Steel Products Prices North America

CRU: Handicapping Aluminum Supply with New Russian Sanctions

Written by Greg Wittbecker

By Greg Wittbecker, Advisor, CRU Group

The massing of Russian troops on the border with Ukraine has raised tensions to a high level on the political scene. It forces us to take another look at the repercussions of new sanctions on the Russian state should Putin decide to invade.

2018 Repeated?

In March 2018, sanctions on the Russians were highly disruptive to World ex China aluminum supply chains, especially in the U.S., where the market was concurrently coping with the application of Section 232 duties.

Those sanctions pushed the LME 3-month price to $2,544 per metric ton in April 2018, fully $600 per metric ton above its April 2017 levels. Physical premiums in the U.S. were already roiled by the Section 232 effect, moving from 10 cents/pound over LME pre-duty to trade at 20 cents/pound with the 10% duty embedded.

The global supply-demand balance was estimated to be a 1.4 million ton deficit. Russian imports to the U.S. were over 600,000 tons/year, and they represented a key role in solving the systemic deficit in the U.S.

World ex China total aluminum inventories were about 5.6 million tons. We survived the 2018 sanctions thanks to those inventories. A 2022 sanction may not be so easily remedied.

2022 Supply-Demand Balance is Much Different…and Worse!

The LME price is remarkably close to where it was in early 2018 but has seen spikes to nearly $3,300 per metric ton in the past several months. We are experiencing a change in the LME that is unprecedented. For the first time in 15 years, the market is trying to handicap prices that are dictated not by China exports or production excess. Now, the market is trying to find an equilibrium price that encourages NEW production in the World ex China. China appears serious about limiting its primary aluminum growth.

Physical premiums in the U.S. have been as high as 35 cents/pound and have experienced a seasonal slump to 25-26 cents/pound, with expectations that premiums are likely to rise again in Q1 2022.

Our forecast for the global supply-demand in 2022 is for a sharply larger deficit of 2.49 million tons. Russia’s market in the U.S. is less than it was in 2018. But Russia now has a stronger presence in Mexico, where the absence of Section 232 tariffs has encouraged the Russians to push hard – and with great success.

World ex China inventories are 2.78 million tons or 50% below 2018 levels. The global supply chain is broken, and moving metal into the U.S. from anywhere is challenging.

Scarcity is back in our vocabulary, and many aluminum fabricators bemoan the fact they could be producing more IF they could get more raw material and labor, plus the truck freight to move it.

With this as a backdrop, is there anyone who doesn’t think a repeat of 2018 sanctions won’t be a serious blow to the market?

President Biden’s nuclear option is disconnecting the Russians from the SWIFT (Society for Worldwide Interbank Financial Telecommunication) payments system. That would effectively strangle the Russians because no one would be able to pay them for their exports. Even the likes of Glencore, their major commercial counterparty, could not overcome this barrier.

Whether Biden chooses to execute this option depends on what he perceives Putin’s transgressions are in respect to Ukraine.

Who Suffers the Most from Sanctions?

The U.S. is not buying as much primary metal as it used to from the Russians. Some of this is a natural outcome of the sanctions: Procurement officers are reluctant to put their supply chains in jeopardy due to political risks. However, Europe is still highly dependent on Russia for primary aluminum supplies – just as it is when it comes to natural gas. Any prolonged disruption of Russian exports to Western Europe will have immediate upward impact on regional physical premiums. It’s reasonable to expect that the LME would also respond in kind.

Mexican OEMs have increased their purchases from Russia, especially in foundry alloys going into aluminum cast wheel production and rolling slabs going into industrial sheet products. They would be immediately impacted. Depot stocks might bridge them for a short time, but within three months they could be really hurting. 

U.S. physical premiums would likely go up in sympathy, as any discretionary supply from any other exporting country (Canada, MENA, India, Malaysia) would flow toward Europe as their premiums rose.

With the World ex China in a big deficit to begin with, it sets the table for a serious supply crunch if cooler heads don’t prevail in Ukraine.

Greg Wittbecker joined CRU in January 2018 after retiring from Alcoa, where he was Vice President of Industry Analysis and Managing Director of Alcoa Beijing Trading, based in Shanghai, China. His career spans 35 years in the aluminum industry, having also held senior commercial and management roles at Cargill, Wise Metals and Koch Supply and Trading. Greg brings perspective on the entire aluminum supply chain from bauxite to aluminum finished products and will be a regular contributor to SMU going forward. He can be reached at

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