Metals markets prepare for chaos as Ukraine crisis worsens

Prices of key metals have surged in recent weeks, turbocharged above previous gains earned on the back of power shortages, energy costs, and Chinese environmental restrictions. Aluminum and nickel prices, in particular, have reached multi-year highs on fears sanctions will result in a breakdown in supply from Russia.

Although Russia maintains a critical role in the supply of those two metals, particularly to the European market, other metals could also fall in short supply. According to the US Geological Survey, (USGS) Russia’s Rusal produces about 6% of global primary aluminium. It produced 3.8 million tonnes of aluminium last year.

Europe’s aluminum market remains tight. It has suffered a shortage of extrusion billets for much of the last year. Russia produces aluminum billets, nickel, gold, palladium, cobalt and platinum.

At over 7% of global nickel production, Russia serves as a major producer with some 193,000 tonnes last year. Indonesia and the Philippines remain China’s primary suppliers but Russia provides key materials to Europe’s stainless industry. To make matters worse, European companies generally have longer-term contracts, not easily replaced at short notice.

Russia’s largest producer, Norilsk Nickel, also serves as a major producer of palladium and cobalt. In fact, Russia remains the largest producer in the world of palladium at some 40% of global mine production. Furthermore, Russia serves as the 10% global producer of platinum.

Although Russia’s cobalt production provides only  4% of global supply, it has served as a viable alternative to the Democratic Republic of Congo.  Russia plays an equally key role in the gold market. The country controls about 10% of global mine production only behind Australia and China.

Russia also produces nearly as much steel as the US. But unlike the US, at least half of Russian production goes toward export markets, again mainly Europe. Steel supply does not face the same constraints as base metals. However, while European mills may welcome the reduction in competitive supply, consumers would find some grades or product areas have limited alternatives as Russia has built up outsized roles in some product areas like pipes.

Russia has a dominant position in oil, natural gas and other commodities like diamonds and foodstuffs such as grains and agricultural products like fertilizers.

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