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Written by Pratima Desai
LONDON (Reuters) – European and U.S. buyers will compete aggressively for Middle East aluminum if the European Union bans Russian metals in the coming months, a move that has seen sanctions imposed on Rusal in 2018. will cause a price increase.
The scramble for aluminum from Middle Eastern countries, including the United Arab Emirates and Bahrain, will accelerate inflation for Western companies in the transportation, packaging and construction industries, which are already facing rising raw material and labor costs.
Aluminum is an important material for electric vehicles. Because it is significantly lighter than steel, it is now the metal of choice for a wide range of electric vehicle components.
The EU has been discussing sanctions to ban Russian aluminum for several months. The latest package to mark the second anniversary of Russia’s invasion of Ukraine did not include new sanctions on aluminum, but sources said the bloc was expected to propose another package soon with new import bans. ing.
Last year, Middle Eastern producers accounted for 6.2 million tonnes, or nearly 9% of global supply, according to the International Aluminum Association. About 2 million of those were shipped to Europe and the United States.
The loss of Russian metals would leave Europe with a shortfall of around 500,000 tonnes, some of which could be offset by restarting idle production capacity in the region. Not all.
“Middle Eastern suppliers will not be able to completely replace the European shortfall any time soon,” said Dmitri Seles of U.S.-based aluminum trading company Perennial.
Purchasers of aluminum on the spot market pay the London Metal Exchange (LME) price plus a premium to cover shipping and handling costs and taxes.
“European premiums also need to rise to attract metals from other regions, including the US. US premiums also need to rise to maintain metal inflows,” Seles said.
US sanctions on Russian producer Rusal triggered a crisis in April 2018, with aluminum prices on the London Metal Exchange (LME) rising 35% in a few days to a seven-year high.
European tariff-paid premiums jumped 45% in the next month, while U.S. premiums rose 20% over the same period.
Pay attention to LME’s response
Price increases in the event of a new ban are unlikely to be as wide as they were in 2018 due to surpluses in Asia, with Russian supplies already becoming a major recipient of Russian aluminum after Russia’s invasion of Ukraine. There is a high possibility that it will be diverted to China as well.
However, the strength of the reaction will depend on whether the LME decides to ban Russian aluminum, which accounts for 90% of stocks in LME-registered warehouses as a result of EU sanctions.
Bank of America analyst Michael Widmer said: “Given the lack of non-Russian metals in warehouses, if Rusal tonnage is no longer acceptable for LME trading, spot premiums and LME “Prices will probably skyrocket.”
Self-imposed sanctions and 200% tariffs on US imports have led many US companies to diversify from Russia to other countries, including the Middle East.
The U.S. imported 16,902 tons of Russian aluminum last year, or 0.4% of the total, down from 4% in 2022 and almost 9% in 2018, according to Trade Data Monitor (TDM) figures.
However, although the volume of Russian aluminum imports from the EU has decreased, it remains a significant volume. According to TDM, the EU’s imports of Russian aluminum totaled 512,122 tons in 2023, representing 8% of the total, up from 12% in 2022 and 19% in 2018.
“EU sanctions on Russian aluminum will mean higher premiums in Europe, which means U.S. premiums will need to rise to remain competitive,” said David Wilson, an analyst at BNP Paribas. There will be,” he said.
“Premiums in Europe are already high, and attacks in the Red Sea have increased shipping costs to obtain metals from the Middle East and other Asian countries.”
Freight costs are rising after Houthi militants attacked ships in the Red Sea, targeting the Suez Canal, a route that enables east-west trade.
The EU imported nearly 1.2 million tonnes of aluminum from the Middle East last year, or 18.8% of the total, while the US imported more than 800,000 tonnes (19.3%).
(Reporting by Pratima Desai; Editing by Veronica Brown and Emelia Sithole-Matarise)
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