Wednesday, Aug 10, 2022
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Russia-Ukraine Conflict: How Automobile Sector Will Bear The Brunt In India

While Russia supplies the semiconductor industry with important metals such as palladium, Ukraine supplies special gases such as Neon and Helium which are required for chip making. 

The global production of new cars and trucks could be hit by millions this year.
The global production of new cars and trucks could be hit by millions this year.

As the Russia-Ukraine conflict enters day 16 on Friday, the supply-chain shortage across the Black Sea region continues to pose threat to the global semiconductor industry. Russia and Ukraine are major suppliers of key components of the chip-making industry. According to a report by Moody Analytics, while Russia supplies the semiconductor industry with important metals such as palladium, Ukraine supplies special gases such as Neon and Helium which are required for chip making. 

Even before the war began, the global semiconductor industry was witnessing a slump. In India, the automobile makers registered a drop in sales amid the chip shortage. Maruti Suzuki, which is the country’s largest automobile maker registered a 2 per cent drop in the total production in the December quarter last year, compared to the year-ago period. The same trend was observed in the total production of other automakers such as Tata Motors, Hyundai, and Honda cars. 

Production And Sales of Automobiles Will Get Extended

According to the report, amid the ongoing Russian-Ukraine crisis, the prices for neon gas have surged 10 times, which will potentially impact the manufacturing of automobiles in the Asia-Pacific region. In addition, the sanctions imposed on Russia will hamper the supply of palladium for manufacturing automobiles. This in turn is likely to extend the production, sales, and delivery of automobiles. According to the data available with the Federation of Automobile Dealers Association (FADA), the passenger vehicle sales in India fell 8 per cent in February, whereas PV sales fell 7.84 per cent year-year-on-year in February to 2,38,096 units compared with 2,58,337 to the year-ago period.

Fewer Automobiles Will Be Produced On Yearly Basis

A disruption in the supply chain is also likely to reduce the production of automobiles this year. According to a report by CNBC, the global production of new cars and trucks could be hit by millions this year. The report said that apart from semiconductors, the supply of wire harnesses and catalytic converters is also bearing the brunt of the Russia-Ukraine crisis. A delayed supply of important raw materials would mean delayed and reduced production of targeted automobiles. 

Expensive Automobiles 

The soaring prices of steel and aluminum amid the ongoing Russia-Ukraine tension is likely to swell up the prices of automobiles in India. The steel and aluminum prices were already trading 15 per cent higher in the FY22. Notably, in the domestic market, the prices of steel will continue to move up amid the Russia-Ukraine crisis, according to a PTI report. 

In the first week of March, the prices of hot-rolled (HRC) were trading between Rs 68,000 to Rs 69,000 tonnes against Rs 65,000 to Rs 66,500 in the previous week, whereas the price of the cold-rolled coil was trading at Rs 73,000 to Rs 74,000 a tonne compared to Rs 71,000 to Rs 72,000 tonne in the previous week. 

Moreover, with crude oil prices skyrocketing, the prices of coking coal have also gone up. Coking coal is an essential component in steel making industry. This will likely impact the manufacturing and production costs of automobiles. 

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