The Fragility of Global Supply Chains

The ransomware attack crippling one of the world’s top aluminum makers is exposing how crucial sophisticated digital systems have become in the centuries-old industry of turning mined rock into metal products.

Following a “severe” cyberattack on Norsk Hydro ASA’s operations in the United States and Europe early on Tuesday, the company has been forced to shut down several automated product lines and is keeping its smelters running using manual production processes. Hydro said it’s planning to restart certain systems on Wednesday to “allow for continued deliveries to customers.”

The critical issue for Hydro is to now find specific customer orders and the recipe for how to fulfill them, CFO Eivind Kallevik said in an interview in Oslo on Tuesday.

“We can get that either through cleaning the systems and restoring the backups, and in some cases we are able to go back into the backup systems and pull data more manually,” he said. “That is a big task at all the plants.”

The threat of a supply disruption at Hydro is being keenly felt in the aluminum industry, where there are only a handful of companies in the world that can make the technical products required by companies like Daimler AG and Ford Motor Co.

That means when there’s a problem, the effects can be far-reaching, as consumers learned last year when the U.S. unexpectedly sanctioned United Co. Rusal, the world’s largest aluminum producer outside of China.

The Hydro incident and other recent attacks show how central technology and automation have become in the metals and mining industry. As part of its push into the European automotive market, Hydro in 2015 invested in automated ultrasonic testing systems to precisely scan its products for impurities, responding to the exacting needs of customers in the transport sector.

Without that automated certification, automakers would be unable to use the parts, according to Colin Hamilton, managing director for commodities research at BMO Capital Markets Ltd. On Wednesday, Hydro said the inability to connect to some of its production systems has caused challenges, adding that it’s still too soon to estimate the “exact operational and financial impact.”

More than other base metals, aluminum production is dominated by a handful of companies, meaning there’s more risk that supply chains will be disrupted if there’s a production problem, according to Michael Widmer, head of metals research at Bank of America Merrill Lynch in London.

The interconnected nature of supply chains isn’t unique to the metals industry. As manufacturing processes becoming increasingly complex and spread out around the world, more companies will have to navigate the risk of a disruption from cyberattacks.

“The more automation you introduce into your systems, the more you need to protect them,” said Widmer. “Along with other industries, you may potentially start to see a much stronger emphasis on cybersecurity.”

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