Will the Russian invasion of Ukraine affect your fabrication shop?

Russia’s invasion of Ukraine will affect our economy for the near term and promises to have a significant impact on the formed sheet metal industry. Even if the attack de-escalates, political uncertainty and economic sanctions will still affect the global economy.

While no one knows what will happen, managers and employees need to watch the situation, anticipate changes, and respond however they can. Each of us can be a positive influence on the financial health of our organizations by learning about and responding to the risks.

What might happen in the near term?

Energy Markets

Global political instability influences oil prices nearly as much as supply and demand issues during times of crisis. Threats to oil production, pipelines, shipping, and the structure of the market drive increases in oil prices.

Natural gas prices also are influenced by political instability and the probability of supply disruption. Several years ago, the price per Million British Thermal Unit (MMBTU) of natural gas was directly influenced by the price of oil, but changes in the market and energy production technologies have influenced a decoupling of natural gas prices from oil prices. Long-term prices do seem to still show similar trends.

The invasion of Ukraine and resulting sanctions will influence the supply of natural gas to European markets from Russian producers. As a result, you can expect to see significant and sustained increases in the cost of energy used to power your plants.

Material Prices and Availability

Speculation will enter the aluminum and nickel markets because Ukraine and Russia are significant suppliers of these metals. Supplies of nickel were already tight for meeting the demands for stainless steel and lithium Ion batteries, and now sanctions and retaliation measures could further limit the supply of nickel and aluminum.

Ukraine is a critical supplier of rare gases like krypton, neon, and xenon. Supply disruptions will impact the markets for high-technology equipment that uses these rare gases.

Russian company Norilsk Nickel is the world’s largest supplier of palladium, used for catalytic converters. Disruption in supply will directly influence automakers’ abilities to develop product for the market.

And to top it off, disruption in the supply of critical materials and rare gases could prolong the current microchip shortage.

Economies

With COVID-19 already straining the domestic economy, supply chain failures and surging demand for consumer goods are adding inflationary pressure. If the Federal Reserve raises interest rates to address these issues, demand for appliances, automobiles, and new construction could slow down, directly affecting demand for sheet metal components. And if suppliers remain unable to meet even decreased demand, consumer prices will rise significantly.

How Can You Help?

We are in stressful and challenging times. Our options seem to be to lament and do nothing or to take action to manage the negative effects of the invasion and the pandemic on our companies. Mostly, we can take steps to reduce demand for energy in our shops, which will likely also improve production results:

• Maintain and lubricate machines to ensure they are as energy efficient as possible.
• Use the right lubricants to prevent excess friction and heat and check how they are being applied. Clean and replace worn nozzles, and make sure that rollers are applying lubricant in a way that limits waste.
• Inspect lines and equipment for leaks.
• Install energy-efficient lighting.
• Power down equipment whenever possible.
• Manage process-related heating costs by maintaining equipment for efficiency. Evaluate your heating equipment installation practices, and consider installing waste-heat recovery systems.
• Schedule production to take place outside of peak-rate periods.
• Talk to colleagues and employees to promote best practices in energy consumption.

If we want to help our companies weather the current crises, and any yet to come, the most valuable contribution we can make is to be alert to our surroundings. Efficient equipment and processes use fewer resources, reduce costs, and support the production of quality product with less scrap. If you wish to offer direct support to the Ukranian people, please visit Ukranian House in Warsaw or Ukranian American Crisis Response Committee of Michigan.