Western sanctions effect Russia’s metal production

Russian aluminum producer United Co. Rusal International PJSC is concerned that sanctions imposed by the UK and US could jeopardize up to 36% of its sales, according to Bloomberg.

Rusal’s preliminary estimate is that the penalties will affect at least 1.5 million tons of its annual sales, compared to 3.8 million tons last year and 4.2 million tons last year.

As a result, Rusal may be obliged to curtail production, according to the source, citing the global financial crisis, which dramatically reduced demand in 2008.

The effectiveness of imposed sanctions

The United States and the United Kingdom have barred the supply of new Russian-made metals to global exchanges, including the London Metal Exchange (LME), although these sanctions do not prevent producers from selling metal to merchants or consumers.

The company’s judgment contradicts prior comments by Western analysts that sanctions against Russian metal output had little influence on supply and demand.

Buyers continue to rely on being able to deliver to the LME, and contracts often allow buyers to walk away if the producer’s metals are no longer deliverable. Rusal is concerned that one of its main customers, Glencore Plc, may use the penalties to negotiate lower metal prices.

Western sanctions have prompted some of Russia’s most profitable businesses, including oil and metal production, to seek new markets. Before the full-scale invasion of Ukraine, Russia accounted for 10% of aluminum imports to the United States.

Loopholes for metal export

The London Metal Exchange is a last resort market for the physical metals industry. Although most metals traded globally are never delivered to an LME warehouse, certain contracts require that the metal be LME deliverable.

This means that Russian enterprises will have to accept cheaper rates. Metals from Russia will trade at even deeper discounts and continue to flow to sanction-neutral countries such as China, the world’s largest aluminum consumer.

China’s primary aluminum imports from Russia reached new highs last year, which are expected to continue. To cover the gap created by Russia’s import embargo, China is likely to continue buying inexpensive Russian material for domestic use and exporting aluminum goods to Europe and the United States.

Russian metals giant Norilsk Nickel to move to China

As Rusal owns a 27.8% stake in Norilsk Nickel, the world’s largest nickel and palladium producer and one of the largest platinum and copper producers, it will relocate its production.

Russian metals giant Norilsk Nickel will close its copper smelter, which was seeking to reduce emissions in the Russian Arctic and build a new one in China after Western technology partners refused to supply parts.

This was announced by the company’s CEO Vladimir Potanin, Reuters reports.

Potanin said that Norilsk Nickel will set up a joint venture in China to build a new plant, which should be completed by mid-2027. This will make it possible to build the plant using affordable technology, evade Western sanctions, ensure proximity to sales markets, and allow it to enter the battery business.