Global supply chains, a term encompassing all components necessary to produce consumer goods, are under strain as economic activity picks up and pent-up demand after nearly two years of pandemic containment is unleashed in a global spending spree.
The early focus of supply chain stresses centered on semiconductors, where limited supply met with a surge in digitalization as remote work became the norm and car makers powered up production of electric vehicles (EVs). We now see some signs of the semi situation easing, says Gareth Williams, Co-Portfolio Manager of the BlackRock International Fund. Yet as one concern slowly fades, others loom larger.
One case in point: aluminum. Consider that without semiconductors, car production can’t be fully completed. But without aluminum, car production can’t even start ― and aluminium supply is scarce. A key component to making it ―magnesium ― has fallen to a third of global capacity.
Supply is slowly coming back on stream, but car buyers may be in for yet higher prices and longer wait times, as the auto industry represents roughly a quarter of aluminum demand. This is a microcosm of what we’re seeing across the global economy, with implications for both businesses and consumers.
How can investors identify those companies best positioned to navigate supply chain stresses? Global equity analyst David Vos, an industrials and autos specialist, offers four considerations: