Aluminium, nickel avoid direct sanctions | Hotter Commodities

Aluminium and nickel appear to have once again escaped inclusion in the latest list of sanctions imposed by western governments on Russia, ending days of speculation that increased both the prices and the traded volumes of the metals

In the week ended Friday, February 23, the UK, US and EU imposed various new economic measures intended to further penalize Russia for its continuing war in Ukraine, which began two years ago.

The measures to impose direct sanctions on imports of Russia-origin aluminium and nickel were probably coordinated by these major Western powers to ensure a more level playing field in the markets. Clearly, these authorities could not reach an agreement on how to directly sanction the metals, and a closer look at import data may reveal why.

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United States aluminium imports

Very little nickel and no aluminium whatsoever are currently being imported into the US from Russia.

According to US import data, the country has not imported any Russian aluminium since March 2023, and that volume was just 2,000 tonnes. The value of aluminium imports from Russia to the US fell to $44 million in 2023 from $632 million the year before. At their peak during the past decade, annual Russian aluminium imports into the US were valued at $1.63 billion.

Similarly, Russian imports of nickel into the US were worth $26 million last year, compared with $339 million in 2022, the peak value over the past decade, US data shows. The data does not provide a breakdown in nickel tonnage terms.

Historically, the majority of US imports of both aluminium and nickel have come from neighboring Canada.

Any Russian metal that comes in is subject to tariffs, and these are acting as a deterrent to consumers and traders alike. Those tariffs are 200% on Russian aluminium imports and as much as 70% on Russian nickel imports.

Direct sanctions by the US on Russian aluminium and nickel would therefore not change very much in the physical markets.

Physical markets in Europe

Sanctions would probably have more of an effect on the physical markets in Europe, so it is no surprise that producers have been focusing their lobbying efforts on Brussels.

But getting a 27-member bloc aligned on policy goals was never going to be easy.

Several aluminium producers, including some in the US, have been lobbying through industry association European Aluminium for the extension of existing EU sanctions on aluminium products.

Russia’s largest aluminium producer, Rusal, has been pushing back, arguing that its metal provides low-carbon, stable supplies for customers in the region.

Even though some traders and consumers have been self-sanctioning, direct sanctions in Europe would certainly have an effect on aluminium trade flows.

The EU imports around 4.5 million tonnes per year of aluminium. Trade data shows that EU imports of aluminium from Russia accounted for around 10% of its ingot imports last year, down by roughly 40% and far below the volume of more than 1 million tpy imported before the war in Ukraine.

The gap has been mostly filled by imports from the Middle East, India and Southeast Asia, but this material is now being affected by the various logistics issues affecting the freight market.

The EU has not been entirely inactive, however. To date, the EU has imposed sanctions on aluminium products including wire, foil, tube and pipe, which account for 12-15% of imports into the region. But the majority of Russian aluminium exports to the EU, including primary metal, are outside the scope of the measures.

Imports of nickel into the EU have also fallen.

In the fourth quarter of 2021, Russian material accounted for 49% of nickel imports into the region, according to EU data. By the fourth quarter of 2023, that figure had fallen to 24%; lower, but still significant.

Battery raw materials supply conundrum

Aluminium and nickel are both minerals considered to be essential for energy transition efforts, with aluminium used in the lightweighting of vehicles and renewables, and nickel used in batteries for electric vehicles.

So perhaps the biggest concern facing governments when deciding on sanctions is where consumers would be able to source alternative supplies.

China dominates world production of aluminium, producing an estimated 41.6 million tonnes in 2023, according to International Aluminium Institute data.

It would be natural for Europe to turn to the Middle East, the next-largest producing region at 6.2 million tonnes in 2023. But aluminium shipments from Gulf countries into the EU are subject to long-standing duties and are now also facing disturbances from the geopolitics-related disruptions to the region’s shipping lanes.

Nickel may present more of a conundrum. The world’s largest producing nation is Indonesia, which accounts for around 60% of world production, a figure that is forecast to reach 75% by the end of this decade.

The US does not have a free trade agreement with Indonesia, and there is pressure on the Southeast Asian nation’s administration to avoid one, based on environmental, social and governance (ESG) factors related to its mining sector. Much of the ownership base in Indonesia is Chinese, and raw materials mined and smelted there are typically shipped to China for the addition of further value.

The alternatives are Australia, where the nickel industry is really struggling, and New Caledonia, but companies operating there have more or less given up in exasperation and refused to throw more money into the country’s ailing projects.

This all puts western governments into something of a tight spot. Sanction a country producing low-carbon metal used in energy transition, and instead source higher-cost metal that may have questionable ESG credentials; or continue to use Russian aluminium and nickel, and deal with complaints in some quarters.

The desire for steady supplies of critical minerals appears to have once again won the argument.

In Hotter Commodities, special correspondent Andrea Hotter covers some of the biggest stories impacting the natural resources sector. Sign up today to receive Andrea’s content as it is published.

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