Taiwan’s semiconductor water crisis | US LNG challenges | Italy bank breakup?

Happy Friday! Welcome to Portfolio Intelligence Daily, where each morning we spotlight risks bubbling under the surface and deep in supply chains — and unrealized, under-the-radar investment ideas.

Today:

• Taiwan’s semiconductor water crisis
• US LNG projects face increasing challenges
• Italy proposes to split retail and investment banks

Curated by?Auquan’s research analyst team using our Portfolio Intelligence Engine.

Taiwan’s semiconductor water crisis?

Taiwan is experiencing a severe drought that threatens its semiconductor industry, which requires significant water in its manufacturing processes. The crisis could cause a global microchip shortage.?

• Water restrictions have been imposed on TSMC, the world's largest chipmaker, due to Taiwan's drought. TSMC has around 55% of the global market for contract chip fabrication.
• The drought threatens to cause a repeat of the 2021 microchip shortage
• Significant investment in water recycling, desalination, and well-drilling efforts is needed to address the water scarcity in the region — some solutions are planned but their effectiveness remains to be seen
• The crisis hits as the chip industry in Taiwan is in a war with China over semiconductor engineering talent?

What we’re watching for:?

• Will the drought ease up? The current drought in southern Taiwan is forecast to ease around May, according to forecasts by the Central Weather Bureau.?
• Will mitigation plans have an effect? Water recycling, desalination, and well-drilling efforts are planned or underway.?
• Will semiconductor supply tighten? What impact might a tightening of semiconductor supply have on downstream customers and industries? There are signs that major chip customers are reducing their demand.

Select timeline

• March 29, 2023 | Taiwan frames water recycling policy after microchip industry hit by drought (Huaxia)?
• March 24, 2023 | Taiwan braces for drought in key chip hubs again (Nikkei Asia) (https://asia.nikkei.com/Business/Business-Spotlight/Taiwan-braces-for-drought-in-key-chip-hubs-again)
• October 19, 2022 | The great semiconductor drought may be about to break (The Register)

"The pressure on water and energy supplies that Taiwan faces is much bigger than a couple of years ago. We didn't expect there would be so many Taiwanese suppliers coming back to the island to invest [amid the U.S.-China trade war]. ... At least I didn't calculate this factor in my forecasting model." — Wu Ray-shyan, executive vice president of the National Central University and a hydrology and water resources expert (source)

"Taiwan's economic departments should stop talking nonsense and talking nonsense with empty mouths and open eyes. Only by presenting real data as soon as possible can we ensure that Taiwan will not lack water in the future!" — Zheng Liwen, the public opinion representative of the Kuomintang (source)

Tags: #semiconductor #taiwan #TSMC #climatechange

Barriers threaten US LNG projects

Major US liquid natural gas (LNG) projects are facing financial hurdles that could limit their development.?

• Societe Generale's (SocGen) recent withdrawal from the Rio Grande project is a reflection of the financial challenges faced by industry players
• The financial barriers related to the development of LNG projects are likely to hinder the issuance of approvals for new projects
• Environmental groups and local residents have campaigned extensively against the project
• Rio Grande project challenges points to the need for financial reforms and alternative financing models in the LNG industry.
• The rising costs of LNG projects could make them unaffordable, and the lack of adequate financing could hinder the development of new projects.
• Investors and project developers may need to explore innovative approaches to secure funding by partnering with institutions that offer project finance.
• Impacted companies: Societe Generale, NextDecade Corporation, and other companies involved in LNG industry financing could be impacted financially.

Select timeline

• March 28, 2023 | SocGen confirms it pulled out Texas LNG project (Reuters)
• March 28, 2023 | Rio Grande LNG withdrawal: Societe Generale cites economic model, others see lack of confidence (Offshore-Technology)
• March 29, 2023 | Financial hurdles rise for green-lighting new U.S. LNG plants (Nasdaq)

"Developers have re-evaluated their cost structure and profitability and that, I think, is what is delaying some of these final investment decisions." — Ade Allen, analyst at Rystad Energy (source)

Tags: #esg #lng #socgen

Italy proposes to split retail and investment banks

The party of Italy's Prime Minister Meloni introduced a bill to separate retail and investment banks, which aims to prevent the country's financial institutions from making risky investments with depositors' money.

• The bill presents a major overhaul of the banking sector in Italy, largely in response to the collapse of Silicon Valley Bank and UBS’ emergency takeover of Credit Suisse?
• The proposed separation may lead to reduced profits for some of Italy's biggest banks
• The bill has been met with mixed reactions from industry experts and opposition parties
• This reform move may prompt other countries to consider similar action
• Impacted companies: Banks operating in Italy, including UniCredit, Intesa Sanpaolo, and Banco BPM can be impacted by the proposed reform.

Select timeline

• March 30, 2023 | Italy PM's party presents bill to split retail, investment banks (Reuters)
• March 30, 2023 | Italy to split retail and investment banks (Retail Banker International)
• March 29, 2023 | Italy's PM's Party Presents Bill to Split Retail and Investment Banks (US News)

Tags: #italy #banking #financialcrisis

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