As the tension between Ukraine and Russia continues, the price of rare earth metals will soar.

English: Abizer Shaikhmahmud, Future Market Insights

While the supply chain crisis caused by the COVID-19 epidemic has not recovered, the international community has ushered in the Russian-Ukrainian war. In the context of rising prices as a major concern, this deadlock may extend beyond gasoline prices, including industrial fields such as fertilizer, food and precious metals.

From gold to palladium, the rare earth metal industry in both countries and even the world may encounter bad weather. Russia may face great pressure to meet 45% of global palladium supply, because the industry is already in trouble and the demand exceeds the supply. In addition, since the conflict, the restrictions on air transportation have further aggravated the difficulties of palladium producers. Globally,Palladium is increasingly used to produce automotive catalytic converters to reduce harmful emissions from oil or diesel engines.

Russia and Ukraine are both important rare earth countries, occupying a considerable share in the global market. According to the Future Market Insights certified by esomar, by 2031, the compound annual growth rate of the global rare earth metal market will be 6%, and both countries may occupy an important position. However, in view of the current situation, the above forecast may change significantly. In this article,We will discuss in depth the expected impact of this deadlock on key terminal industries where rare earth metals are deployed, as well as opinions on its expected impact on key projects and price fluctuations.

Problems in the engineering/information technology industry may harm the interests of the United States and Europe.

Ukraine, as the main hub of engineering and IT technology, is considered to be an area with lucrative offshore and offshore third-party services. Therefore, Russia's invasion of the partners of the former Soviet Union will inevitably affect the interests of many parties-especially the United States and Europe.

This interruption of global services may affect three main scenarios: enterprises directly outsource work processes to service providers all over Ukraine; Outsourcing work to companies in countries such as India, which supplement their capabilities by deploying resources from Ukraine, and enterprises with global business service centers composed of war zone employees.

Rare earth elements are widely used in key electronic components such as smart phones, digital cameras, computer hard disks, fluorescent lamps and LED lamps, computer monitors, flat-panel televisions and electronic displays, which further emphasizes the importance of rare earth elements.

This war has caused widespread uncertainty and serious worries not only in ensuring talents, but also in manufacturing raw materials for information technology (IT) and communication infrastructure. For example, Ukraine's divided territory in Donbass is rich in natural resources, the most important of which is lithium.Lithium mines are mainly distributed in Kruta Balka of Zaporizhzhia state, Shevchenkivse mining area of Dontesk and polokhivsk mining area of Dobra area of Kirovohrad. At present, mining operations in these areas have stopped, which may lead to large fluctuations in rare earth metal prices in this area.

The increasing global defense expenditure has led to the increase of rare earth metal prices.

In view of the high degree of uncertainty caused by the war, countries all over the world are making efforts to strengthen their national defense and military capabilities, especially in areas within Russia's sphere of influence. For example, in February 2022, Germany announced that it would allocate 100 billion euros (US$ 113 billion) to establish a special armed forces fund to keep its defense expenditure above 2% of GDP.

These developments will have a significant impact on rare earth manufacturing and pricing prospects. The above measures further strengthen the country's commitment to maintain a strong national defense force, and complement several key developments in the past, including an agreement reached with Northern Minerals, an Australian high-tech metal manufacturer, in 2019 to exploit rare earth metals such as neodymium and praseodymium.

Meanwhile, the United States is ready to protect its NATO territory from Russia's open aggression. Although it will not deploy troops on Russian territory, the government announced that it decided to defend every inch of territory where defense forces need to be deployed. Therefore, the allocation of defense budget may increase, which will greatly improve the price prospect of rare earth materials.Deployed in sonar, night vision goggles, laser rangefinder, communication and guidance system and other systems.

The impact on the global semiconductor industry may be even worse?

The global semiconductor industry, which is expected to turn around by the middle of 2022, will face enormous challenges due to the confrontation between Russia and Ukraine. As a key supplier of components needed for semiconductor manufacturing, this obvious competition may lead to manufacturing restrictions and supply shortages, as well as substantial price increases.

Because semiconductor chips are widely used in various consumer electronic products, it is not surprising that even the slight escalation of conflicts will bring the whole supply chain into chaos. According to the future market observation report, by 2030, the global semiconductor chip industry will show a compound annual growth rate of 5.6%. The whole semiconductor supply chain consists of a complex ecosystem,Include manufacturers from different regions who provide various raw materials, equipment, manufacturing technology and packaging solutions. In addition, it also includes distributors and consumer electronics manufacturers. Even a small dent in the whole chain will generate foam, which will affect every stakeholder.

If the war worsens, there may be serious inflation in the global semiconductor industry. Enterprises will begin to protect their own interests and hoard a large number of semiconductor chips. Eventually, this will lead to a general shortage of inventory. But one thing that is worth affirming is that the crisis may eventually be alleviated. For the overall market growth and price stability of the semiconductor industry,It's good news.

The global electric vehicle industry may face significant resistance.

The global automobile industry may feel the most significant impact of this conflict, especially in Europe. Globally, manufacturers are concentrating on determining the scale of this global supply chain war. Rare earth metals such as neodymium, praseodymium and dysprosium are usually used as permanent magnets for producing light, compact and efficient traction motors, which may lead to insufficient supply.

According to analysis, the European automobile industry will suffer the biggest impact due to the interruption of automobile supply in Ukraine and Russia. Since the end of February 2022, several global automobile companies have stopped shipping orders from local dealers to Russian partners. In addition, some automobile manufacturers are suppressing production activities to offset this tightening.

On February 28th, 2022, Volkswagen, a German automobile manufacturer, announced that it had decided to stop production in two electric vehicle factories for a whole week because the invasion disrupted the delivery of spare parts. The automobile manufacturer has decided to stop the production in Zvico factory and Dresden factory. Among other components, the transmission of cables has been severely interrupted. In addition,The supply of key rare earth metals including neodymium and dysprosium may also be affected. 80% of electric vehicles use these two metals to make permanent magnet motors.

The war in Ukraine may also seriously affect the global production of electric vehicle batteries, because Ukraine is the third largest producer of nickel and aluminum in the world, and these two precious resources are necessary for the production of batteries and electric vehicle parts. In addition, the neon produced in Ukraine accounts for nearly 70% of the neon required for global chips and other components, which are already in short supply.As a result, the average transaction price of new cars in the United States has risen to an incredible new height. This number may only be higher this year.

Will the crisis affect the commercial investment of gold?

The political deadlock between Ukraine and Russia has caused serious worries and worries in major terminal industries. However, when it comes to the impact on the price of gold, the situation is different. Russia is the third largest gold producer in the world, with an annual output of over 330 tons.

The report shows that as of the last week of February 2022, as investors seek to diversify their investments in safe-haven assets, the price of gold has risen sharply. It is reported that the spot gold price rose 0.3% to 1912.40 US dollars per ounce, while the US gold price is expected to rise 0.2% to 1913.20 US dollars per ounce. This shows that investors are very optimistic about the performance of this precious metal during the crisis.

It can be said that the most important end use of gold is to manufacture electronic products. It is an efficient conductor used in connectors, relay contacts, switches, welding joints, connecting wires and connecting strips. As for the actual impact of the crisis, it is not clear whether there will be any long-term impact. But as investors seek to shift their investment to a more neutral side,It is expected that there will be short-term conflicts, especially between the warring parties.

In view of the highly unstable nature of the current conflict, it is difficult to predict the development direction of rare earth metal industry. Judging from the current development track, it seems certain that the global market economy is heading for a long-term recession in the production of precious metals and rare earth metals, and the key supply chains and dynamics will be interrupted in a short time.

The world has reached a critical moment. Just after the coronavirus (Covid-19) pandemic in 2019, when the situation was just beginning to normalize, political leaders seized the opportunity to restart the connection with power politics. In order to protect themselves from these power games, manufacturers do everything possible to protect the existing supply chain and stop production wherever necessary.Or cut distribution agreements with warring parties.

At the same time, analysts expect a glimmer of hope. Although the supply restrictions from Russia and Ukraine may prevail, there is still a strong region where manufacturers are seeking to set foot in China. Considering the extensive exploitation of precious metals and raw materials in this big East Asian country, the restrictions that people understand may be put on hold.European manufacturers may re-sign production and distribution contracts. Everything depends on how the leaders of the two countries handle this conflict.

Ab Shaikhmahmud is the content author and editor of Future Market Insights, a market research and consulting market research company certified by esomar.