2022-09-19 The interconnect industry has had a difficult few years. First, COVID-19 struck in early 2020, shutting much of worldwide industrial production down. The economies started reopening in the third quarter of 2020 only to be hit by first the delta and then the omicron variants.
As the world dealt with these new variants, consumer consumption ramped up as people were anxious to return to more normal times and spend their stimulus checks. This ramp-up quickly led to supply chain issues, semiconductor/material shortages and spiraling inflation.
The latest issue has been the war in Ukraine. Festering in the background since the 2014 annexation of Crimea by Russia and parts of eastern Ukraine, it blew into a full-fledged war on February 24, 2022 and is exacerbating many issues already impacting the interconnect industry.
The interconnect industry has felt several major and direct impacts of this war. The biggest of these impacts is to the cable assembly industry in Ukraine. To service the large and growing automotive cable assembly market in Europe, several automotive cable assembly companies were established in Ukraine.
Some of the companies establishing assembly facilities in the Ukraine include Leoni, Fujikura, Nexans, Kromberg & Schubert, Yazaki and Aptiv. Most are shut down due to the war.
Customers affected by these shutdowns include Mercedes Benz, BMW and Volkswagen/Audi. Although this cable assembly production can be sourced in other countries, it will take months to build new production lines and train personnel.
The automotive sector is the largest user of connectors in Europe. This is expected to have a major impact on European car and connector sales.
There are several secondary impacts of the war that affect the interconnect industry, primarily focused on raw materials.
Nickel is important to connectors and cables because of its ability to withstand extreme chemical corrosion, including air and water oxidation. Nickel is used in the production of stainless steel, as an underplating on contacts and metal shells, and in making wire. It is also used in lithium-ion batteries found in electric vehicles. Russia is the third largest producer of nickel in the world. The price of nickel has jumped significantly since the start of the war.
Russia is a major exporter of crude oil and natural gas (particularly to Europe). Petroleum products are a major component to many things, including thermoplastics. Thermoplastics comprise 25 percent of the material cost of the average connector. They are also used as the insulation on electronic wire. In 2021, according to Federal Reserve Economic data, the price of thermoplastics increased 44 percent. This means that in addition to increasing transportation and packaging cost, the war has resulted in higher thermoplastic prices to the interconnect industry.
Russia is also a major exporter of palladium and platinum. These precious metals are used in the production of automobile catalytic converters. They are also used to plate electrodes and contact surfaces. The price of gold has also increased since the start of the war (although prices are currently flat). Gold is used extensively in the plating of contacts used in electronic interconnect.
It currently does not look like there will be a quick end to the Ukraine war. Although many companies have initiated contingency plans, including the moving of production lines and the sourcing of alternative materials, the longer the war continues, the greater the impact it will have on the interconnect industry.
