Ukraine crisis drives rush to secure supply in global metal markets

Russia’s invasion of Ukraine in February will have a profound effect on flows of material in global metal markets in the long term; in the short term the consequences have been extraordinary

Traders across the global supply chain are looking to shore up availability as they consider the potential for sanctions on material from Russia to be ramped up rapidly, at the same time as Ukraine’s own ports and production have been choked and cut off by war.

This move to secure units and cover positions has led to events with few precedents. Nickel trading on the London Metal Exchange was suspended as the market traded at over $100,000 per tonne early on March 8 on short-covering, very low exchange stocks and fears about sanctions on nickel from Russia, which supplies about 10% of the world market for the alloying and battery material. (The last time such a suspension took place it was during the tin crisis in 1985-1986).

Even before trading was suspended the rise in nickel prices would have had a huge effect on the alloy surcharges that stainless steel mills use to pass on raw material costs to their customers. (In the US high-carbon ferro-chrome prices are also trading at or near all-time highs). And companies downstream in the battery sector, including OEM and auto-firm purchasing teams, will be looking on queasily at the volatility in this critical material.

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Such high and volatile prices suppress and destroy demand, of course. A week ago, remember, nickel was trading at around $25,000 per tonne.

Notwithstanding the marginal moves that have been made in some markets to shorten and secure supply chains in the wake of Covid, the effects of the Russian invasion are being felt in markets well beyond nickel.

Consider the US steel mills that look likely to have to pay over $100 per ton more for prime scrap in March as availability of iron units from Russia and Ukraine ceases, and the price rises that they are therefore proposing themselves. Or the rolling mills in Europe that turn slab and billet imports from Ukraine and Russia into hot-rolled coil and rebar and must now source feed elsewhere.

Here’s just a small selection of this week’s headlines, showing the breadth and depth of the impact of the conflict. (Subscribers only. Scroll to the bottom of this article to access free content.)

The interconnectedness of the supply chain can be seen through the effects of this conflict on Russia-based aluminium producer Rusal, which has had to shut the Ukrainian alumina refineries that typically feed its Russian aluminium smelters. Corporates are imposing informal sanctions themselves on trading with Russia even without such moves being mandated by governments, banks will not finance trade and the country has been cut off from the SWIFT network: little wonder then that consumers in Europe and the US have driven prices and premiums for aluminium to all-time highs.
Longer term, and failing a speedy resolution to this crisis, it would be reasonable to speculate that more material from Russia, a large commodity producer, would flow towards China, a large commodity consumer. This is not to say that global supply balances will change in the medium term, but traders outside China should be considering what this means to their business. Once such flows are established they do not readily shift.

Last, and by no means least, I should note that this short commentary rests squarely on the far more substantial work of my colleagues in Fastmarkets, and particularly those in our team in Ukraine.

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Ukrainian steelmakers, particularly Metinvest and Interpipe, have welcomed the decision by the United States to suspend Section 232 tariffs of 25% against imports of steel from the country for one year
US imports of steelmaking raw materials rose by 7.46% month on month in March, with higher ferrous scrap and pig iron volumes outweighing declines in shipments of direct-reduced iron (DRI), according to the latest data from the US Census Bureau
The ferro-alloy markets in the United States have mostly surged since the start of Russia’s war in Ukraine
Availability and the costs of trucking are now starting to significantly impact the flow of material in continental Europe, putting pressures on supply chains and keeping base metals premiums elevated, participants have told Fastmarkets
At least three reasons have been identified by market participants as the key factors constraining demand for high-grade iron ore concentrate and pellet in China - in turn, prompting premium levels to narrow
Key talking points at Fastmarkets’ bauxite and alumina conference, held in Miami, United States, April 26-28.
Aluminium premiums in Europe continued to reach new highs in the week to Tuesday May 3, while premiums in the United States, Japan and Brazil were unchanged but well supported.
Steel scrap outlook: Where will the US steel market get its prime scrap?
Broken trade flows, inflated steel prices and the pull of decarbonization targets are changing the way US steelmakers think, plan and run their day-to-day operations. Is the US steel scrap industry coming to an end of globalization and entering a new era of domestic sovereignty?
Nucor Corp quickly navigated panic in the pig iron market, even as it took a hardline approach and ceased all purchases from Russia at the onset of its war in Ukraine
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