It’s not just oil.
The near-standstill in the Strait of Hormuz has raised concerns that prices for goods used in everything from agriculture to semiconductor manufacturing will soar.
Earlier this month, Qatar shut down one of the world’s largest energy hubs following a drone attack. This halted production of liquefied natural gas and helium, a byproduct of natural gas extraction. The disruption accounts for about a third of the world’s helium supply, Bloomberg estimates.
Helium is used in important applications such as magnetic resonance imaging (MRI) and welding, as well as in electronics and semiconductor manufacturing, which consumes a large portion of the world’s supply. It is important to cool the chip rapidly during manufacturing to prevent overheating and defects.
The United States produces large amounts of helium for consumption, but Asian countries import most of it. Taiwan produces more than 60% of the world’s chips, including 90% of the most advanced chips, and Japan and South Korea are also major semiconductor centers.
“We know that TSMC and Hynix are highly dependent on capital inflows from Qatar (probably around 40-50%, if not slightly more), which means they may have to rely on foreign exchange reserves in the coming months,” wrote economist Andreas Steno Larsen, founder of Steno Research.
“This could be the bottleneck for the whole AI story,” he added.
Some market observers point out that the spot price of helium has increased by as much as 50%. However, these price increases do not apply to existing contracts that dominate the industry.
“It’s delayed because the supply chain is so long,” Phil Kornbluth, president of Kornbluth Helium Consulting, told Yahoo Finance on Friday. Cargo ships “take several weeks to reach their destination, so unless they reach their intended destination, they won’t be in the red for the time being.”
“If hostilities continue [and] “The Strait of Hormuz will remain closed for six months or a year, so this is a really big deal.”
Shares of U.S. helium producer Linde (LIN) rose on Friday after JPMorgan upgraded the stock from neutral to overweight and raised its price target from $455 to $525, citing tight global helium supplies and rising commodity prices.
Air Products & Chemicals (APD) stock also rose more than 2% after Wells Fargo analysts raised their recommendation on the stock from equal weight to overweight and raised their price target from $270 to $325.
Fertilizer prices are also rising due to the Strait of Hormuz impasse.
“We have seen the price of urea, an important nitrogen fertilizer, increase by 30 to 50 percent since the beginning of the Iran conflict, which is a serious problem for farmers,” said Blake Hurst, former director of the Missouri Department of Agriculture.
