Steel Products Prices North America

CRU: Handicapping the Risks from Russian Sanctions: Chapter 2

Written by Greg Wittbecker

By Greg Wittbecker, Advisor, CRU Group

In early December, we first sounded the alarm about the threat to aluminum supply should sanctions be re-applied to the Russians. It’s appropriate to update the situation now given some other changes in the aluminum supply-demand equation.


European Primary Production Curtailments are Bigger and Deficit is Larger

Higher power prices are taking an additional toll on smelters in Western Europe. CRU now estimates that 750,000 metric tons of annualized production have been idled. The largest of these is the Alcoa San Ciprian Spain smelter, which will close for two years to allow modernization and attempts to find affordable, renewable power. Other curtailments range from 20-75,000 tons each.

These cuts bite especially hard now because the European deficit in primary metal has risen substantially since the last round of Russian sanctions. In 2018, Europe’s deficit on primary metal was 827,000 tons. In 2022, that deficit has grown to over 1.2 million tons. This is due in part to more “on-shoring” of semi-fabricated demand as antidumping against the Chinese has occurred.

Russia Continues to Supply a Substantial Portion of European Needs

UC Rusal’s latest financial result reinforces Europe’s dependence on Russian metal. Rusal reported in their nine-month results that their shipments to the EU continue to represent about 40% of total sales. These exports are convenient to Western Europe, shipping ex St Petersburg through the Baltic Sea into Rotterdam in about one week. That’s about 1.5 million tons of annualized volume that would disappear quickly.

LME Stocks Continue to Drop, Would Not Be Able to Compensate

LME stocks as of Jan. 26 are down to 823,525 tons, of which 373,275 tons are cancelled awaiting shipment. That leaves just 450,250 tons available to the market in the event something happens in the Ukraine. Those stocks are highly concentrated in South Asia, making them poorly positioned to replace Russian shipments ex the Baltic.

Latest World ex China Deficit Leaves the Market “No Place to Hide”

CRU’s latest 2022 forecast for the primary balance has the World ex China short about 1.8 million tons. That assumed Russia’s exportable surplus of 3 million tons was readily available. Without the Russians, and no real LME stocks, the World ex China would have to ration supply severely. Europe would likely be the biggest casualty, with force majeure declarations the rule, not the exception.

LME Prices Could Take Out the All-Time Highs

This nightmare scenario laid out above will translate into a major price response on the LME. It is not an exaggeration to suggest that the June 1988 highs of $4,200 could be eclipsed (the official Cash average for June 1988 was $3,635, but the 3rd Wednesday of June traded to $4,200). One can only hope that cooler heads will prevail to solve the political crisis in Ukraine. However, people should be firmly strapped in…it could get very turbulent.

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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