Beware of global supply chain chaos

The La Nina climate could likely last into 2023.

Global warming is contributing to extreme weather events, and the world is about to experience the third year of La Nina. El Nino and La Nina refer to the periodic warming and cooling of ocean surface temperatures in the eastern Pacific Ocean and the central and east-central equatorial Pacific. They occur annually, but the current weather patterns are like the last straw in light of the ongoing Russia-Ukraine war, surging prices of fertilizers, animal feed, and foodstuffs.

According to the US National Hurricane Center, there is an 80% chance that La Nina will persist through January 2023. Drought and flood damage would have cost $700 billion over the previous two years, and it might cost $1 trillion by 2023, according to Aon data and analytics.

The American west faces water and power shortages due to the climate crisis that led to dangerously low levels of lakes, rivers, and reservoirs. The critical water shortage seriously affected cotton cultivation, causing cotton prices in April to rise to a decade high. Similarly, historical droughts have limit ed the production of not only coffee, sugar, and oranges in Brazil but of soybeans and corn in Argentina as well. Moreover, river transport is hampered by low river water levels, forcing farmers to pay additional logistics costs to alternative ports to export on time.

In Asia, extreme weather events are best described by unprecedented floods in Pakistan that killed 1500 people and 750,000 livestock and washed away 800,000 ha of farmland, with damage amounting to over USD10 billion. According to data from the International Trade Center (ITC), the main exports of Pakistan in 2021 were textiles and clothing (USD13 billion), cotton (USD3.4 billion), and cereals (USD2.2 billion), primarily destined for the US and China. More than 70% of the rice crop in Sindh, the hardest hit by recent floods, has been wiped out, boosting food import needs in the country and putting enormous pressure on global agriculture.

On the contrary, China, Pakistan's neighbor, has seen the worst drought on record. The historic low water level of the Yangtze River forced many industrial hubs offline on power shortages, including the car factories of major automakers such as Tesla, Toyota, etc. In addition, the energy-intensive chemical plants manufacturing caustic soda and yellow phosphorus have also had to cut production to allocate electricity to households during peak periods.

The La Nina climate will likely last into 2023, while the conflict between Russia and Ukraine is escalating after President Vladimir Putin ordered the partial mobilization of the Russian population.

Mr. Tran Duc Anh, Head of Macro & Strategy at KB Securities assessed that the above events would hurt the global food, energy, and basic chemical supply chains. Meanwhile, internal factors like favorable weather conditions, low volatility of food supply, and sustainable energy security will help Vietnamese businesses to gain a competitive edge over international ones.

"We are upbeat about the prospect of the following industries in the year-end period: agriculture (Trung An Hi-Tech Farming (TAR), Loc Troi Group (LTG), ...) livestock (Dabaco (DBC), ...), and chemicals (Duc Giang Chemicals (DGC), South Basic Chemicals (CSV), PV Fertilizer & Chemicals (DPM)", said Mr. Tran Duc Anh.