How a potential Russian incursion can impact metals markets

Metals experts and analysts from around the world have reacted to the on-going Russia-Ukraine tension by saying any escalation would have a negative impact on global metals markets.
The continued geopolitical worries have raised the possibility of new sanctions on trade with major Russian metals producers. This could further squeeze the tight aluminum, copper and nickel supply markets.
Base metals in various bourses have already rallied as supply constraints continue to tighten markets. According to a report by Bloomberg Quint, LME cash copper, for the first time in three months, broke through the US$ 10,000/MT ceiling mid-Jan before slipping back. In the week ending Jan. 20, it was at US$ 9,925/mt. Aluminum, too, trades above $3,000/MT. Incidentally, Russia sits on about 10% of the world’s copper reserves. It also serves as a major producer of aluminum.
Energy and metals prices to increase
Experts and analyst firms predicted a sharp hike in the price of global commodities, including energy and metal if the Russian-Ukraine standoff escalates. In addition, it could also lead to the imposition of even more sanctions on Russia.
Domestically, Russia battles massive inflation. The Russian ruble has slid over 10% since the end of October. Inflation stands at 8.4%, double the Central Bank’s official four percent target. Therefore, the confrontation with Ukraine, if it happens, will likely compound Russia’s economic problems even more.
Conflict does not help global aluminum supply position
From a global metals perspective, especially the aluminum sector, Alcoa Corp, the US’ largest aluminum producer, has warned that any aggression could impact supply out of Russia. The Bloomberg Quint report quoted Chief Executive Roy Harvey as saying the conflict would lead to a rise in energy prices, which in turn, could negatively impact the aluminum industry because of the high energy consumption required. According to the US Geological Survey, Russia accounted for about 3.6 MMT of aluminum production in 2020. Russia tied with India as the second-largest producer in the world.
Like Alcoa’s CEO, other analysts, too, believe that any further sanctions on Russia will adversely impact its energy sector. This in turn, would push metals prices higher. Energy-intensive smelters have already complained of high electricity prices. The latter has even led to zinc capacity reductions.
The ING Think research team has said in a new report that the geopolitical tensions with Russia “may end up having important implications for the eurozone if the gas supply starts to be used as a means of retaliation against sanctions.”
It would adversely affect more than the commodity flows that go through or originate from Ukraine, according to this Hindu Business Line report.
Markets to further tighten
ING Think Head of Commodities Strategy Warren Patterson said the escalation of the conflict could “potentially” lead to tightening in the energy, metal and agricultural markets.
All in all, except for some positivity in crude oil supply, analysts have painted a bleak scenario over the fallout of any further escalation in the standoff between the two neighbors.