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Daily Update: January 26, 2022

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Daily Update November 29, 2022

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Daily Update: November 28, 2022

October 2022 – Hong Kong carbon market, ISSB proposed emission standards

ESG Investment Research

Post-COP27: IPCC aligned indexes, time for changes?


Daily Update: January 26, 2022

Start every business day with our analyses of the most pressing developments affecting markets today, alongside a curated selection of our latest and most important insights on the global economy.

Less than one month into 2022, manufacturers have a limited supply of semiconductors left. Such a shortage so soon in the year could signal long-term trouble for supply chains if market participants can’t find solutions in the short-term. 

The conditions that created a global shortage of semiconductors last year—exploding demand, factory outages, and supply disruptions—are still at play in the market and have carried the chip crunch into 2022. While industry insiders, investors, and policy makers from Washington to Beijing to Brussels have made strides to address the chip crunch’s adverse effects on car makers, solar power providers, medical device producers, and smartphone and other technology firms, the situation is likely to persist throughout this year. 

“The semiconductor industry faced one of the largest and most pervasive supply shortages in the history of the industry in 2021, as low inventory levels and tight capacity constraints at fabs constrained companies’ ability to respond to rapidly rebounding demand, particularly for durable goods. We expect conditions to remain tight across the industry as the semiconductor industry posts another strong year of growth in 2022, but moderately slowing demand, incremental capacity growth, and new ordering practices should mitigate some of the disruption by the end of the year,” S&P Global Ratings said in its industry top trends forecast published yesterday. “Notwithstanding this forecast for a moderate easing of conditions, we expect a little slack in the supply chain will persist, and the industry’s ability to rapidly accommodate unexpected shocks, such as greater-than-expected demand growth or supply disruption from a geopolitical conflict, remains extremely limited.”

After a momentous 2021, during which the global semiconductor industry’s revenue skyrocketed approximately 26%, to nearly $550 billion, this year is likely to bring more moderate 9.3% growth as the industry continues to operate in a matrix to meet demand before new capacity investments become available, according to S&P Global Ratings. In the meantime, a prolonged chip crunch could complicate the recovery from the pandemic-prompted slowdown exacerbated by the omicron variant that continues to weigh on mobility and demand. 

Globally, the semiconductor shortage could curtail the estimated 5.7 million light-vehicles being produced in 2022 before supply catches up with demand in early 2023, according to S&P Global Platts Analytics. Auto sales remained below pre-pandemic levels in some markets last year due to the chip crunch. 

The U.S. Department of Commerce warned in a report released yesterday that manufacturers’ median chip inventory had dwindled to a five-day supply as of late last year. U.S. supply chains are already feeling constraints from omicron-related disruptions in Asia, and smaller market players are shouldering bigger burdens from the ongoing chip shortage, according to S&P Global Market Intelligence. 

“A covid outbreak, a storm, a natural disaster, political instability, problem with equipment—really anything that disrupts a [chip-making] facility anywhere in the world, we will feel the ramifications here in the United States of America,” Commerce Secretary Gina Raimondo said during a briefing on the report yesterday, explaining how the fragility of the semiconductor supply chain has left no margins for error. “A covid outbreak in Malaysia has the potential to shut down a manufacturing facility in America.”

As an abundance of chips are anticipated to flood the market next year, a long-term solution to the situation may be a “reshoring” of supply chains. Market participants have expressed the need to ensure consistent chip capacity. As recently as Jan. 21, technology multinational Intel announced that it would invest more than $20 billion to build two semiconductor factories in Ohio starting this year as to begin production in 2025. Dutch automaker Stellantis and Taiwanese multinational technology company Hon Hai Technology Group, known as Foxconn, partnered in December to create purpose-built semiconductors for vehicle production, according to S&P Global Platts. 

While enabling greater geographic diversity in chip-fabrication facilities would help offset shortages by reinvigorating demand and spurring competition, "having centralization of any component that would be critical to any type of infrastructure comes with risk,” James Sanders, a 451 Research analyst, told S&P Global Market Intelligence. 

Today is Wednesday, January 26, 2022, and here is today’s essential intelligence.



Economy


Asia-Pacific Banks Outlook 2022: The Long And Winding Road (To COVID Recovery)

About two-thirds of rating outlooks on Asia-Pacific banks are stable, reflecting improving economies and an ongoing rebound from the worst effects of the pandemic. Regional lenders still face a mixed bag of risks, principally developer defaults and deflating home prices in China, and weak economies in Southeast Asia. The possibility that economic recoveries may stall, in a context of ramped-up public and private sector leverage during the pandemic, adds to banks' risks.

—Read the full report from S&P Global Ratings




Access more insights on the global economy >



Capital Markets


Risks To Polish Bank Stocks May Outweigh Improvements In Profits In 2022

Polish banks were the star performers on the Warsaw Stock Exchange in 2021 and achieved superior share price growth to other European lenders, with the WIG Banks index rising 87% during the year. An economic recovery from the COVID-19 pandemic and multiple rate increases mean 2022 is poised to be a strong year for Polish lenders' balance sheets. Much of this positive momentum has already been accounted for in banks' share prices, and risk factors such as rising inflation and the long-running saga around Swiss franc mortgage exposures are coming into focus. 

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




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Global Trade


Commodities 2022: China's Lithium Markets To Face Supply Squeeze

China's lithium market is set to face tightening supplies throughout 2022 as the demand-supply mismatch widens, a development that is likely to keep domestic prices at elevated levels, according to the S&P Global Platts China Battery Metals Outlook for 2022. As battery production capacity continues to expand, fueled by expectations of strong electric vehicle sales against the backdrop of intensified decarbonization efforts, it is almost a certainty that China's demand for lithium will increase further this year.

—Read the full article from S&P Global Platts




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ESG


Listen: U.S. Climate-Related Disasters Cost $145 Billion In 2021 And More Ahead, Scientists Say

In 2021, the world saw many major climate-related disasters ranging from wildfires to flooding and hurricanes. The U.S. National Oceanic and Atmospheric Administration, or NOAA, recently released its annual climate trends report, providing an important snapshot of the physical risks from climate change in the U.S. The report also puts a price tag on those risks: U.S. weather and climate-related disasters reached $145 billion in 2021.

—Listen and subscribe to ESG Insider, a podcast from S&P Global Sustainable1




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Energy & Commodities


Listen: Systems Thinking Approach Points To Weaknesses In Key Indicators For Global Energy Innovation

Countries around the world committed to keeping the goal of limiting global temperature rise to 1.5 degrees Celsius at the last United Nations Climate Change Conference in Glasgow, Scotland. But when looking at the world's aggregate performance across key indicators of clean energy innovation, a new report from the Information Technology and Innovation Foundation found "a global lack of urgency." And without an immediate surge in effort by countries working with the private sector, the report suggests chances for mitigating the worst impacts of climate change will slip away.

—Listen and subscribe to Capitol Crude, a podcast from S&P Global Platts




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Technology & Media


Industry Top Trends 2022: Technology

S&P Global Ratings’ Industry Top Trends series sets out its industry experts’ assumptions for 24 global industries in 2022. They consider what's changed, what are the key assumptions for 2022, and what are the key risks. For Technology, the sector’s strength will continue into 2022.

—Read the full report from S&P Global Ratings




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Written by Molly Mintz.