As tensions between Russia and Ukraine escalate, so does the risk of spillover into global commodity markets. A conflict between the two nations and/or harsh sanctions against Russia has the potential to significantly congest commodity markets.
According to the news of Dünya newspaper Evrim Küçük, a scenario in which the West does not react with harsh sanctions against Russia in the event of an invasion of Ukraine may create an environment in which prices on the commodity markets rise slightly in the short term, despite increased uncertainty. However, in a scenario where the West is reacting sharply with sanctions targeting key Russian industries, this could have a huge impact on commodity markets. It could potentially lead to a significant supply problem in the energy, metals and agricultural markets, which could trigger serious price increases in the already-anticipated commodity asset class. Even if some industries are not sanctioned, financial sanctions can complicate trade as they prevent payments from being made. It is warned that if Russia and the West come face to face, there may be significant supply problems in the following metals, of which Russia is a major exporter:
Supply concerns in metals, of which Russia is a major exporter
ALUMINUM
6% of the supply originates from Russia Prices increased by 54% in 1 year
Aluminum prices retreated to around $3,270 after hitting an all-time high of $3,313 amid low inventories and concerns about further supply disruptions. Due to the possibility of sanctions against one of the world's largest metal suppliers, prices have increased by 54 percent compared to a year ago. Russian Rusal accounts for about 6 percent of the global aluminum supply. Rusal produced an estimated 3.8 million tons of aluminum in 2021. Europe, Asia and North America are Rusal's main markets. Miner and commodity trader Glencore (GLEN.L) has a long-term agreement going through 2025 to purchase primary aluminum from Rusal. We don't need to go far back to see the impact of the sanctions on Rusal on the global aluminum market. US sanctions against Rusal shook the aluminum market in 2018. The global aluminum market is currently running low, so any interruption in these flows will push the market into more deficits. The sanctions could also have an impact on production at European aluminum smelters. Factories in Europe are forced to close due to high electricity prices. In a scenario where sanctions affect Russian gas flows, aluminum producers in Europe will have to cut their capacities further.
COBALT
Russia is the second largest producer in the world after Congo.
Data from the US Geological Survey (USGS) show that Russia produced 7,600 tons of cobalt last year, more than 4 percent of the world's total. Russia is the second largest producer after the Democratic Republic of the Congo with a production of 120,000 tons. Nornickel became Russia's largest producer, with sales of 5,000 tons in 2021. The company sells most of its production to Europe.
The price of the mineral, which is critical for electric vehicle (EV) batteries, has increased by $500 per ton since the beginning of the year to approach $73 thousand, amid rising demand and supply concerns. With the impact of the geopolitical crisis, prices are at their highest level in 3.5 years.
NICKEL
The annual production of the world's largest Russian Nornickel is close to 200 thousand tons.
Russia's invasion of Ukraine is a threat to Norilsk Nickel, which supplies about 10 percent of the world's nickel. Nornickel is the world's largest producer of refined nickel. It produced 193,006 tons, 7 percent of the global mine production estimated at 2.7 million tons in 2021. It sells to global industrial consumers under long-term contracts. Nickel futures rose above $24,600 a tonne to a 10.5-year high as investors increasingly worried about supply disruptions. Meanwhile, nickel stocks in LME-registered warehouses fell 69 percent since April to 83,328 tons, as demand from the stainless steel and battery industries remained strong.
COPPER
The size of annual production goes to 1 million tons
Russia produced 920,000 tons of refined copper last year, while Nornickel accounted for 406,841 tons, about 3.5 percent of the world total. UMMC and Russian Copper Company are the other two major Russian producers. The main export markets of Russia, which is the 8th largest in global copper production, are Asia and Europe. Copper futures continue to trade at more than $10,000 per ton amid rising demand and geopolitical woes.
STEEL
It exports 16 billion dollars of steel annually.
According to the World Steel Association, Russia produces 4 percent of global production with 76 million tons of steel annually. Severstal, NLMK , Evraz, MMK and Mechel are Russia's main producers. It exports about half of its production to many markets, primarily to Europe. Metalloinvest, which produces iron ore, and TMK, which produces steel pipes, stand out in the country's iron industry. The size of the country's steel exports reached $16 billion in 2020.
PALADIUM AND PLATINUM
Russia, one of the largest players in the production of precious metals
Nornickel is also the world's largest producer of palladium and among the major platinum producers. Last year, Russia accounted for 2.6 million ounces of palladium, or 40 percent of global mineral production. With a production of 641,000 ounces of platinum, 10% of the total platinum production came from Russia. As a matter of fact, the Russia-Ukraine crisis is clearly reflected in prices. The price of palladium is above $2,300 an ounce, the highest since September 2021, amid concerns that Russia's supply will decline. Platinum prices are also selling at a 13-week high of $1,070/ten due to concerns from Russia. The expectation that the chip crisis in the automotive industry will decrease is also effective in the upward movement in prices. Meanwhile, Russia; It is the world's third-largest gold producer after Australia and China, and according to the World Gold Council, about 10 percent of the global mine production, which totaled 3,500 tons last year, came from this country. Russian gold is made by companies like Polyus and Polymetal.
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