Its price gains 3.7% from less than a week ago

Forgoing Russian aluminum, EU has to ship more via Suez

The Red Sea crisis is leading to disruptions in the global aluminum supply chain, Russian aluminum company Rusal told S&P Global Commodity Insights Jan. 26.

Thanks to its global logistics options, it could provide a reliable source of aluminum, a representative for Rusal said in response to industry rumors that the EU could introduce further restrictions to its aluminum imports from Russia in its 13th sanctions package due by the two-year anniversary of Russia's invasion of Ukraine in late February.

In the previous 12th package out last month, the EU banned imports of Russian aluminum wire rod, extrusions and foil.

Aluminum is therefore emerging among commodities impacted by shipping complications through the Red Sea and the Suez Canal, according to Rusal.

The recent Houthi rebel attacks have raised risks in this transport artery of global importance. It is the shortest route between Europe and Asia, and merchant shipping in the Red Sea has decreased. Some companies are absorbing higher logistics costs associated with bypasses.

The LME three-month aluminum contract closed at $2,238/mt Jan. 25, up 3.7% from $2,159/mt Jan. 22. Previously, the price had been steadily trending down from roughly $2,340/mt in late December.

Slower arrivals into Europe

About 3 million mt/year of aluminum normally flows through the Suez route, but recent events have meant slower arrivals into Europe, Goldman Sachs said in a note Jan. 23.

The European Union's imports from the Middle East and Southeast Asia -- those shipped via the Suez Canal and exposed to ongoing freight dislocations -- have recently become more significant with the need to compensate for last year's 40% year on year drop in the volume of aluminum coming from Russia, Goldman Sachs said. It added that it sees Europe importing 400,000 mt of Russian aluminum in 2024, down from 1 million mt/year pre-2022, while the bloc's overall aluminum imports come to 4.5 million mt/year.

Another Russian base metals major, Nornickel, does not use the Suez Canal. It ships its platinum group metals by air, and as for the seaborne exports, it continues to supply nickel to Europe through Rotterdam and ships the bulk of its copper to Tangier, on the Strait of Gibraltar, from where the metal is delivered to end-users by other carriers, it told S&P Global.

The broader metals and mining industry is expecting a negative rather than neutral effect from the Red Sea troubles too, as high voyage mileages will ultimately touch certain metals prices.

Little effect on steel imports

The Red Sea situation has had little effect on steel imports into Europe so far, mainly due to effects from the safeguard measures, but market participants said they believed the rise in freight costs and potential supply disruptions caused by redirection of ships around Cape Good Hope might have an impact in the second quarter.

Normally, after being stocked in European ports, steel imported from Asia and India, especially flat rolls, gets customs cleared at the beginning of each quarter.

"It would depend how the situation in the Red Sea would evolve," a service center source said. "But we might see some disruptions when new deliveries would arrive in the second quarter."

The Suez Canal is largely used to transfer of oil and gas, but is also important for solid minerals. In 2019, 53.5 million mt of ores and metals and 35.4 million mt of coal traveled the length of the canal, according to information on the New Zealand foreign affairs and trade website.

Source: Platts