NEWS & Insights

Russia’s invasion of Ukraine to impact global aluminium supply

Russia’s invasion of Ukraine is expected to have a significant impact on global aluminium supply and prices, while the news sent nickel prices on the Shanghai Futures Exchange to a historic high Feb. 24, and benchmark natural gas prices jumped as much as 41%.

Russia is responsible for 6% of global aluminium supply and 7% of mined nickel. So an interruption of that supply would be significant.

Aluminium prices have remained at elevated levels in recent weeks on supply concerns after European primary aluminium smelters were forced to cut their output due to the energy crisis as they entered 2022.

Three-month aluminium on the London Metal Exchange hit a record high of $3,443 a tonne earlier in the session, and was up 4.2% at $3,428.5 by 0750 GMT.

“Aluminium and nickel are energy-intensive metals and higher energy prices would further push the cost curve. This raises risk of more European smelters suspending their production or postponing their restart plans,” ANZ analyst Soni Kumari said to Reuters.

EU’s output curbs may widen as the invasion has added uncertainty to Europe’s natural gas supply, raising concerns around tight global supply and elevated prices.

Russia-based Rusal is one of the largest aluminium producers across the world and plays a vital role in global supplies. The US in 2018 put sanctions on Rusal’s operations, which led to severe supply tightness and pushed up global aluminium prices to a seven-year high, eventually leading to a significant rise in production costs for downstream manufacturers.

China’s import arbitrage window for primary aluminium remains closed for now as imports have become expensive amid output cuts by smelters in Europe.

 

Secondary Aluminium Market

Global stockpiles of tradeable aluminium currently stand at around 1.5m tons, down from a peak of 3.2m in March last year. On just Feb 12, Trafigura predicted aluminium stockpiles would disappear by 2024.

Goldman Sachs says aluminium is likely to reach $4,000 a ton this year as scarcity spreads, with “a long road back to pre-power crunch levels” lying ahead.

As power and commodities prices increase, aluminium looks set for further price rises, as primary aluminium is so dependent on high amounts of power usage.

“If the primary aluminium market surges,” Keith Wildie from Romco Metals said, “then demand for materials flow directly into the secondary market. With the price rises we see from primary, particularly if we see demand from core manufacturing sectors recover, we could see a confluence of events where the secondary demand surges even further.”

 

Copper

The Russia-Ukraine crisis is expected to affect the copper supply side more than the demand side, sources said.

A major international trader who held a large volume of Russian refined copper is selling off now, worrying about Russian exports may face sanctions by the US, market sources said.

The sellers, traders in particular, are selling off their goods now due to the huge backwardation, which means they will suffer losses, they added.

In 2021, Russia produced 886,000 mt copper concentrates in 2021, while Europe churned out 3.02 million mt of refined copper, Huatai’s data shows.

As copper supplies are restricted, demand will inevitably shift onto secondary supply to meet the shortfall.

 

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