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How the War in Ukraine Could Slow the Sales of Electric Cars

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The price of nickel, an essential ingredient in most batteries, has soared because of fear that Russian supplies could be cut off.Russia’s invasion of Ukraine has shaken the global market for nickel just as the metal gains importance as an ingredient in electric car batteries, raising fears that high prices could slow the transition away from fossil fuels.The price of nickel doubled in one day last week, prompting the London Metal Exchange to freeze trading and effectively bring the global nickel market to a standstill. After two years of supply chain chaos caused by the pandemic, the episode provided more evidence of how geopolitical tensions are destroying trading relationships that companies once took for granted, forcing them to rethink where they get the parts and metals they use to make cars and many other products.Automakers and other companies that need nickel, as well as other battery raw materials like lithium or cobalt, have begun looking for ways to shield themselves against future shocks.Volkswagen, for example, has begun to explore buying nickel directly from mining companies, Markus Duesmann, chief executive of the carmaker’s Audi division, said in an interview on Thursday. “Raw materials are going to be an issue for years to come,” he said.The prospect of prolonged geopolitical tensions is likely to accelerate attempts by the United States and Europe to develop domestic supplies of commodities that often come from Russia. There are nickel deposits, for example, in Canada, Greenland and even Minnesota.“Nickel, cobalt, platinum, palladium, even copper — we already realized we need those metals for the green transition, for mitigating climate change,” said Bo Stensgaard, chief executive of Bluejay Mining, which is working on extracting nickel from a site in western Greenland in a venture with KoBold Metals, whose backers include Jeff Bezos and Bill Gates. “When you see the geopolitical developments with Ukraine and Russia, it’s even more obvious that there are supply risks with these metals.”But establishing new mining operations is likely to take years, even decades, because of the time needed to acquire permits and financing. In the meantime, companies using nickel — a group that also includes steel makers — will need to contend with higher prices, which will eventually be felt by consumers.An average electric-car battery contains about 80 pounds of nickel. The surge in prices in March would more than double the cost of that nickel to $1,750 a car, according to estimates by the trading firm Cantor Fitzgerald.Russia accounts for a relatively small proportion of world nickel production, and most of it is used to make stainless steel, not car batteries. But Russia plays an outsize role in nickel markets. Norilsk Nickel, also known as Nornickel, is the world’s largest nickel producer, with vast operations in Siberia. Its owner, Vladimir Potanin, is one of Russia’s wealthiest people. Norilsk is among a limited number of companies authorized to sell a specialized form of nickel on the London Metal Exchange, which handles all nickel trading.Unlike other oligarchs, Mr. Potanin has not been a target of sanctions, and the United States and Europe have not tried to block nickel exports, a step that would hurt their economies as well as Russia’s. The prospect that Russian nickel could be cut off from world markets was enough to cause panic.Analysts expect prices to come down from their recent peaks but remain much higher than they were a year ago. “The trend would be to come down to a level close to where we last left off,” around $25,000 a metric ton compared to the peak of $100,000 a ton, said Adrian Gardner, a principal analyst specializing in nickel at Wood Mackenzie, a research firm.A plant owned by Nornickel, the world’s leading producer of nickel and palladium, in Norilsk, Russia.Tatyana Makeyeva/ReutersNickel was on a tear even before the Russian invasion as hedge funds and other investors bet on rising demand for electric vehicles. The price topped $20,000 a ton this year after hovering between $10,000 and $15,000 a ton for much of the past five years. At the same time, less nickel was being produced because of the pandemic.After Russia invaded Ukraine in late February, the price rose above $30,000 in a little over a week. Then came March 8. Word spread on the trading desks of brokerage firms and hedge funds in London that a company, which turned out to be the Tsingshan Holding Group of China, had made a huge bet that the price of nickel would drop. When the price rose, Tsingshan owed billions of dollars, a situation known on Wall Street as a short squeeze.The price shot up to a little over $100,000 a ton, threatening the existence of many other companies that had bet wrong and prompting the London Metal Exchange to halt trading.The Russia-Ukraine War and the Global EconomyCard 1 of 6Rising concerns. More

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    Ukrainian Invasion Adds to Chaos for Global Supply Chains

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    Russia’s military incursion is severing key supply chains and setting off a scramble among global companies to comply with new sanctions.WASHINGTON — The Russian invasion of Ukraine has rattled global supply chains that are still in disarray from the pandemic, adding to surging costs, prolonged deliveries and other challenges for companies trying to move goods around the world.The clash in Ukraine, a large country at the nexus of Europe and Asia, has caused some flights to be canceled or rerouted, putting pressure on cargo capacity and raising concerns about further supply chain disruptions. It is putting at risk global supplies of products like platinum, aluminum, sunflower oil and steel, and shuttering factories in Europe, Ukraine and Russia. And it has sent energy prices soaring, further raising shipping costs.The conflict is also setting off a scramble among global companies as they cut off trade with Russia to comply with the most far-reaching sanctions imposed on a major economic power since the end of the Cold War.The new challenges follow more than two years of disruptions, delays and higher prices for beleaguered companies that use global supply chains to move products around the world. And while the economic implications of the war and sweeping sanctions on Russia are not yet clear, many industries are bracing for a bad situation to get worse.“Global supply chains are already hurting and stressed because of the pandemic,” said Laura Rabinowitz, a trade lawyer at Greenberg Traurig. She said the effects would vary for specific industries and depend on the length of the invasion, but the impacts would be magnified because of an already-vulnerable supply chain.“There’s still tremendous port congestion in the United States. Freight costs are very high. Factory closures in Asia are still an issue,” she said.Companies with complex global supply chains, like automakers, are already feeling the effects. Volkswagen, which had already announced it was suspending production at its main factory for electric cars, said Tuesday that it would also be forced to shut down production at several other factories, including its main factory in Wolfsburg, Germany, in coming weeks because of parts shortages.Automakers could see shortages of other key materials. Ukraine and Russia are both substantial sources for palladium and platinum, used in catalytic converters, as well as aluminum, steel and chrome.Semiconductor manufacturers are warily eyeing global stocks of neon, xenon and palladium, necessary to manufacture their products. Makers of potato chips and cosmetics could face shortages of sunflower oil, the bulk of which is produced in Russia and Ukraine.And if the conflict is prolonged, it could threaten the summer wheat harvest, which flows into bread, pasta and packaged food for vast numbers of people, especially in Europe, North Africa and the Middle East. Food prices have already skyrocketed because of disruptions in the global supply chain, increasing the risk of social unrest in poorer countries.On Tuesday, the global shipping giant Maersk announced that it would temporarily suspend all shipments to and from Russia by ocean, air and rail, with the exception of food and medicine. Ocean Network Express, Hapag-Lloyd and MSC, the world’s other major ocean carriers, have announced similar suspensions.“The war just makes the worldwide situation for commodities more dire,” said Christopher F. Graham, a partner at White and Williams.Jennifer McKeown, the head of global economics service at Capital Economics, said the global economy appeared relatively insulated from the conflict. But she said shortages of materials like palladium and xenon, used in semiconductor and auto production, could add to current difficulties for those industries. Semiconductor shortages have halted production at car plants and other facilities, fueling price increases and weighing on sales.“That could add to the shortages that we’re already seeing, exacerbate those shortages, and end up causing further damage to global growth,” she said.International companies are also trying to comply with sweeping financial sanctions and export controls imposed by Europe, the United States and a number of other countries that have clamped down on flows of goods and money in and out of Russia.In just a few days, Western governments moved to exclude certain Russian banks from using the SWIFT messaging system, limit the Russian central bank’s ability to prop up the ruble, cut off shipments of high-tech goods and freeze the global assets of Russian oligarchs.The Biden administration said the technology restrictions alone would stop about a fifth of Russian imports. But the impact on trade from the financial curbs is likely to be even larger, cutting off Russia’s imports from and exports to nearly all of its major trading partners, said Eswar Prasad, a professor of trade policy at Cornell University.“Even when trade flows may take place directly between Russia and its trading partners, the reality is that payments often have to go through a Western-dominated financial system, and usually have to go through a Western currency,” he said.In a statement on Saturday, the president of the European Commission, Ursula von der Leyen, said that Europe and its allies were “resolved to continue imposing massive costs on Russia” and that disconnecting Russian banks from SWIFT would also halt Russian trade.“Cutting banks off will stop them from conducting most of their financial transactions worldwide and effectively block Russian exports and imports,” she said.The economic consequences of these moves are not yet entirely clear. Russia accounts for less than 2 percent of global domestic product, so the implications for other countries may be somewhat limited.The departures board displayed flight cancellations at Sheremetyevo Airport in Moscow on Monday.Sergey Ponomarev for The New York TimesBut for the Russian government and the economy, both of which are heavily dependent on trade to generate revenue, the impact could be catastrophic. Capitol Economics has estimated Russian gross domestic product could contract by 5 percent this year, a change that in isolation would knock just 0.2 percentage points off global growth.Caroline Bain, chief commodities economist at Capitol Economics, said financial sanctions were halting the trade of metals and agricultural commodities, likely exacerbating strains in global supply chains.Credit Suisse and Société Generale have suspended financing for commodity trading with Russia, as has the Industrial and Commercial Bank of China, she said.Russia’s Attack on Ukraine and the Global EconomyCard 1 of 6A rising concern. More

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    Food Prices Approach Record Highs, Threatening the World’s Poorest

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    The prices have climbed to their highest level since 2011, according to a U.N. index. It could cause social unrest “on a widespread scale,” one expert said.WASHINGTON — Food prices have skyrocketed globally because of disruptions in the global supply chain, adverse weather and rising energy prices, increases that are imposing a heavy burden on poorer people around the world and threatening to stoke social unrest.The increases have affected items as varied as grains, vegetable oils, butter, pasta, beef and coffee. They come as farmers around the globe face an array of challenges, including drought and ice storms that have ruined crops, rising prices for fertilizer and fuel, and pandemic-related labor shortages and supply chain disruptions that make it difficult to get products to market.A global index released on Thursday by the United Nations Food and Agriculture Organization showed food prices in January climbed to their highest level since 2011, when skyrocketing costs contributed to political uprisings in Egypt and Libya. The price of meat, dairy and cereals trended upward from December, while the price of oils reached the highest level since the index’s tracking began in 1990.Maurice Obstfeld, a senior fellow at the Peterson Institute for International Economics who was formerly chief economist at the International Monetary Fund, said that food price increases would strain incomes in poorer countries, especially in some parts of Latin America and Africa, where some people may spend up to 50 or 60 percent of their income on food.He said that it wasn’t “much of an exaggeration” to say the world was approaching a global food crisis, and that slower growth, high unemployment and stressed budgets from governments that have spent heavily to combat the pandemic had created “a perfect storm of adverse circumstances.”“There’s a lot of cause for worry about social unrest on a widespread scale,” he added.Even before the pandemic, global food prices had been trending upward as disease wiped out much of China’s pig herd and the U.S.-China trade war resulted in Chinese tariffs on American agricultural goods.But as the pandemic began in early 2020, the world experienced seismic shifts in demand for food. Restaurants, cafeterias and slaughterhouses shuttered, and more people switched to cooking and eating at home. Some American farmers who could not get their products into the hands of consumers were forced to dump milk in their fields and cull their herds.Two years later, global demand for food remains strong, but higher fuel prices and shipping costs, along with other supply chain bottlenecks like a shortage of truck drivers and shipping containers, continue to push up prices, said Christian Bogmans, an economist at the International Monetary Fund.Drought and bad weather in major agricultural producing countries like Brazil, Argentina, the United States, Russia and Ukraine have worsened the situation.The I.M.F.’s data shows that average food inflation across the world reached 6.85 percent on an annualized basis in December, the highest level since their series started in 2014. Between April 2020 and December 2021, the price of soybeans soared 52 percent, and corn and wheat both grew 80 percent, the fund’s data showed, while the price of coffee rose 70 percent, due largely to droughts and frost in Brazil.Understand Inflation in the U.S.Inflation 101: What is inflation, why is it up and whom does it hurt? Our guide explains it all.Your Questions, Answered: We asked readers to send questions about inflation. Top experts and economists weighed in.What’s to Blame: Did the stimulus cause prices to rise? Or did pandemic lockdowns and shortages lead to inflation? A debate is heating up in Washington.Supply Chain’s Role: A key factor in rising inflation is the continuing turmoil in the global supply chain. Here’s how the crisis unfolded.While food prices appear set to stabilize, events like a conflict in Ukraine, a major producer of wheat and corn, or further adverse weather could change that calculation, Mr. Bogmans said.The effects of rising food prices have been felt unevenly around the world. Asia has been largely spared because of a plentiful rice crop. But parts of Africa, the Middle East and Latin America that are more dependent on imported food are struggling.Countries like Russia, Brazil, Turkey and Argentina have also suffered as their currencies lost value against the dollar, which is used internationally to pay for most food commodities, Mr. Bogmans said.In Africa, bad weather, pandemic restrictions and conflicts in the Democratic Republic of Congo, Ethiopia, Nigeria, South Sudan and Sudan have disrupted transportation routes and driven up food prices.Joseph Siegle, the director of research at National Defense University’s Africa Center for Strategic Studies, estimated that 106 million people on the continent are facing food insecurity, double the number since 2018.“Africa is facing record levels of insecurity,” he said.While shopping at a market in Mexico City’s Juarez neighborhood on Thursday, Gabriela Ramírez Ramírez, a 43-year-old domestic worker, said the increase in prices had strained her monthly budget, about half of which goes to food. Inflation in Mexico reached its highest rate in more than 20 years in November, before easing slightly in December.“It affects me a lot because you don’t earn enough, and the raises they give you are very small,” she said. “Sometimes we barely have enough to eat.”The impact has been less severe in the United States, where food accounts for less than one-seventh of household spending on average, and inflation has become broad-based, spilling into energy, used cars, dishwashers, services and rents as price increases reach a 40-year high.Yet American food prices have still risen sharply, putting a burden on the poorest households who spend more of their overall budget on food. Food prices rose 6.3 percent in December compared with a year ago, while the price of meat, poultry, fish and eggs jumped 12.5 percent, according to the Bureau of Labor Statistics.The Biden administration has tried to restrain some of these increases, including with an effort to combat consolidation in the meat packing business, which it says is a source of higher prices.Inflation F.A.Q.Card 1 of 6What is inflation? More

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    Winter Heating Bills Loom as the Next Inflation Threat

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    With consumers already dealing with the fastest price increases in decades, another unwelcome uptick is on the horizon: a widely expected increase in winter heating bills.After plunging during the pandemic as the global economy slowed, energy prices have roared upward. Natural gas, used to heat almost half of U.S. households, has almost doubled in price since this time last year. The price of crude oil — which deeply affects the 10 percent of households that rely on heating oil and propane during the winter — has soared by similarly eye-popping levels.And those costs are being quickly passed through to consumers, who have become accustomed to cheaper energy prices in recent years and now find themselves with growing concerns about inflation this year. More