While China enjoys the luxury of cheap Russian oil
Meanwhile, China may be flush with cheap energy. The country continues to import from Russia – and Russian crude oil has been trading at a steep discount relative to Brent and WTI since sanctions hit following its invasion of Ukraine. Bloomberg reports this week that Beijing is in talks with Moscow to buy cheap Urals crude with which to fill up its strategic petroleum reserves. And Beijing will likely want to snap up more cheap Urals, too, as domestic demand rebounds from weeks of covid lockdowns. This is a perfect situation for Beijing, as it walks the tightrope between Russia and the West: China gets cheap oil as the rest of the world runs out of energy; it does so subtly, without pushback from a distracted, confrontation-averse West. In fact, the US is easing the path for China. Washington has said that Chinese purchases of Russian oil to replenish reserves would not violate its sanctions.
From shortage to switch: Less palladium means more platinum
The critical minerals story of the past months has been one of shortage imposed by Russia’s invasion of Ukraine. Now, as that reality settles in, markets are, where possible, adjusting to the new normal – and, in the process, transforming both technological and geo-economic trends. Russia accounts for over 40 percent of global palladium mine production, a key input into gasoline-engine catalytic converters, among other things. But in many use-cases, palladium is effectively interchangeable with platinum. And Russia produces only about 10 percent of the world’s mined platinum. Now, carmakers are accelerating a switch from palladium to platinum. The WPIC forecasts further platinum-for-palladium substitution given the former’s lower risks of supply disruption, as well as significantly lower prices. That said, platinum may not be a panacea: A spike in demand for the metal could crimp supplies in the short run, pushing the market into a deficit this year.
The US invests in silicon carbide chip production (kind of)
Late last month, the US semiconductor manufacturer Wolfspeed opened the country’s first major silicon carbide chip plant in New York. Silicon carbide chips, which promise greater battery efficiency, are increasingly being adopted in automotive applications: By 2027, autos are projected to make up 80 percent of a $6.3 billion silicon carbide market. The New York governor hailed Wolfspeed’s new plant as the harbinger of a “Silicon Carbide Valley.” That said, this plant does not address the question of where silicon carbide to make the chips is coming from: China is the world’s largest producer of silicon carbide globally, constituting approximately 70 percent of the global total. The US contributes about 3 percent. An even more extreme story holds for gallium nitride, which like silicon carbide is part of the wide bandgap family of semiconductor compounds that can move more power more quickly than just silicon. China currently makes up over 97 percent of global gallium production.