Russia’s Move Into Luhansk and Donetsk Sends Nickel, Aluminum Prices Soaring

Aluminum ingots made at the Rusal Krasnoyarsk aluminum smelter in Krasnoyarsk, Russia on Jan. 28, 2019. (Ilya Naymushin/Reuters)

The prices of nickel and aluminum have spiked after Russia declared two pro-Russia areas in Ukraine as independent regions and moved troops into the country. Russia is a major producer of these two metals.

Aluminum prices, which were trading around $3,270 per ton on Feb. 21, jumped 3.67 percent to around $3,390 per ton on Feb. 22. Nickel, which was trading at $24,350 per ton level on Monday, surged 3.9 percent to $25,300 on Tuesday.

Since the beginning of the year, aluminum prices have increased 20 percent while nickel is up by 22.7 percent. At the London Metal Exchange (LME), aluminum prices broke through 13-year highs while nickel has hit its highest level since August 2011.

Russia-Ukraine tensions escalated on Feb. 21 after Russian President Vladimir Putin recognized Ukraine’s rebel-held pro-Moscow regions, Luhansk and Donetsk, as independent states, after the leaders of the two areas, which make up much of the Donbas, requested that Putin recognize their independence from Ukraine. Putin then ordered troops into the region for a “peacekeeping” mission.

Washington slammed the decision, calling the Russian move into the region “nonsense” and accused Moscow of creating a pretext for war. Russia has currently amassed around 150,000 troops near its border with Ukraine. Several Western countries are expected to slap sanctions on Russia, a move that will add upward pressure on metal prices.

According to the U.S. Geological Survey, Russia produced 3.7 million metric tons of aluminum last year, making up 5.44 percent of the global production of around 68 million metric tons. Roughly 10 percent of global nickel supply comes from Russia.

“Metals market will definitely react to a Russian invasion of the Ukraine,” John Meyer, an analyst with broker SP Angel, told S&P Global Platts in a report last month. “China will buy Russian aluminum and other metals in defiance of EU and US sanctions but there will still be shortages of specific grades in all regions.”

The supply situation for these two metals is also a concern. According to the International Aluminum Institute, the global output of aluminum declined 4.5 percent year-on-year in January.

Aluminum stocks at the LME stood at 788,425 tons on Jan. 31—44.8 percent less than the 1,428,175 tons at the end of January last year. LME nickel stocks during the period have fallen from 248,856 tons to 89,364 tons, a decline of 64 percent.

The premium for cash aluminum over the three-month metal contract was at $45.30 per ton on Monday while the premium for cash nickel over the three-month contract was at $522 per ton, indicating that supplies are tight.

“In the near- to medium-term, aluminum prices are likely to hover in the higher trajectory, but things may calm once [U.S. President Joe] Biden and Putin come out with an agreement on Ukraine,” Kunal Sawhney, chief executive at research firm Kalkine, told Reuters. But by then, prices will be decided not by supply worries, “but demand forces,” he added.