Citigroup warned clients about Russia’s potential weaponization of its exports of metals like aluminium, palladium, and nuclear fuels. This could lead to price increases for these vital commodities.
Since Russia’s invasion of Ukraine in full-scale last year, none of these materials have been subject to Western sanctions or export restrictions.
Russia’s decision to limit exports of these materials would cause shockwaves in commodity markets. This could disrupt global supply chains, and create problems for automakers and manufacturers. Russia accounts for around 25% of the world’s production of certain metals.
Max Layton, Head of Emea commodities research at Citi said that “weaponizing Russian metals exports might be around the corner.” This could lead to a spike in commodity prices.
Citi’s prior views regarding how war might destabilise metals prices were more conservative than their current warning.
Moscow has not stated that it will reduce its metals exports. However, it has cut its overseas energy supplies which are a larger source of income. Russia cut its gas exports to Europe last year, creating an energy crisis. Last month, it also announced that it would reduce domestic oil production by around 5%.
Layton stated that Russia’s gas use and, more recently, the discussion about oil production cuts has gone straight to the high-ticket items. “There are many other commodities in between that have kinda slipped by.”
Layton stated that as the conflict grew, more commodities would become entangled in it. “You can look around and wonder what might be next.”
Two weeks ago, aluminium was drawn into the conflict when the US imposed an 200% import tax on Russian aluminumm. This was due to the invasion of Ukraine as well as national security concerns. No other west countries have yet to follow suit.
Many executives in the industry believe that sanctions have not been imposed on Russian metals by the West because they are crucial for manufacturing and are difficult to replace.
Russia produces around 25% of the world’s palladium. It is used in vehicle catalytic converters and exports most.
It is also a major aluminium exporter and supplies about 15% of the world’s aluminium.
Platinum, which Russia accounts for around 11 percent of the global refined production, saw its output drop 10 percent in the fourth quarter last year due to logistical difficulties in getting the material from Russia into Finnish processing facilities.
“The reality is that the market doesn’t have enough options for Russia, especially in regards to platinum group metals,” stated Ed Sterck from the World Platinum Investment Council. “You will need to keep your nose up and your eyes closed.”
Some western companies are now attempting to “self-sanction” Russian materials. This has led to a higher demand for non-Russian products on markets like nickel and aluminium.
In February, the London Metal Exchange reported that Russian metal was growing in its warehouses. It had 41% of primary aluminum stocks and 95% of copper stocks. This is a sign of some consumers avoiding these resources.
Russia is a major exporter of nuclear fuels due to its large nuclear processing capability and uranium reserves. Processing prices have risen to new highs due to fears about western restrictions on Russian nuclear fuel. The EU and the US continue to import nuclear fuels from Russia even as they attempt to switch to other sources.