest producers of crucial metals.

Each Russia and Ukraine are additionally vital agriculture producers and their mixed wheat, barley and maize exports comprising 21% of the worldwide whole. Additionally they provide 60% of the world’s sunflower oil.

The Russia-Ukraine battle is making issues worse to the stretched international provide chains with intensive sanctions in place.

As such, companies are grappling with the rising value of doing enterprise from larger crude oil and pure gasoline costs, a spike in commodity costs and uncooked supplies and the affect from the robust sanctions in place for Russia.

To date, there was quite a lot of corporations in Malaysia which have been negatively affected already by the worldwide provide chain disruptions.

Which corporations are going to really feel it worse with the continuing battle?

In line with Scott Lim of funding agency Omni Capital Companions, corporations which might be “price-takers” would see their margins being squeezed, as they’re unable to switch the rising value of manufacturing to prospects.

Omni Capital Companions founding accomplice Scott Lim.

“These corporations embody manufacturing corporations which haven’t any possession of pure sources or commodities, not totally built-in in operations and subsequently are uncovered to hikes in costs of inputs,” Lim says.

One instance of a price-taker firm that’s feeling the warmth from the rising value of uncooked supplies and the added stress of the Russia-Ukraine battle is PPB Group Bhd,

This week, its managing director Lim Quickly Huat disclosed that the group’s grain and agribusiness section, which is the most important income contributor, could proceed to take successful because the uncooked materials value of flour, feed and maize merchandise soar.

And, in flip, he foresees the group’s revenue margins being squeezed because it struggles with provide chain disruptions and labor shortages.

“The truth that we will not cross on all the price to customers goes to be difficult for our agri enterprise,” explains Lim.

It’s noteworthy that wheat makes up about 85% to 90% of the manufacturing value for the group’s flour mills, making it a problem for it to soak up the costs.

Notably, Russia and Ukraine provide about 30% of all wheat exports globally, in addition to 19% of corn exports and 80% of sunflower oil exports.

For the monetary yr ended Dec 31, 2021 (FY21), PPB Group’s grains and agribusiness section turned in a lack of RM21.27mil.

One other key sector that has been hit badly is the poultry business from the disruption in provide chains over the previous two years amid the pandemic.

With the extended provide chain disruptions coupled with rising gasoline oil and fertilizer costs, AmBank Analysis chief economist Anthony Dass says there can be upward stress on the price of doing enterprise each direct and oblique.

“With upward stress anticipated from the enterprise ecosystem, the query now can be how lengthy can they soak up the upper value? How a lot switch pricing will happen? How a lot can the federal government enhance its subsidy funds?,” he asks.

You will need to observe that even earlier than the Russia-Ukraine battle, farmers and rooster breeders have been experiencing upward stress on their value of doing enterprise.

And now with the Russia-Ukraine battle, Dass believes there can be a powerful upward stress on the price of working a poultry enterprise. These companies now face the chance of incurring losses due to larger rooster feed costs, particularly, corn, soybean and palm oil.

“This could possibly be a step up in bankruptcies. A few of them could transfer into new companies. Because of this, the provision of rooster will cut back inflicting one other upward stress on rooster costs. It does not cease there. It will spill over into different associated merchandise,” he notes.

Notably, poultry business participant Leon Hup Worldwide Bhd‘s internet revenue fell practically 28% to RM37.99mil for the fourth quarter ended Dec 31, 2021 from RM52.56mil a yr in the past dragged by elevated enter value of feed which affected the group’s livestock and poultry-related product section.

Nonetheless, there are additionally corporations that will be beneficiaries from the continuing battle.

With commodity costs booming, economist Manokaran Mottain factors out that planters similar to Sime Darby Plantation BhdIOI Corp Bhd and Kuala Lumpur Kepong Bhd would see an increase of their earnings this yr amid the all-time excessive crude palm oil costs.

Economist Manokaran Mottain.Economist Manokaran Mottain.

He provides that Petronas Chemical substances Group Bhd (PetChem), which produces urea, would additionally see earnings enhance partly as a result of skyrocketing urea costs.

Be aware that PetChem’s share value rose previous RM10 for the primary time to a file excessive on March 3 to RM10.08 on the again of rising oil costs as a result of ongoing Russia-Ukraine battle.

As well as, analysts reckon Press Steel Aluminum Holdings Bhd would register one other file revenue for FY22 ending Dec 31, pushed by elevated aluminum costs amid the battle.

The Russia-Ukraine battle pushed aluminum costs to above US$3,500 (RM14,623) per tonne on March 3 as buyers apprehensive that logistics difficulties would block steel provides as a consequence of robust sanctions on main producer Russia.

On the equities market, Rakuten Commerce head of fairness gross sales Vincent Lau says Malaysia would profit with extra international funds flowing into the market as evidenced by the international fund influx of over RM3bil year-to-date.

“The hazard to the FBM KLCI is that if the Russia-Ukraine battle turns into a protracted battle, with extra buyers then shopping for into safe-haven belongings,” he factors out.

That mentioned, AmBank’s Dass says the present correction available in the market gives an attention-grabbing entry alternative for long-term buyers.

“Nonetheless, they should be conscious of the inflationary affect on company earnings, which could see some stress over the following few quarters,” he notes.


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