Base Metal Commentary
By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region
THE EU PROPOSES A 5th TRANCHE OF SANCTIONS – A GUIDE TO THEIR IMPACT ON THE BASE METAL MARKET
The EU announced its proposal for its 5th round of sanctions against Russia on 5th April, although we are still waiting final approval this week (or next week), once they are released in the EU Official Journal. Please see below the six key areas’ where EU sanctions will be placed and what impacts this could have on the base metal market.
Proposed EU Sanctions
• Import ban on coal from Russia (equating to 4Bn euros a year). Please note the ban is expected to take effect from mid-August (providing a four-month wind-down period for current contracts)
• A full transaction ban on 23% of the Russian banking sector (including the second largest Russian bank VTB)
• Russian vessels and Russian-operated vessels will be prevented access to EU ports (unless they contain ‘essential’ items such as food, energy, agricultural and humanitarian products)
• Export ban on 10Bn euros’ worth of products such as quantum computers, sensitive machinery, transport equipment and advanced semiconductors
• Import ban on 5.5Bn euros’ worth of goods from wood to cement to seafood – please note however, we will not know if any base metal products are included on this list until it is published in the EU Official Journal
• A general ban on Russian companies participating in EU public procurement processes, in addition to all EU financial support to Russian public bodies.
The Direct Impact to the Base Metal Market
• A ban on Russian vessels (or Russian operated vessels) to EU ports would significantly impact the logistics situation for the export of Russian metals to the EU. While standard trade flows have already been altered given that major shipping lines (such as MSC, CMA CGM and A.P. Moller-Maersk A/S) announced that they would stop taking orders from Russia over the last month, key Russian metal producer Nornickel has largely avoided such issues, given that it has its own shipping lines. However, upon the implementation of this sanction, the transportation of Russian nickel and copper (not to mention aluminium - which has been moved using smaller cargo ships), will be directly impacted to the EU. Please see below the EU’s reliance on Russian metals.
TABLE OF THE EU’S RELIANCE ON RUSSIAN BASE METALS
Source: Bloomberg, CRU, StoneX
• A full ban on 23% of the Russian banking sector might limit Russia’s ability to finance industrial operations, which could impact metal production guidance in the country. As it stands, the restrictions on alumina supply to Russia has already been a concern following the halting of production at the Rusal owned Nikolaev plant in Ukraine (1.7Mt/y) (1st March), in addition to Australia banning all exports of bauxite and alumina to Russia (~20% of Russian imports) (20th March). In total, around 2.5-3Mt of alumina supply (~2% of global alumina production) was choked off to Russia this year; although, the situation appears to be modestly easing, with forecast increased flows of material from China in recent weeks.
• Finally, while the two above-mentioned impacts could have a significant influence on base metal trade flows, the final area of impact – in which we allude to the potential ban on metal exports out of Russia, would have the most immediate impact on metal prices and indeed market balances. Please note however, until the EU releases the final sanctions list, we will not know what products are included. However, as it stands we foresee the risk as moderate, particularly given past lessons such as when Russian aluminium producer Rusal was sanctioned back in 2018 (following Russia’s invasion of Crimea), before sanctions were swiftly lifted in early 2019, given the dramatic impact on aluminium’s global pricing and markets. On this note, please see the joint statement provided by the various heads of key aluminium associations around the world, which have supported sanctions against Russia, although remain in the camp of not imposing export restrictions of the metal.
“Our organizations will work with our respective governments to provide relevant industry data and a clear-eyed assessment of what sanctions and similar measures might mean for aluminium producers, users and end consumers,” - Aluminium Association, European Aluminium, Aluminium Association of Canada and the Japan Aluminium Association
We will continue to update you on the fast-changing nature of developments in this industry as they develop over the next several days.
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