Even though all hands are on deck to end the global chip shortage, from chip makers to affected industries to the White House, some automakers don’t see an end in sight until late 2022. The upside: That at least gives us a roadmap to normalcy. The downside: There’s another potential shortage coming down the pipeline that could make things even worse.
As the Financial Times reported this week, the auto industry is facing a magnesium shortage. Now, many people are only just learning the importance of semiconductors, so why is magnesium such a big deal? In short, it’s an essential part of aluminum alloys, metals that are used in countless car parts; and right now, China, the world’s largest producer of magnesium, is cutting production.
“Thirty-five per cent of downstream demand for magnesium is auto sheet — so if magnesium supply stops, the entire auto industry will potentially be forced to stop,” Barclays analyst Amos Fletcher said in a report, per the Financial Times.
The reason production is slowing in China, the source of roughly 85% of the world’s magnesium, comes down to the country’s energy consumption targets, which led to the closing of a majority of magnesium smelting plants until the end of the year and cutting production by half at the others, according to the outlet. The problem is exacerbated by the fact that magnesium is hard to store for long periods of time due to relatively quick oxidation.
While the U.S. does produce a good amount of magnesium itself, U.S. aluminum makers themselves have already expressed their concern about the shortage of the material, saying it could affect production in 2022.
All that said, there’s no need to panic quite yet. As BofA Securities analysts quoted in the Financial Times note, the issue is just emerging and any effect on car production has yet to be seen. But the way things have been going, it’s probably best to plan for the worst.
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