The Treasury Wine Estates Ltd (ASX: TWE) share price is in the red after The Australian reported the entire wine industry is facing a shortage in oak barrels.
At the time of writing, shares in the Penfold's brand owner are selling for $11.98 – down 0.58%. For comparison, the S&P/ASX 200 Index (ASX: XJO) is 0.11% higher.
Let's take a closer look at today's news.
An oak barrel shortage?
According to the newspaper report, the COVID-19 pandemic has severely disrupted the global supply chain of French oak wine barrels. Diminishing supply has sent the price of the highly sought-after containers rocketing to more than $2,000 a unit. And as we know, constricted supply in any given product usually leads to price increases.
The report said the supply chain issues were a result of "lengthy delays out of Europe, storms that have destroyed oak trees and a lack of shipping containers…"
Australian Grape and Wine chief executive Tony Battaglene was quoted in the paper as saying:
"It is difficult to get and even more difficult to get on a boat, and the price of freight is really starting to cause problems… and when margins are tight it makes a big difference and there is a big concern – I don't know what we can do about it."
With Treasury Wine shut out of its biggest market, China, for the next five years – its margins were already pretty tight. These additional costs appear to concern investors, judging by the falling Treasury Wine share price.
Supply issues hit other sectors
French oak barrels are not the only product hit by the global pandemic. Notoriously, a shortage in semiconductor chips is wreaking havoc on the tech sector and new and used car market. An initial cut back in production and rocketing demand – with everyone working from home – has seen the price of the computer chips skyrocket.
Another product with COVID-related supply problems is timber.
As Motley Fool Australia has reported, timber prices have increased 300% and even 400% on falling supply as well as increased demand. These issues have led to short term spikes in inflation.
Apparently, not even wine is immune to the pandemic.
Treasury Wine share price snapshot
Over the past 12 months, the Treasury Wine share price has increased 8.73%. That's a 15-percentage point underperformance of the ASX 200. Year-to-date, however, has been better for shareholders. In that time, Treasury Wine shares have appreciated 25.7% to the benchmark's 12.9%.
Treasury Wine Estates has a market capitalisation of around $8.7 billion.
