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Friday, October 07, 2022

War in Ukraine disrupts life and supply chains

It can be difficult to quantify the ways in which Russia’s war in Ukraine has disrupted global supplies of the parts and raw materials needed to complete a variety of products from cars to computer processors.

But cutting one of those connections caused a “disappointing feeling” for Andrey Bibik, the head of Interpipe’s steel plant in Dnipro, Ukraine. Bibik spent the first hours of the war shutting down a plant that operated 24 hours a day and sending almost everyone home.

“It is empty and lonely. Nothing is heard. Everything seems to be paralyzed,” he said.

Shipments of steel gas pipes to Texas oil companies and rail wheels to European high-speed rail operators have been halted after Interpipe’s nearly 10,000 Ukrainian employees joined the fight against Russia. Others have fled. The small group that manages the mess hall and builds spiked metal barriers to block Russian caravans and tanks. Its bomb shelters host dozens of local families at night.

“Stopping production was a difficult decision. We had many orders, many customers waiting for our stuff. But if you have to choose between safety and potential benefits, I think the answer is obvious,” said Bibic, who has worked at the company for nearly two decades. “The most important thing we have is life, and we really have to take care of the people we love.”

Similar shutdowns have occurred in other industries in Ukraine, driven not only by security concerns, but also because war and the mass exodus of refugees have closed roads and railways to commercial goods traffic. Some of Interpipe’s finished products that were destined for export are now stuck in the Black Sea port of Odessa.

According to a report by Dutch bank ING, Ukraine accounts for just 0.3% of the world’s exports, while Russia represents 1.9%. Nevertheless, some companies doing business with these countries are beginning to feel the effects of the war.

For Russia, a major supplier of energy, steel and crude metals such as nickel, copper, platinum and palladium – many of which are vital to the auto industry – supply concerns stemmed from harsh Western economic sanctions and Russian maneuvering. , For Ukraine, it is the war itself that disrupts shipments.

“We want to give priority to refugees, people trying to get out of the war zone, and military and humanitarian caravans,” said Fadi Haribi, president and former CEO of Houston-based Interpipe.

Complications in another Ukrainian industry, which makes car wiring, are already affecting European automakers. According to a government agency that encourages foreign investment, Ukraine has more than 30 auto plants, most of them near the border with Poland and other European neighbours.

German parts supplier Leoni said production was halted at two of its plants in Styry and Kolomia in western Ukraine, and was looking for temporary alternatives. “We know that this condition affects not only Leoni, but the entire region,” said spokesman Gregor Le Claire.

Ukraine is one of the world’s largest suppliers of neon, the gas used in lasers that help install integrated circuits in computer processors. This worries auto industry executives, who fear Neon supply problems could exacerbate a global shortage of processors that has already led to production cuts and vehicle shortages around the world.

Interpipe has five factories in Ukraine, all located in and around the industrial center of Dnipro, which has a strategic position on the Dnieper River, southeast of the capital Kyiv.

Until Russian airstrikes hit Dnipro on Friday, the country’s fourth-largest city was fairly quiet, except for the occasional lament of air-raid sirens in the first two weeks of the Russian offensive. But on February 24, Interpipe managers made a quick decision to shut down all of its facilities.

Bibik said Russian President Vladimir Putin had launched the offensive before dawn and that by noon the plant had ceased operations. That night he saw how the last five workers were transferred to the suburb where they live. All employees of the firm continue to be paid, Bibik and Hirbi said.

The firm’s customers in the rail and energy sectors typically order their pipes, wheels and other products months in advance, but Haribi said disruptions will ensue and prompt some to seek alternatives. Some wheel customers, such as Saudi rail operators, have the firm as the sole supplier. Its two main competitors, OMK and Evraz, are in Russia, and the manager expected customers to avoid them.

“I don’t know if our business will last,” he said. “We have to support people, to keep our staff, to be able to reopen in a month or two or three, when things get back or at least close to normal. But no one can really predict what’s going to happen.”

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Associated Press auto industry journalist Tom Crischer contributed to this Detroit report.

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