12 Apr, 2022
Traders still buying despite pressure to spurn Russian metals
| Traders are still buying Russian metal, like nickel and copper from this Nornickel factory. |
Metal buyers have largely kept up purchases of Russian products in the wake of the country's invasion of Ukraine, though traders worry about future commodity sanctions.
It is a messy picture, with few examples of miners or traders taking a public position not to buy Russian metal for their products. That stands in stark contrast to oil buyers' refusal to acquire Russian crude, forcing those producers to sell at a steep discount.
Russia's metals industry has mostly escaped direct sanctions, which have focused on oligarchs and the banking sector, and traders have continued to buy and sell one of Russia's major exports.
So, while buyers of Russian metals are feeling pressure to find new sources because of the war, they are still taking shipments, especially for material under contract, industry experts and players say.
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| Russia's invasion of Ukraine has roiled commodity markets and raised questions for traders and other metal buyers over whether to acquire metals from Russia. Source: Thinkstock |
"If buyers have long-term contracts with companies in Russia, by and large they're being filled," said Tom Mulqueen, head of research at Amalgamated Metal Trading Limited, which has headquarters in London. "It's more on the spot market where we see a bit more of a preference for non-Russian metal."
Russian metal getting to market
Metal under contract, which covers a huge swath of the market, is still getting out of Russia in part because sanctions have not targeted specific metals. It is also tough to find alternative supplies for some metals, and breaking commercial agreements may be a challenge. Commodity trading heavyweights such as Glencore PLC and Trafigura Group Pte. Ltd. have signaled they are continuing to do business with Russia, and Russian producers such as PJSC MMC Norilsk Nickel say they are delivering material to fulfill prewar commitments.
Norilsk Nickel operations are running normally, and the company is meeting "all our contractual obligations," spokesperson Andrey Kuzmin said in an email. Kuzmin declined to comment on specific questions about how much of production is under contract and if the invasion had affected uncontracted sales.
Trafigura sold Russian metals on the London Metal Exchange in recent weeks, Bloomberg reported in late March. The trader did not answer specific emailed questions on whether it was continuing to sell Russian metals and how the war may have affected trading.
"We are taking every precaution to ensure we comply in full with applicable regulations and sanctions, and we continue to engage with customers and governments to understand their requirements and provide the commodities and energy they need in severely disrupted commodities markets," a Trafigura spokesperson said in an email.
Buyers of platinum group metals depend on Russian supplies. The country produced about 43.4% of global palladium in 2020, according to S&P Global Market Intelligence data.
"PGM users seem more concerned about supply availability and price, and are more reluctant to say no to Russian metal," Jeffrey Christian, managing partner of CPM Group, said in an email.
Some companies look for exits
For some, Russia's war in Ukraine has given taboo status to the country's metals. Glencore said it will not conduct new Russian business. Copper smelter Aurubis AG and aluminum producer Norsk Hydro ASA said they want to try to exit contracts on Russian purchases if possible, according to a Bloomberg report.
"I believe in the end, whatever money we pay will end up in the wrong pockets," Aurubis CEO Roland Harings told Bloomberg on April 6.
Russian aluminum giant Rusal did not respond to a request for comment.
"Companies are living up to their contractual commitments, but [they] say they wish they did not have to buy Russian metal," Christian said.
S&P Global Commodity Insights sought comment from automobile industry associations, who were asked if their member companies were continuing to buy Russian platinum group metals, which are used in auto-catalysts for emissions control. They had not responded as of publication time.
Threat of sanctions jangles nerves
Fears over the possibility of tougher sanctions, as well as the increasing difficulty of doing business with Russia given existing bank sanctions, have soured some buyers' appetite for Russian metal, pushing them to seek other sources of supply.
"That's very, very real," Mulqueen said. "But it's not something that can change overnight. Even if you want to redirect, buyers need to build new relationships."
Traders, if they can source financing for a deal, are leery of agreeing to buy Russian metal and then having sanctions toughen amid delivery.
"You don't want to be stuck holding it if it's still in transit," said William Adams, head of battery and base metals research at FastMarkets Ltd., a U.K.-based commodity price reporting agency.
"There's nothing to stop people trading [Russian metal] if the consumer wants it," Adams added. "What we are seeing is banks that are quite nervous about entering the trade to finance Russian materials."
Prices on the move
While examples of companies completely self-sanctioning are rare, pressure to avoid Russian metal is nonetheless having a major impact on metal prices. Nickel pricing peaked at $100,000 per tonne in intraday trading on the London Metal Exchange in early March before trading was frozen, and prices remain high. Palladium jumped to $3,158 per ounce on March 8, two weeks after the Russian invasion, well above a Dec. 14 low of $1,619/oz.
"The preference for non-Russian material is being reflected in premiums and in deliveries of Russian metals to LME warehouses," Mulqueen said.
The LME has barred Russian base metals from its U.K. warehouses, but they can still find a home elsewhere. The exchange has 550 approved storage facilities in 32 locations in the U.S., Europe and Asia, according to its website.
Fears of deficits in metals where Russia is a major player have generated price spikes across commodities.
Spikes in metal prices are a "sign of all these people that had to go and find alternative supplies," Adams said.
S&P Global Commodity Insights produces content for distribution on S&P Capital IQ Pro.