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Industry, shortages, diplomacy: the ripples of war in Ukraine

Russian metals: another headache for manufacturers

On May 25th, 2022 |
3 mins reading time
2
Russian metals: another headache for manufacturers
Emmanuel Hache
Emmanuel Hache
Economic analyst at IFP Énergies nouvelles
Key takeaways
  • The war in Russia could impact trade in palladium, a rare metal which is very useful in car manufacturing and is mainly exported by Russia, accounting for around 37% in 2021.
  • Other metals, of which the importance Russian production in the world is undeniable, are: titanium (13% market share), platinum (10.5%), aluminium (5.4%), copper (4%), refined copper (3.5%) and cobalt (4.4%).
  • This war is happening in an already extremely tight market for rare metals. Between 2020 and 2021 the price of these metals jumped by 45%. Nickel's rise is the most significant, with the price rising to over $100,000 per tonne before falling back to around $30,000 per tonne.
  • Because of this conflict, the whole world is looking for new partners such as Australia and Canada, which are alternatives to Russia for many metals.

Which metals are most affected by the war in Ukraine?

All the met­als of which Rus­sia is one of the main exporters, which is a rel­a­tive­ly long list. It is dif­fi­cult to rank their impor­tance, although for some, Russia’s weight in the world mar­ket is so great that they will be dif­fi­cult to replace in the short term. This is par­tic­u­lar­ly true of pal­la­di­um, a rare met­al that is as use­ful to the auto­mo­tive sec­tor for cat­alyt­ic con­vert­ers as it is to the pro­duc­tion of semi­con­duc­tors and con­sumer elec­tron­ics. Rus­sia is a major exporter of pal­la­di­um, account­ing for 37% of glob­al pro­duc­tion in 2021.

How­ev­er, Rus­sia is a vast coun­try, rich in raw mate­ri­als, so the diver­si­ty of met­als present on its ter­ri­to­ry gives it an impor­tant place in a num­ber of sec­tors, although it is not a leader in all of them. Russ­ian nick­el, for exam­ple, accounts for 9.2% of world pro­duc­tion in 2021. The Russ­ian com­pa­ny Nor­nick­el is already one of the world’s largest pro­duc­ers of Class I nick­el, which is the only met­al suit­able for the pro­duc­tion of nick­el sul­phates used in bat­tery manufacture.

The oth­er met­als, whose weight in Russ­ian pro­duc­tion in the world is unde­ni­able, are: tita­ni­um (13% mar­ket share), plat­inum (10.5%), alu­mini­um (5.4%), cop­per (4%), refined cop­per (3.5%) and cobalt (4.4%). The rea­son it is impos­si­ble to say which of these met­als will have the great­est impact on world trade is that they are each impor­tant in their own right. Rus­sia, for exam­ple, accounts for only 4.4% of cobalt pro­duc­tion, but despite this seem­ing­ly small share, it makes Rus­sia the world’s sec­ond largest pro­duc­er of the met­al – a mar­ket dom­i­nat­ed by the Demo­c­ra­t­ic Repub­lic of Con­go with around 70% of glob­al production. 

The health crisis has created strong tensions on the demand for raw materials. Should we expect these tensions to increase?

The met­als men­tioned are use­ful for a mul­ti­tude of sec­tors. The three most impor­tant sec­tors are the auto­mo­tive, aero­space and semi­con­duc­tor indus­tries. The auto­mo­tive sec­tor is like­ly to suf­fer the most as it requires many dif­fer­ent met­als. For exam­ple, alu­mini­um, cop­per, plat­inum, and pal­la­di­um are all use­ful in the man­u­fac­ture of ther­mal­ly pro­pelled cars, espe­cial­ly for cat­alyt­ic con­vert­ers. For elec­tric vehi­cles, cobalt and nick­el are essen­tial for bat­ter­ies. Already ham­pered by the short­age of elec­tron­ic chips since Sep­tem­ber 2021, the Ger­man auto­mo­tive sec­tor has already sus­pend­ed pro­duc­tion lines due to a sup­ply prob­lem with its sub­con­trac­tors in Ukraine and the sit­u­a­tion could get worse. 

The aero­space indus­try is also depen­dent on Russ­ian met­als, par­tic­u­lar­ly tita­ni­um sponge. The main sup­pli­er of the main aero­nau­ti­cal groups is the Russ­ian com­pa­ny VSM­PO-Avis­ma (about 30% of the world tita­ni­um mar­ket), only Boe­ing has decid­ed to stop its resup­plies for the moment. This com­pa­ny sup­plies around 50% of the world’s aero­nau­tics imports and slight­ly less for French play­ers. In this sec­tor, man­u­fac­tur­ers have built up stocks as a pre­cau­tion­ary mea­sure, enabling them to man­age a short-term short­age problem.

As for semi-con­duc­tors, their pro­duc­tion requires two main resources, pal­la­di­um and neon gas, the lat­ter being pro­duced at 50% in Ukraine. The two main com­pa­nies, Ingas and Cry­oin, have already closed their sites. So, we can expect great dif­fi­cul­ties for this sector.

Are prices rising because of a real shortage of supply or in anticipation of future sanctions?

At the moment there are no sanc­tions in place for the Russ­ian min­er­als mar­ket. But oth­er sanc­tions are affect­ing the mar­ket: the logis­tics for their deliv­ery are dis­rupt­ed, and the sus­pen­sion of the SWIFT sys­tem for many banks is slow­ing down trade. These dis­rup­tions are hav­ing an impact on prices. Nick­el has under­gone a very impres­sive vari­a­tion. In a few days, its price per tonne rose from $25,000 to $50,000, before reach­ing $100,000 a few days lat­er, before a sus­pen­sion of prices, then a return to around $50,000 per tonne and a decrease to around $30,000 per tonne on 21st March

More­over, this war is tak­ing place in mar­kets that are already extreme­ly tight. Between 2020 and 2021, met­al prices jumped by 45% on aver­age (all met­als com­bined), due to an extreme­ly strong eco­nom­ic recov­ery fol­low­ing the covid 19 pan­dem­ic in a con­text of sup­ply-side ten­sions. Today, there is still no short­age, and price increas­es are main­ly explained by play­ers” expec­ta­tions and geopo­lit­i­cal risk pre­mi­ums. The fear of new sanc­tions also plays a role in this price variation.

Can Western countries substitute metals imported from Russia with other sources of supply?

It all depends on Rus­si­a’s weight in world pro­duc­tion of these met­als. For pal­la­di­um (37%), it seems com­pli­cat­ed to replace it in the short term, even if South Africa remains the world’s lead­ing pro­duc­er of this resource (40%). What is cer­tain is that every­one is look­ing for new sup­pli­ers. Many coun­tries, such as Cana­da and Aus­tralia, for exam­ple, offer as wide a diver­si­ty of met­als as Rus­sia. How­ev­er, for some spe­cif­ic met­als there may be issues of short-term availability.

Chi­na has a sig­nif­i­cant weight in tita­ni­um exports, the Demo­c­ra­t­ic Repub­lic of Con­go dom­i­nates the cobalt mar­ket, and Chile gives us access to cop­per. So, there is no short­age of sup­pli­ers, but tak­ing Rus­sia out of the equa­tion will inevitably reduce sup­ply, while demand is cur­rent­ly unabated.

Is the weight of metals comparable to that of gas in Russian exports?

Accord­ing to the World Bank, exports of ores and met­als will account for around 8.5% of Rus­si­a’s export­ed goods in 2020 (6% in 2019), while those of hydro­car­bons will account for over 42% in 2020 (52% in 2019). Met­als are there­fore much less strate­gic for Rus­sia than hydrocarbons.

Interview by Pablo Andres