June 17, 2024
Supply chain stories for the week…
1: Some local governments in China give subsidies for China-produced GPU's
Summary: In the battle over semiconductor chips and AI, some local governments in China are providing financial incentives to companies purchasing processors manufactured in-country.
Analysis: Expect more local procurement initiatives as things progress. This has been one of the key complaints of foreign businesses, i.e., that foreign businesses, even if produced domestically in China, are ineligible for government procurement. From a Chinese point of view, a major driver is that the US/EU/others are no longer reliable, even if produced locally. Foreign governments could withdraw products and technology at any time, so why even have them in the system? Detractors will say this is a recent phenomenon and overblown, and that discrimination of foreign firms has been around for many years. Regardless, expect this kind of regulation, official or otherwise, to accelerate.
2: Illinois hit by layoffs, four factories close
Summary: Higher manufacturing costs, high borrowing costs, geopolitics, revenue losses, and less efficient production contributed to thousands of layoffs and the closing of four factories in Illinois.
Analysis: Businesses losing money, lack of subsidies or other incentives led to these closings. Quaker Oats decided to relocate production to other facilities rather than undergoing production upgrades, the current production was too inefficient and too costly to improve. Many older factories need upgrades and if you are not in a sexy industry like green energy, there is little help available.
3: Furor over US Steel puts CFIUS in the spotlight
Summary: CFIUS is a US government foreign investment screening regime, and it is looking at Nippon’s proposed takeover of US Steel.
Analysis: When Nippon Steel initially put its proposal out, there was a mix of job and hesitation. Joy that a world-class company could take it to the next level, hesitation that it is a “foreign firm.” This is still under review, but will likely be rejected on national security grounds. If that occurs, the US can no longer make the case that it is a market-based system, and will be another nail in the coffin of its trading system. If you cannot handle a world-class company from an allied nation improving one of your companies, then you are stuck in the 20th century. China and Germany are wishing for this as it will encourage others to look at those countries as more straightforward.
4: A solar panel ingredient is again made in the USA
Summary: A partnership between a US and Korean firm has enabled domestic production of polysilicon.
Analysis: The Inflation Reduction Act helped with subsidies and benefits to reopen the factory, and a key ingredient is again being made in the US. How long will this last? It is uncertain if this business can gain enough traction before subsidies run out, but so far it is off to a strong start. This is something to watch closely because if it fails after all of the support given, it will be a sign of further deterioration off US manufacturing capacity.
5: Solar power boom is also driving silver demand
Summary: Silver is needed to produce photovoltaic panels as it has “high electrical conductivity, thermal efficiency, and optical reflectivity.”
Analysis: Supply is flat-lining and prices are going up, with no expected supply increase in the near future. This will drive prices up further, and also energize recycling of this critical component. Rare materials such as silver are dangerous for the industry as they are finite, and it is impossible to know how much will be available. Watch for some firms to research alternatives to silver to achieve the same properties as silver.
Something unique….
The original war game is a look at Kriegsspiel, a game created in the late 18th century that focused on battle conditions and simulations. It created the foundation for what we know today as “war gaming” and, in supply chain parlance, “scenario planning,” and “risk management.”