Owing to the growing popularity of aluminium in the automobile and construction industries, among others, the future of this sector looks promising. However, the ongoing geopolitical conflicts in many regions are making things look grim. Recessionary headwinds are adding stress to supply-chain, making it challenging for many primary and downstream aluminium manufacturers globally. But how long are these uncertainties going to last? Let’s dive into the future-

Geopolitics in the post-covid world

The ongoing Russia-Ukraine tension has presented new challenges for the global economy, as it had just started to recover after the prolonged Covid-19 pandemic. It has laid out risks and uncertainties for almost all industries, and the aluminium industry is not spared.

One of the primary metals used in Europe is aluminium. There are alumina refineries and aluminium smelters other than those in Russia. However, the continent does not have bauxite reserves, except those found in minor quantities in Greece. The refineries and smelters, though operational, have mostly slashed their production due to soaring energy prices, while a few have closed down. The total production, clearly, is not capable of securing the European demand for the metal, and this is where Russian aluminium comes in and plays a vital role.

From beverage cans and building facades to luxury cars, aluminium today is omnipresent, and a large chunk of it comes from Russia. The country produces 6% of the global aluminium. In 2021 alone, it produced 3.76 million tonnes of aluminium. A major percentage of this production is exported worldwide.

So, did the Russia-Ukraine conflict impact the aluminium trade between leading economies?

The geopolitical tension has surely worsened trade, and the industry is somewhat grappling to survive. Supply and demand forecasts have been slashed. The manufacturing PMIs (Purchasing Manager’s Index) of Europe and the UK for October (released on 24th October) were lower than expected. In LME warehouses, bulk quantities of aluminium are turning up as the supply chain destocking has started.

How are other nations reacting to the European aluminium industry?

One cannot help but talk about the global reaction displayed by other countries towards Russia due to the geopolitical conflict. As Europe entered 2020 with a severe energy crisis, several aluminium smelters had to shut down operations. Aluminium is a critical metal for the European Union; it earns them major export revenues. Therefore, now Europe, already suffering from an energy crisis, did not impose any sanctions on Russia and strategically avoided banning Russian energy resources. North America has also resorted to this motion and is now considering banning the import of Russian aluminium.

While countries have stopped trade with Russia in different sectors, the aluminium industry still seems to hold its fort. LME is maintaining its policy of not forestalling official sanctions. China has also not imposed any sanctions on Russian aluminium. Many believe it has something to do with the Rusal sanctions four years ago in 2018 that impacted the supply chain globally.

In 2018, when the US imposed a stringent sanction on Rusal, aluminium prices hiked up 10%, and the global trade flow was affected. A similar thing happened this time, too. Aluminium prices spiked 7 per cent after the report of the US ban on Russian aluminium supplies. However, the hike did not last long.

Impact of global conflict on aluminium prices:

The Russia-Ukraine tension had significantly driven up aluminium prices, when in early March 2022, the price was US$ 4,000 per tonne of aluminium, which rose from US$ 3,224 in February 2022. However, in May 2022, the prices came down to US$ 3,300 per tonne due to heavy demand. Even then, it was 40 per cent higher than last year. Recently, the prices have fallen further.

It is quite evident that there are a lot of uncertainties on the price front. Aluminium has literally gone from boom to bust within a really quick time. As experts rightly observe, the entire non-ferrous basket is bracing for a “downturn of a different kind.”

What has been the effect on European aluminium so far?

Needless to say, the geopolitical tension did cast its shadow on the Russian aluminium industry. Rusal, the largest aluminium producer in Russia, ceased production around the Black Sea and its refineries in Mykolaiv, Ukraine. The company has cited logistical issues for stopping the operations. According to sources, this refinery produced 1.75 million tons of alumina annually. The fate of this refinery largely depends on the course taken by the geopolitical conflict. Due to this, the shares of the company continue to plummet.

What lies ahead of the geopolitical conflict?

Despite the multitude of rounds of negotiations, the two countries have not been able to find a middle ground, which has only heightened the tension. Amidst this, the question that keeps aluminium industry experts awake is what is in store for aluminium in the future.

Among non-ferrous metals, aluminium has definitely suffered. However, the temporary bottleneck opened new avenues for domestic alumina production. It can be viewed as a silver lining, where countries that heavily depended on exports are now producing aluminium, giving rise to employment, decreasing import costs, and lowering the alumina price.

On the other hand, it is assumed that China, which produces 38.5 million tonnes of aluminium yearly (as per 2021 production data), will take over and fill in the gaps. Based on this belief, Chinese exports can reinstate the balance in the global aluminium industry.

In the end:

As the geopolitical conflict has been going on for almost nine months, on humanitarian grounds, the world is eagerly looking toward a peaceful negotiation between Russia and Ukraine. The aluminium industry, too, is not an exception. Every stakeholder in the value chain is anxiously waiting for a truce so the prices, supply, and demand stabilise. After all, for any industry to thrive, there must prevail a conducive geopolitical environment. With economies falling apart in one part of the globe, the rest cannot prosper over the long term. The present looks not so encouraging. Only time will tell how things unfold in the future and what is in store for the global aluminium industry.