The EU and the US have sharply increased the purchase of non-ferrous metals in Russia

Deliveries of Russian aluminum to the United States and the European Union (EU) in March-June of this year increased by 70% compared to the same period in 2021, Reuters reported on September 7, citing UN Comtrade.

Aluminum deliveries to the US increased by 21% to 23,000 tons per month, to the EU – by 13% to 78,000 tons per month. Nickel exports to the US increased by 70%, to the EU – by 22% (the agency does not provide absolute figures). In monetary terms, the volume of supplies of nickel and aluminum amounted to $1.98 billion.

The agency notes that the increase in the supply of non-ferrous metals indicates that it is difficult for the West to put pressure on the Russian economy, which has shown better results than expected. High oil revenues helped offset the impact of the sanctions.

The Russian Federation accounts for about 6% of world aluminum production (the largest Russian producer is UC Rusal) and 10% nickel (the largest producer is “nornickel“). Wherein UC Rusal is the largest supplier of aluminum outside of China, and “nornickel» is the world leader in the production of high-grade nickel.

Demand for imported aluminum in Europe is also fueled by high electricity prices, which is why local producers are forced to reduce production or completely suspend it for an indefinite period.

From October 1, the largest aluminum plant in the EU, Aluminum Dunkerque Industries France, with a capacity of 290,000 tons of aluminum per year, plans to reduce production by 22%. “The timing of the recovery of production is unclear, as it would make economic sense with electricity prices in the region of 250 euros per 1 MWh, while now futures are worth more than 300 euros until mid-2024,” plant head Guillaume de Gois said on September 7 in an interview with Bloomberg.

In mid-August, the Slovalco aluminum plant with a capacity of 175,000 tons announced a suspension of production due to a sharp increase in the cost of electricity. From the beginning of 2022, the company uses 60% of the primary aluminum production capacity, which is planned to be mothballed by the end of September.

Electricity in Europe began to rise in price as early as 2021, following gas, which runs most thermal power plants. Since autumn, gas prices in the EU have been around $1,000 per 1,000 cubic meters. m, and at the beginning of March 2022, the price of fuel rose to $3,900. Problems with gas supplies from Russia exacerbated the situation on the European energy market. In August, spot electricity prices in Germany and the UK jumped six to seven times year on year (Vedomosti wrote about this on August 17). According to Nord Pool, electricity spot prices as of September 8 in Germany amounted to 443.8 euros per 1 MWh, France – 453.3 euros, Great Britain – 310 euros.

The EU and the US are increasing imports of aluminum and nickel from Russia, given the likelihood of “supply interruption at any time,” says Oksana Lukicheva, commodity markets analyst at Otkritie investitatsiya. Although there are no direct restrictions on the supply of this type of metallurgical products, they were discussed earlier under the fourth package of EU sanctions, she recalls. “Probably, consumers are trying to build up a stock of the metal, since demand for it remains stable,” she explains.

Aleksey Kalachev, an analyst at Finam, agrees with this, adding that the growth in aluminum supplies to the EU “is associated with a decrease in production amid high energy prices.” This, according to him, “increases the need for imports and at the same time reduces the likelihood of sanctions against non-ferrous metal producers in Russia.”

But Kalachev draws attention to the fact that in the event of the formation of excess stocks, the US and the EU “may put pressure on prices in a slowdown in economic growth and a likely recession.”

As Vedomosti wrote, world prices for non-ferrous metals rose rapidly after Russia launched a special military operation (SVO) in Ukraine, which began on February 24. At the beginning of March 2022, aluminum and nickel were worth $3,984/t (+20% by February 23) and $42,990/t (+72%), according to the London Metal Exchange (LME). But then, amid a deterioration in demand prospects due to the coronavirus outbreak in China and fears of a recession amid rising global inflation and tightening of the monetary policy of the US Federal Reserve, prices began to decline. Aluminum fell below $2,300/t in early September, while nickel, after rising to $24,025/t in early August, fell by 16% to $20,175/t by early September. On September 7, aluminum on the LME is traded at $2,260/t, nickel at $21,500/t.

According to Lukicheva, about 1 million tons of aluminum production capacities have already been decommissioned in Europe. “The reduction will continue if energy prices remain high. In the future, the EU may lose another 500,000 tons of capacity,” she calculated. The analyst adds that the retired production will have to be replenished, as aluminum consumption in the EU does not decrease.

Independent industrial expert Leonid Khazanov does not rule out that the current volumes of Russian exports will remain due to the unwillingness of the European Union to let cheap Chinese aluminum enter its market. Lukicheva adds that Russian aluminum, and even more so nickel, are more suitable for Europeans in terms of quality.

A representative of the Aluminum Association explained to Vedomosti that the reduction in the production of primary aluminum due to high energy prices in Europe negatively affects the entire production chain. According to him, secondary aluminum producers and downstream enterprises in the EU can no longer compensate for production costs by increasing prices for their products. “The next step may be to reduce production at the level of the processing industry. As a result, most likely, imports of finished products to Europe will increase. But most likely from Asia, not from Russia,” he says.

Vedomosti sent inquiries to UC Rusal and Norilsk Nickel.