Citigroup has warned clients of the risks of Russia weaponizing its exports of materials such as aluminum, palladium and nuclear fuels, which could drive up the prices of these critical raw materials.
None of these materials, widely used in industrial and energy production, have yet been subject to Western sanctions or export restrictions by Russia since it began its full-scale invasion of Ukraine. one year ago.
Any action taken by Russia to restrict exports of these materials would send shock waves through commodity markets, disrupting the supply chains and create problems for manufacturers and car manufacturers. The country accounts for around a quarter of the world’s production of certain metals.
“The militarization of Russian metal exports may be imminent,” said Max Layton, head of Emea commodities research at City. “That could well see prices for these products skyrocket.”
The warning marks a break with Citi’s previous views of how the war could destabilize metal prices, which have generally been more conservative.
Moscow has not indicated its intention to cut metal exports, but it has already cut overseas energy supplies, which are a much bigger source of revenue. Last year, Russia cut its gas exports to Europe, triggering an energy crisis, and last month it announced it was cutting domestic oil production by about 5%.
“Russia’s use of gas, and more recently discussions of oil production cuts, have gone straight to the most expensive items,” Layton said. “There are a number of other products that sit in between that kind of slipped away.”
As the conflict continued, more commodities would become entangled in it, Layton said. “You look around and say, what could be next?”
Aluminum began to be drawn into the dispute two weeks ago when the United States imposed a 200% cut import tariff on Russian aluminum, citing the invasion of Ukraine and national security concerns. So far, no other western country has followed suit.
Many industry leaders believe the West has avoided imposing sanctions on Russian metals because they are essential to manufacturing and would be difficult to replace.
Russia produces about a quarter of the world’s palladium, which is used in catalytic converters in vehicles, and exports most of its production.
It is also one of the main exporters of aluminium, supplying approximately 15% of the aluminum traded in the world.
In platinum, where Russia accounts for around 11% of global refined output, production in the fourth quarter of last year fell 10%, due to logistical difficulties getting the material from Russia to Finnish processing facilities. .
“The reality for platinum group metals, particularly for the automotive end use, is that there aren’t enough alternatives to Russia in the market,” he said. Ed Sterck, director of research at the World Platinum Investment Council. “You’re going to have to hold your nose and close your eyes.”
Some Western companies began to “self-sanction” avoiding the use of Russian materials, which created a premium for non-Russian alternatives in markets such as aluminum and nickel.
The London Metal Exchange also reported in February that Russian metal was piling up in its warehouses, with 41% of primary aluminum stocks and 95% of copper stocks originating from Russia, a sign that some consumers are avoiding resources.
More importantly, Russia is a major nuclear fuel exporter due to its uranium resources and large nuclear processing capacity. Concerns about possible Western restrictions on Russian nuclear fuel have already driven treatment prices to record highs. At present, the EU and the United States continue to import nuclear fuel from Russia, even as they try to speed up the switch to alternative sources.