Ukraine Monitor

economic and social impacts

Views/information on resilience or disruption of supply chains due to the Russian invasion in Ukraine and various sanctions

04 July 2022

Basic Materials (Plastics, Glass, Rubber, etc.)

The industries struggled with high energy prices already before the war. Oil and gas sanctions are likely to exacerbate the situation. Companies are preparing to slow down or stop production for some time.

In the paper sector, some mills are planning to temporarily stop production across Europe due to the extreme energy prices exacerbated since the beginning of the war. Moreover, paper companies, e.g. in France, report that the high energy and raw materials prices have led to an increase of the price of the final product that is not always accepted by the customers.Cancellation orders from Ukraine and Russia have also impacted some paper companies in Germany.

Some supply chain disruptions have also been reported in the paper sector, for pulp and some specific chemicals and might impact paper production, notably in Germany.

In Spain, some rubber and ceramics producing companies stopped production for a period of time after energy prices rose by more than 50%, now surpassing salaries costs. The Spanish government plans to mitigate the burden by reducing fees for the use of electricity transmission and distribution networks or direct help to companies with high gas consumption.

As in other sectors, trade unions have reported that collective bargaining negotiations are proving difficult in the light of high inflation and uncertainties around the impact of further sanctions, embargoes and supply of raw materials.

Specific company examples:

Borealis Belgium:

For materials and logistics, the lack of truck drivers plays a role. The shortage of wooden pallets has become critical. The company tries to respond by optimising "closed loop" pallets and rebooting the use of plastic pallets. Other raw material supply is (currently) under control. There has been a substantial increase in fixed and variable costs for Energy, materials, services, wages, etc. Some projects have been delayed, e.g. one depending on an engineering firm in Ukraine.

Michelin: 

French tire manufacturer Michelin plans to divest its activities in Russia by the end of 2022 amid ongoing supply issues. The company is considering the possibility of transferring control of its administrative, sales and industrial operations to the current local management, the company said in a statement.

The tire-maker suspended its activities in Russia on March 15, following Russia’s invasion of Ukraine, because of the “uncertain context.”

The company said that it is working to guarantee “the most favorable framework possible for its employees.” Michelin currently employs around 1,000 people in Russia, including 750 at the Davydovo plant, which mainly produces passenger car tires. The company’s sales in Russia account for 2 percent of its total sales and 1 percent of its total car tire production worldwide, it said.