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After the strong rally in metal prices in 2021 due to supply chain disruptions, the Russia-Ukraine conflict has again sent prices through the roof. The supply of key metals could also be affected by sanctions imposed on Russia by the US, EU and UK.
The all-time high inventory levels for most manufacturers, coupled with the strategy of expanding their supplier network, could help to mitigate any adverse impact. Hence, in the short term, we expect muted impact but if the crisis is prolonged, margins could be affected.
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Semiconductor space
Metals and neon gas are usually not the largest cost component. Take UMS for example, where metals account for about 30% of total sales. Meanwhile, total gas only accounts for around 2% in total cost of goods sold for Hua Hong.
Taiwanese foundries like TSMC and UMC have a diverse set of suppliers with long-term agreements to secure supply and prices of key raw materials. Cost inflation should also be gradual and manageable, and likely to be passed through to end-users.
Mid-downstream segment
After experiencing the disruptions to the supply chain, companies have become more accustomed to navigating this challenging environment and have been keeping high inventory levels in order to fulfil their orders for customers. The all-time high inventory levels for most manufacturers, coupled with the strategy of expanding their supplier network, could help to mitigate any adverse impact.
Our preferred picks in the mid-downstream segment are Aztech and Venture.
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