Ukraine conflict ripple effects taking many forms

The invasion of Ukraine by Russia’s military has produced immediate effects on that nation’s flows of minerals and metals. Now, sanctions placed by much of the world on Russian banks and corporations are leading to numerous scrambles for buyers and sellers of aluminum, stainless steel and other metals and raw materials to keep their trade channels open.

In Ukraine itself, which is being attacked by Russia by land, air and sea, the nation’s chamber of commerce issued a force majeure (suspension of the enforcement of contracts) notice effective from Feb. 24, when the Russian invasion started.

According to the Interfax news agency, the Chamber of Commerce and Industry of Ukraine posted a Facebook notice in late February declaring in part, “From Feb. 24, 2022, until [the conflict’s] official end are extraordinary, inevitable and objective circumstances for business entities and/or individuals under the contract, certain tax and/or other obligations, the fulfillment of which occurred in accordance with the terms of the agreement, contract, treaty, legislative or other regulatory acts and the fulfillment in accordance with which became impossible within the prescribed period due to the occurrence of such force majeure circumstances.”

The Davis Index metals news service has reported that metals producers including ArcelorMittal, Metinvest and Ferrexpo suspended production shortly after the invasion, citing workforce safety concerns.

Subsequently, Davis Index says, Ukraine-based mining and steel producer Metinvest has invoked force majeure citing blockaded seaports, infrastructure damage and workforce safety.

Global shipping line Maersk, in a March 1 update, states in part, “As the stability and safety of our operations is already being directly and indirectly impacted by sanctions, new Maersk bookings within ocean, air and intercontinental rail to and from Russia will be temporarily suspended, with the exception of foodstuffs, medical and humanitarian supplies (bar dual-use items).”

The Denmark-based shipper adds, “Countries such as the Netherlands, Belgium and Germany are holding back vessels en route to Russia in search of restricted commodities, primarily dual-use items.”

Overseas buyers of Ukraine-made steel as well as other metals and raw material feedstocks shipped via the Black Sea are among those scrambling to change their purchasing routines. Davis Index cites Mexican steelmakers and buyers among those already paying more for either iron ore or semifinished steel.

Such shifts in purchasing habits likely are widespread as sanctions on Russia expand. In 2021, Russia exported more than half of the 76 million metric tons of steel it made, according to S&P Global Platts.

According to the Brussels-based Bureau of International Recycling (BIR), Russia in 2020 exported more than 4.7 million metric tons of ferrous scrap. Russian steelmakers and scrap exporters alike will have to navigate new banking restrictions and a commitment by many nations to conduct less business with Russia after the invasion.

Primary aluminum is another large-tonnage Russian export. In the first 11 months of 2021, some 183,000 metric tons of Russian-made finished and semifinished aluminum found its way to the United States, according to the U.S. Census Bureau. Despite previously existing sanctions, that made Russia the second biggest exporter of aluminum to the U.S. last year, following only the United Arab Emirates (and not including neighboring free trade zone partners Canada and Mexico).

Postinvasion, prices for finished aluminum and aluminum scrap have trended upward. London Metal Exchange (LME) prices at the start of March reached $1.58 per pound, or $3,495 per metric ton. That is a 107 percent increase compared with the $1,684 per metric ton (76 cents per pound) value of LME aluminum at the start of March 2021.

Regarding trade patterns, Davis Index in early March characterizes sanctions placed upon the participation of some Russian banks and companies in the global SWIFT money transfer system as meaning trade with that nation and its leading aluminum producer, Rusal, could become a “tedious process.”