Finance Monthly - May 2022

33 Finance Monthly. Bus i ne s s & Economy also expected to surge, due to Russia playing a major role in the global mining of palladium (45% of global production), platinum (15%) and aluminium (6%). As a result of the continuing conflict, it is expected that the prices of these precious and base metals will increase by between 10 and 18%. Further to this, the price of natural gas is anticipated to rise, as Ukraine is an important transit route for Russian natural gas flows from Europe. With Russia accounting for roughly 40% of the European natural gas supply, serious disruption to the supply of the energy product is a distinct possibility. This could see the price movement of natural gas increase from anywhere between 18 and 28%. Additionally, agricultural products are also expected to experience a spike in their prices, due to Ukraine being the “breadbasket of Europe”. In fact, Russia and Ukraine are major global exporters of both corn and wheat, accounting for an estimated 30% of global wheat exports. As such, the price of corn is expected to increase by 10 to 18%, while wheat is set to rise by 12 to 20%. However, if Russia decides to bring its invasion to an end, or if Western countries introduce active initiatives in an attempt to stabilise energy prices, then the expectation is that commodity prices will fall significantly, returning to pre-conflict levels. For example, the prices of crude oil and natural gas have started falling on the back of the US announcing a record release of one million b/d from the US Strategic Petroleum Reserve over the next six months, in addition to The International Energy Agency (IEA) agreeing to release up to 60 million barrels from their respective strategic reserves. In the event of the conflict de-escalating, crude oil is expected to fall by a further 10 to 15%, while nickel is in line for a drop of between 13 and 17%. Nevertheless, at this moment in time, this scenario unfolding is difficult to predict with any certainty. What can organisations do to ensure business continuity? Firstly, it is imperative for companies to actively evaluate alternative suppliers to ensure business continuity. Businesses should be prepared to switch to or identify alternative sources for procuring essential products and services in the event of disruption due to a crisis. An example of this can be seen with the uncertainties Russian suppliers and bankers are having at present, which has resulted in Tata Steel seeking alternative markets for coal imports, choosing to look beyond Russia and instead purchase coal from other regions, such as North America. By having a range of different sources and suppliers, companies ensure that they are prepared in the event that the situation in Ukraine drags out, as they can easily purchase commodities through alternative avenues. As well as this, businesses must continuously monitor the situation, in terms of the conflict itself, as well as the restrictions and sanctions being imposed. This allows organisations to stay up to date on the impact the crisis is having on the supply chain in light of the events taking place and plan for multiple possible eventualities. For example, companies can react quickly and raise the prices of their products if the price of the commodity they require for manufacturing has escalated significantly. Businesses can also brace for cost increases by allocating provisions in anticipation of this possibility, while they should also eliminate or freeze all nonessential spending. Furthermore, there are a number of other actions organisations can take to prevent supply chain disruptions during such geopolitical events as the ongoing Russia-Ukraine conflict. Companies should liaise with suppliers to identify alternative payments methods, while they should also address immediate financial and cybersecurity concerns. This includes reviewing financial hedge positions in light of the volatile Russian and Ukrainian currencies, in addition to identifying and minimising vulnerabilities in cybersecurity. To ensure continuity, it is vital for businesses to constantly monitor the situation as it continues to evolve and develop, while they must also actively evaluate alternative providers and distributors. By doing this, organisations will be able to limit the potential damage caused by supply chain disruptions during geopolitical conflicts, such as the one ongoing between Russia and Ukraine.

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