COVID-19 blockages in Asia deepen commodity supply chain pain

Krispy Kreme shares slip on opening trade, reverse higher

BIDEN’S SILENT SHUTDOWN: BUSINESSES SHUTTER AMID VACCINE MANDATES, EXTENDED COVID RELIEF Businesses including Unilever PLC, the consumer-goods company, and J.M. Smucker Co. , which includes Folgers coffee, have said increasing prices of raw materials are contributing to cost pressures. “The price of palm oil, a key ingredient for our skin cleansing products, is now 70% higher than its long-term average, with increased demand and lower harvest yields driving up the price,” Graeme Pitkethly, Unilever’s chief financial officer, said in July. He added that the company had already raised prices for some products.

Prices for each of these commodities have risen to multiyear highs in recent months, adding costs that are being passed on to consumers. Lockdowns in Vietnam, the world’s No. 2 coffee exporter by volume, have delayed the processing and export of coffee beans, adding to production concerns caused by poor weather in Brazil. The global tin supply has been hit by Covid-19-related interruptions at a smelter in Malaysia, contributing to higher prices for the industrial metal, which is used to connect computer chips to circuit boards in electronics.

“These supply shocks reverberate globally because Vietnam and Malaysia hold large market share of key commodities,” said Trinh Nguyen, a senior economist at Natixis. Restrictions in Malaysia, the world’s second-largest producer of palm oil, have prevented migrant laborers from traveling to plantations, raising prices of the ubiquitous edible oil used to make candy bars, shampoo and biofuel.

The company said it has invested in new mechanization and automation to reduce its reliance on manual labor. FGV Holdings Bhd., which said it produces around 15% of the country’s crude palm oil, said it has faced challenges in producing expected volumes because of the recent surge in Covid-19 cases in Malaysia. The company said infections on company estates and milling operations led to mandatory lockdowns. Sime Darby Plantation Bhd. said its labor shortfall in Malaysia has worsened to about a fifth of its total needs, meaning around 6,000 unwanted vacancies compared with 2,000 in March 2020. The company said it produced about 6% of Malaysia’s crude palm oil last year. The labor shortfall and lower rainfall contributed to a 5% drop in its production of palm oil in Malaysia in the first half of the year, the company said.

Rigid internal-movement curbs put in place in recent months in response to rising cases have added to the challenges facing palm-oil companies, as have outbreaks on plantations, causing shutdowns. One reason for the elevated price of palm oil is a surge in Covid-19 cases in Malaysia. The Southeast Asian country has recently been recording around 19,000 new cases and 400 deaths a day in its worst outbreak since the pandemic began. Travel restrictions in place since March last year have made it difficult for workers to reach plantations, leading to a steadily declining number of laborers. The palm-oil sector relies on migrants from Indonesia, which is the world’s largest producer of the commodity, as well as Bangladesh and India.

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