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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 21 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

Contributors

Emmanuel Hache

Emmanuel Hache

Economic analyst at IFP Énergies nouvelles

Emmanuel Hache holds a PhD in Economics from the University of Paris I. He is research director at the Institute of International and Strategic Relations (IRIS) and an associate researcher at Economix (EconomiX-CNRS, University of Paris Nanterre). He is an economist-prospector at IFP Énergies nouvelles and leader of the GENERATE project (Geopolitics of Renewable Energies and Prospective Analysis of the Energy Transition).