Daily Update: March 1, 2021

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A shortage of semiconductors could complicate the auto industry’s recovery from the slowdown caused by the pandemic that continues to weigh on mobility and demand. Due to the shortage, General Motors, Ford, Nissan, and other vehicle-makers have announced new limits on their production or shutdowns of some factories.

To deal with the chip challenges, the global auto industry should improve communicate with top-tier semiconductor suppliers and manufacturers; increase their inventory levels to prevent future stockouts; lean into nearshoring in order to shift production to other countries closer by; or diversify where semiconductors are sourced across several suppliers, according to Panjiva, part of S&P Global Market Intelligence.

“We estimate that so far, the overall impact of shortages related to publicly announced production shutdowns equates to under 5% of global quarterly production,” S&P Global Ratings said in a recent outlook for the global auto industry in light of the chip shortage. “Some automakers could face up to a 20% production shortfall in the first half of 2021, as many plants are operating at lower utilization, and many more could be affected over the next quarter or two before supply normalizes.”  

While a substantial amount of lost production is likely to be recovered in the second half of this year, S&P Global Ratings anticipates a resulting net loss of production of up to 3 million units, totaling approximately 3-5% of global production, by year-end.

The coronavirus crisis exacerbated the situation, but didn’t create the chip crunch. Slow demand spurred suppliers to scale back their capacity investments starting in 2018. When automotive manufacturers reduced their orders from semiconductor suppliers as the pandemic took hold of the global economy in March 2020, semiconductor manufacturers decreased their production for cars while increasing their output for consumer electronics. In the second half of last year, the U.S. Commerce Department restricted exports of semiconductor equipment from certain Chinese firms at the same time as the global auto industry recovered more rapidly than anticipated. This created the semiconductor shortage for car and electric vehicle makers, solar power providers, medical device producers, and technology firms just as demand exploded. 

Some solutions appear to be on the horizon. U.S. President Joe Biden signed an executive order on Feb. 24 to address the potential risks facing the country’s supply chain for essential goods like semiconductors, under which federal agencies  will conduct a 100-day review of likely vulnerabilities for U.S. manufacturing.

As supply chains face continued pressure, questions remain over whether the situation can be addressed  in the immediate-term and on a global scale. The global auto industry's supply chain is dependent on Taiwan, where the Taiwan Semiconductor Manufacturing Company produces 70% of the critical semiconductors needed for vehicles, according to the financial intelligence firm IHS Markit. China is likely to experience the biggest volume disruption of its own chip production, with 250,000 units at risk in the first quarter.

“The semiconductor industry’s development faces opportunities and challenges that require the world to strengthen cooperation and build the semiconductor industrial chain together, to allow it to develop in a healthier and more sustainable way,” Tian Yulong, the spokesperson for  China’s Ministry of Industry and Information Technology, said on Monday, according to CNBC. “We must put improving the stability and competitiveness of industrial chains and supply chains in a position of prominence ... and firmly seize the initiative in the fiercely competitive international market."

Today is Monday, March 1, 2021, and here is today’s essential intelligence.

Uncertainty in the Global Economy

Economic Research: U.S. Real-Time Data: A Weaker February Likely Offset A Better-Than-Expected January

While businesses in most states remain open, mobility levels are still low. Weekly same-store retail sales slowed in February, perhaps an indication that broader census-based retail sales (beyond just same-store sales) will also weaken in February following a January jump from the reopening of the economy on vaccine rollouts, extended government income support to households, and a strong housing market.

—Read the full report from S&P Global Ratings

The Future of Credit

Latin America Structured Finance Outlook 2021: New Issuance Should Increase Amid The Challenging Environment

S&P Global Ratings expects new Latin American structured finance issuance to increase to approximately $15 billion in 2021 from $14 billion in 2020, though conditions will likely remain challenging for issuers.

—Read the full article from S&P Global Ratings

Technology & Innovation

Amazon Expands Palm-Reading Payment System as Pandemic Drives Down Cash Use

Amazon.com Inc. is rolling out a new technology at its physical retail stores that allows consumers to purchase products with the palm of their hands, a move analysts say is designed to capitalize on the increased adoption of touchless payment systems during the pandemic.

—Read the full article from S&P Global Market Intelligence

Analysts Say High Cost of C-Band Spectrum Leaves Verizon, AT&T Reeling

Verizon Communications Inc. and AT&T Inc. spent big in the recent C-band auction, but analysts worry the true cost of the eye-popping results may far outstrip the actual dollars paid.

—Read the full article from S&P Global Market Intelligence

NYC Theater Reopenings Boosts AMC, Cinemark; Disney Surges on Streaming Play

Top theater exhibitors breathed a sigh of relief this week after New York City gave them the nod to start welcoming moviegoers back.

—Read the full article from S&P Global Market Intelligence

The Future of Energy & Commodities

Midcontinent Storage Drawdown, Supply Risks Drive Forward Market Premiums

U.S. Midcontinent forward gas markets are bracing for enduring supply tightness amid mounting concern that the recent and massive drawdown from regional inventories could endure through next winter.

—Read the full article from S&P Global Platts

UAE Says OPEC Adding 1.5 Mil B/D In April Hinges On Vaccine Rollout, Demand Recovery

The chance of OPEC and its allies agreeing to increase crude output by 1.5 million b/d for April will hinge on a successful rollout of the COVID-19 vaccines and its impact on demand as the group seeks to lower inventories, the UAE's energy minister said.

—Read the full article from S&P Global Platts

Written and compiled by Molly Mintz.