The risks associated with sanctions on the export of Russian metals are named: the budget will suffer greatly

The US Treasury, in coordination with the UK, imposed sanctions on Russian aluminum, copper and nickel. The measures include a ban on the import of these metals, as well as on trading them on two exchanges – the Chicago Mercantile Exchange (CME) and the London Metal Exchange (LME). For Moscow, the event is unpleasant, but clearly not catastrophic: it legally consolidates the already existing restrictions on the supply of these products from the Russian Federation to America and Foggy Albion.

That is, in this case there is no talk of any new turn in the Western sanctions policy. However, this is extremely bad news for world markets, since there is a threat of their reformatting and destabilization. Against the backdrop of what is happening, prices for aluminum on the LME increased by 9.4%, for nickel – by 8.8%, according to Bloomberg.

According to the decision made by the Office of Foreign Assets Control (OFAC) of the US Department of the Treasury, American companies are now prohibited from providing services for the acquisition of Russian aluminum, copper and nickel (produced after April 13, 2023), exporting, re-exporting, selling or supplying them. It is also impossible to provide guarantee services for the purchase of these goods of Russian origin on the world metal exchange. Due to sanctions, two exchanges – CME and LME – will not be able to replenish their stocks with supplies from the Russian Federation. By the way, LME does not own or manage warehouses, but only certifies their operators and the warehouses themselves: 500 such warehouses approved by LME are located in 34 cities in Europe, the USA and Asia.

By now, the United States has practically eliminated imports of Russian metals: in 2023, only $70 million worth of them were imported in total. For comparison: in 2021, Americans purchased copper and copper products from the Russian Federation in the amount of $100 million, nickel and products made from it – $100 million. $158 million, aluminum and aluminum products – $613 million (US government statistics). The UK introduced a ban on relevant imports from the Russian Federation last December, and for the entire 2023, volumes in price terms decreased to $15 billion (from $25 billion in 2022).

Russia accounts for about 9% of world nickel production, 5% of aluminum and 4% of copper. Currently, 400 thousand tons of Russian metal are stored in LME warehouses (out of 1 million tons of total reserves).

“The news from the USA did not come as a surprise to experts and market participants: everything has been heading towards this since 2022,” says Alexander Shneiderman, head of the sales and customer support department at Alfa-Forex. – Russian suppliers of raw aluminum prepared in advance: already in March they switched to working with quotes from the Shanghai Futures Exchange. And this was due not so much to the threat of an embargo as to new realities: at the end of last year, Russia’s revenue from aluminum trade with China increased 2.5 times.”

European countries will be the first to suffer from the ban, as exchange prices for scarce products will increase (for example, in 2022, 47% of Russian nickel sales came from the EU). In turn, this will hit those manufacturing firms that have not yet recovered from the unprecedented hike in EU energy prices in recent years. Every fifth production may close, companies will go bankrupt, and unemployment will increase. As for the Russian economy, the negative effect for it will ultimately not be so serious, since large businesses (including metallurgy) have already completed the process of reorientation to other regions of the world, in particular to China. According to Shneiderman, at the end of 2023, no more than 5-10% of the total volume of Russian aluminum exports went to Europe.

“You may recall that back in 2018, President Donald Trump was given a report from the Department of Commerce that aluminum imports threaten national security,” notes financial analyst Boris Usherovich. – Indeed, two out of five aluminum smelters in the United States were then on the verge of closure. Canada remains the main supplier of this metal for America, accounting for 38% of all imports. China’s share is 13%, but now it will probably increase. The UK also receives aluminum through similar channels. Of course, the sanctions measure adopted by the US Treasury will shake up the global market, and buyers from the North American continent will have to pay significantly more.”

In the current situation, London had to stand in solidarity with the former “rebel colony”, which Brussels is unlikely to do: the Europeans have not yet made the same direct “dependence” of national security on the import of metals, but the shortage of many other resources – oil, gas, diamonds – has already been addressed feel it for yourself. Russia will not suffer serious losses from the ban on the import of metals to the USA and Great Britain: up to 40% of our exports still go to the European Union, almost a third to the CIS countries, 23% to Asia (mainly China). This is a stable market that does not need increased tariffs, sums up Usherovich.

“For Russia, new sanctions mean a certain loss of export revenue,” says Nikita Maslennikov, a leading expert at the Center for Political Technologies. – This may affect the dynamics of foreign trade indicators and the current account. For the ruble, this is a neutral factor at best, but overall negative. Part of the shortfall in metal exports can be redirected to the domestic market, where there will be demand for it in connection with infrastructure projects, in particular in the construction sector. China and India do not really need additional volumes from the Russian Federation: both countries have their own powerful metallurgical industries, and India itself exports metals, primarily to Europe.”

The bad thing, Maslennikov argues, is that the sanctions have already led to an increase in prices for aluminum and nickel: for the global economy, this increases inflationary risks, as well as the risks of slowing down business activity. The overall sluggish economic dynamics are boomeranging across the Russian Federation: the demand for Russian export goods will, at a minimum, not increase, and at maximum, fall.