It’s not just oil.
The near-standstill situation in the Strait of Hormuz has raised concerns about soaring prices for everything from agriculture to semiconductor manufacturing.
Earlier this month, Qatar shut down one of the world’s largest energy hubs due to drone attacks. This halted the production of LNG and helium, a by-product of natural gas extraction. Bloomberg estimates the outage accounts for about a third of global helium supply.
Helium has important uses, including magnetic resonance imaging (MRI) and welding, as well as electronics and semiconductor manufacturing, which consume a large portion of the world’s supply. It is critical to cool the chips quickly during the manufacturing process to prevent overheating and defects.
While the United States produces much of the helium it consumes, Asian countries import most of it. Taiwan produces more than 60% of the world’s chips, 90% of which are the most advanced chips. Japan and South Korea are also major semiconductor centers.
Economist Andreas Steno Larsen, founder of Steno Research, wrote: “We know that TSMC and Hynix are highly dependent on Qatari inflows (perhaps 40-50%, or even more), which means they may have to rely on reserves in the coming months.”
“This could become a bottleneck in the entire AI story,” he added.
Some market insiders point out that helium spot prices have risen by as much as 50%. However, these increases do not apply to existing contracts that dominate the industry.
“The reason it lags is because the supply chain is quite long,” Phil Kornbluth, president of Kornbluth Helium Consulting, told Yahoo Finance on Friday. A cargo ship takes “a few weeks to get to its destination, so there’s not an immediate deficit until it’s not where it’s supposed to be.”
“If hostilities continue [and] Closing the Strait of Hormuz for six months or a year is a really big deal,” he said.
JPMorgan upgraded shares of U.S. helium maker Linde AG (LIN) to overweight from neutral and raised its price target to $525 from $455 on Friday, citing tight global helium supplies and rising commodity prices.
Air Products and Chemicals (APD) shares also rose more than 2% after analysts at Wells Fargo upgraded the stock to “overweight” from “equal” and raised their price target to $325 from $270.
The standoff in the Strait of Hormuz has also sent fertilizer prices soaring.
“The price of urea, an important nitrogen fertilizer, has gone up 30 to 50 percent since the Iran conflict began. That’s a real problem for farmers,” said Blake Hurst, former director of the Missouri Farm Bureau.
