Citigroup has warned clients about the risks of Russia weaponising its exports of materials such as aluminium, palladium and nuclear fuels, potentially leading to price rises for these critical commodities.
None of these materials, widely used in industrial and energy production, has yet been subject to western sanctions or export restrictions by Russia since it began its full-scale invasion of Ukraine a year ago.
Any move by Russia to restrict exports of such materials would send shockwaves through commodity markets, disrupting global supply chains and creating problems for manufacturers and automakers. The country accounts for about a quarter of world production for some metals.
“Weaponising Russian metals exports may be around the corner,” said Max Layton, head of Emea commodities research at Citi. “This could well see prices of these commodities spike.”
The warning marks a departure from Citi’s previous views on how the war might destabilise metals prices, which have typically been more conservative.
Moscow has not indicated it plans to reduce metals exports, but it has already cut overseas energy supplies, which are a much larger source of revenue. Last year, Russia reduced its exports of gas to Europe, triggering an energy crisis, and last month it announced it was cutting domestic oil production by about 5 per cent.
“Russia’s use of gas, and more recently talking about oil production cuts, has gone straight to the big-ticket items,” said Layton. “There’s a number of other commodities that are in between, that have kind of slipped past.”
As the conflict continued, more commodities would get tangled up in it, said Layton. “You look around and say, what could be next?”
Aluminium started getting drawn into the conflict two weeks ago when the US imposed a 200 per cent import tariff on Russian aluminium, citing the invasion of Ukraine and national security concerns. So far, no other western countries have followed suit.
Many industry executives believe that the west has avoided imposing sanctions on Russian metals because they are critical for manufacturing and would be hard to replace.
Russia produces about a quarter of the world’s palladium, which is used in catalytic converters in vehicles, and exports most of what it produces.
It is also a leading aluminium exporter, supplying about 15 per cent of the world’s traded aluminium.
In platinum, where Russia accounts for about 11 per cent of global refined production, output in the fourth quarter of last year fell 10 per cent, because of logistical challenges in getting the material from Russia to Finnish processing facilities.
“The reality for platinum group metals, particularly with regards to the end use of the automotive industry, is that there aren’t enough alternatives to Russia in the market,” said Ed Sterck, director of research at the World Platinum Investment Council. “You’re going to have to hold your nose and close your eyes.”
Some western companies have started to “self-sanction”, avoiding the use of Russian materials, which has created a premium for non-Russian alternatives in markets such as aluminium and nickel.
The London Metal Exchange also reported in February that Russian metal was building up in its warehouses, with 41 per cent of primary aluminium stocks and 95 per cent of copper stocks being of Russian origin — a sign that some consumers are shunning the resources.
Even more crucially, Russia is a significant exporter of nuclear fuels because of its uranium resources and large nuclear processing capacity. Concerns about possible western restrictions on Russian nuclear fuel have already sent processing prices up to record levels. At present, the EU and US are still importing nuclear fuels from Russia, even while they try to speed up a switch to alternative sources.