Ukraine War Western Sanctions Necessitating New Metals & Minerals Supply Chains

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Ukraine War throws a monkey wrench into an already stressed metals and minerals supply chain, which has been rocked over the past two years by pandemic lockdowns, geopolitical issues, and weather events. This has led to volatile and record high commodity prices for many metals and minerals. Now, with the West severing ties with Russia-owned metals and minerals producers, there's even more upward pressure on commodity prices, and supply chains will need to be reconfigured for important Russian produced energy fuels, including coal and uranium, and metals, including aluminum, cobalt, nickel and platinum group metals. This is important not only for the U.S., but especially for European countries, where an energy crisis has already shuttered a number of high energy-consuming smelters. Europe's dependence, to a certain extent, on Russia for supply of these commodities only will complicate the situation.

Russia is an important producer of a number of important metals. It is the largest producer of diamonds, the second-largest producer of potash, the second-largest producer of platinum group metals, the third-largest producer of aluminum, the third-largest producer of gold, and the second-largest producer of cobalt. According to the U.S. Geological Survey, Russia is the third-largest nickel producer, after Indonesia and the Philippines. Nickel is an important alloying metal for stainless steel and so the sanctions placed by the West threaten the supply chains for steel, electric vehicles, and the energy transition.

Russia is ranked as the sixth-largest coal producer in the world. Germany has said it will not sanction Russian coal for now. Major coal-exporting countries such as Australia, Indonesia and in the Americas will benefit from the conflict in the short term as European buyers shift away from Russian suppliers.

The price of uranium has jumped to highs not seen since the Fukushima nuclear disaster in 2011. The White House is considering sanctioning Russia's state-owned energy company, Rosatom, which supplies 35% of the global uranium enrichment and about 16% of U.S. imports.

In addition to the impact to supply chain, the Ukraine War complicates project execution, so we are likely to see project delays and a shift in project priorities as companies switch focus from Russian involved projects.

"This puts a damper on an otherwise bright project spending market for Metals & Minerals Industry projects as miners and downstream processors have been ramping up capital spending plans in the wake of expected energy transition demand," said Joseph Govreau, vice president of research for Metals & Minerals at Industrial Info. "Going into 2022 mining companies were planning a 10.5% increase in planned capex for the year. I'm sure the Ukraine War and related inflation will cause some project delays."

In addition to the shuttering of industrial assets in most of the Ukraine, the war has impacted industrial assets and projects, with Russian ties outside of Russia being impacted as well. In Mongolia, a country bordering and dependent on energy from Russia and China, Rio Tinto (NYSE:RIO) (London, England) is actively seeing fuel alternatives for the Oyu Tolgoi project, while attempting to keep its relationship with Russia open.

Caterpillar Incorporated (NYSE:CAT) (Deerfield, Illinois) became the latest company close shop in Russia, suspending manufacturing at its mining equipment manufacturing plant located near Saint Petersburg. Major mining equipment and service providers Metso Outotec (Helsinki, Finland) and Weir Group (Glasogow, Scotland) also have suspended operations in the country.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on LinkedIn.