Russian Share in Metals

Aluminum… Russia is the world’s fourth largest aluminum exporter, accounting for 5% of global production and considered too large by the US to be removed from metal markets.

Rusal shipped 3.9 million tons of aluminum in 2021, with sales to the EU and the US accounting for 49% of its total sales, according to company data.

Steel… China accounted for more than half (53%) of world steel production in 2021, while Russia and Ukraine produced 5% or 97 million tons of steel.

According to trade data, Russia exported 15.9 million tons of semi-finished steel and 16.8 million tons of finished steel in 2021. The top five destinations for Russia’s semi-finished steel were Mexico, Belgium, Taiwan, Turkey and Kazakhstan, which account for about 70% of total exports.

Copper… Russia is the world’s seventh largest copper producer, accounting for around 4% of global production.

Russia is already a major copper producer, but its share in global copper trade is still small. However, this is expected to change. Currently, there is a global surplus of copper production, but demand for copper is expected to increase thanks to the ongoing digital revolution and the rapid expansion of the electric car industry in particular.

Nickel… According to Dominic O’Kane, a JPMorgan analyst quoted by Reuters, Russia supplies about 10% of the world’s nickel, and Russia’s Nornickel is the world’s largest supplier of battery quality nickel, with 15-20% of the global supply. NorNickel is also a leading manufacturer of PGMs (platinum group metals). All these metals are very important for electric car production.

The United States produced 0.7% of nickel worldwide in 2020 and 2021, but imports most of its nickel from Canada. In addition, the US imports 35% of its palladium, a critical element in catalytic converters, a component of gas-powered vehicles, from Russia, more than any other country.

Titanium… Although Russia has large shares in the global supply of many metals, none is as important as titanium and its production.

Russia is the third largest producer with a share of 13% to 13.5% after China and Japan, and Ukraine has a share of 2% to 2.6%. Russia and Ukraine account for 16% of global production.

Due to the decrease in titanium demand due to the pandemic, the data for 2019 were also examined, showing that Russia and Ukraine have a share of 22% and 4% in production. Therefore, the Russian titanium market plays a key role, and titanium is extremely important not only for commercial aircraft, but also for the production of defense equipment, and as a result, it is of great importance for national security.

The role of the LME in setting benchmark prices… The London Metal Exchange (LME) is a commodity exchange that deals with metal futures and options. It is the largest exchange for options and futures contracts for base metals including aluminium, zinc, lead, copper and nickel. The stock market also facilitates the transactions of precious metals such as gold and silver.

The LME is located in London, England, but has been owned by Hong Kong Exchanges and Clearing since 2012. The prices discovered in the LME are considered standard global prices for base metals.

The LME publishes a daily set of benchmark prices used by industrial and financial participants worldwide for referencing, hedging, physical settlement, contract negotiations, margin and portfolio assessments. Beyond that, the LME price increasingly reflects the value of the responsibly sourced metal.

Official Prices (includes Official Settlement Prices) are based on trading activities in the Ring. Unofficial and Close Prices are based on trading activity on LMEselect. The LME Asia Reference Price is calculated using the volume-weighted average of trades executed on LMEselect during the most liquid period of Asian trading hours.

What effects will the ban have? A possible ban on Russian supplies by the London Metal Exchange would be a seismic event for the metals industry, cutting off some of the world’s largest companies from the main global market.

In practice, a ban simply means that metal from Russia, which accounts for around 9% of global nickel production, 5% of aluminum and 4% of copper, can no longer be delivered to any warehouse worldwide in the LME network.

The vast majority of global metal is sold from producers to traders and consumers without ever seeing the inside of an LME warehouse. And the largest Russian groups United Co. Major manufacturers, including Rusal International PJSC and MMC Norilsk Nickel PJSC, almost never sell their metals directly on the LME. But the stock market still plays a few vital roles.

The first is the market of last resort for the physical metals industry: metal stocks in the global network of LME warehouses can be withdrawn in times of scarcity and excess stocks delivered to the LME in times of plenty.

In recent months, traders have been preparing for an abundance of aluminum, especially amid concerns about the state of the global economy. While some buyers avoided Russian metal, traders expected aluminum from Rusal to be among the first to be shipped to the LME – some expecting hundreds of thousands of tons of input. Rusal denied that he plans to deliver “large quantities” of his metal to the exchange.

Conclusion? Russia has a strong share in global metal production. Putting a ban would really hurt the Russian economy, which is already under the never-ending sanctions. The goal is to undermine Putin’s ability to finance the war and strip him of his influence in Russia.

The only problem is that these sanctions do not only harm themselves, but also the global economy. Whenever sanctions were imposed, Russia has always responded with a counterproductive response to the Western economy. While the metal ban is being discussed, Russian responses can be expected to be discussed in Moscow as well.

Fortunately, stocks appear to be full for most metals, making us think that any reaction from Russia could be focused on energy as it is the only weapon they have against the major economies.

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