Raw Material Market Shaken by Russia... Concerns Over Profitability Decline for Korean Companies

Non-Ferrous Metal Prices Volatile Due to Ukraine Invasion
"Rising International Oil Prices to Reduce Margins in Refining, Steel, Chemicals, Shipping, Automotive, and Construction"

[Image source=Reuters Yonhap News]

[Asia Economy Reporter Oh Hyung-gil] Amid concerns that raw material prices will surge due to Russia's invasion of Ukraine, the industrial sector is worried about deteriorating profitability. Prices of non-ferrous metals supplied by Russia to the global market are soaring immediately.

Additionally, the rise in international oil prices is expected to reduce margins in refining, steel, chemicals, shipbuilding, automotive, and construction industries.

Non-ferrous metals supplied by Russia globally include aluminum, nickel, cobalt, and copper. According to NH Investment & Securities, Russia's share of global supply is about 6% for aluminum, 7% for nickel, 4% for cobalt, and 3.5% for copper.

Most of these prices surged significantly on the 24th, the day Russia invaded Ukraine.

According to the Korea Resource Information Service, as of the 24th, the price of nickel was $26,105 per ton, up 4.6% from the previous day. Compared to the monthly average, it rose 16.93%, and it is 41.2% higher than last year's average.

Nickel Price Trends (Source: Korea Resources Information Service)

The price of aluminum also increased by 17.2% compared to the monthly average, reaching $3,519 per ton. Compared to the previous month’s average, it rose 41.9%.

Cobalt was priced at $73,010 per ton, up 3.6% from the monthly average, and copper rose 2.1% to $9,983 per ton compared to the monthly average.

Byun Jong-man, a researcher at NH Investment & Securities, explained, "During the rising tensions between Ukraine and Russia, prices of steel and non-ferrous metals increased. Since November 2021, when Russian troops gathered at the Ukraine border, iron ore prices rose 50.5%, aluminum prices 23.6%, nickel 23.4%, and cobalt 19.2%, while the price of gold, a safe asset, only increased by 3.4%."

On the other hand, steel (hot-rolled) prices only rose by 6.2%. Although iron ore prices have increased 50.5% since last November, the connection to the Ukraine situation is considered low. Iron ore prices plunged in May last year when the Chinese government intervened in the market.

Researcher Byun noted, "Steel company stocks should pay attention to China's intervention in iron ore prices and economic stimulus policies. If sanctions on Russia intensify and prolong, prices of aluminum, nickel, and cobalt are expected to rise."

In response, the government announced plans to increase stockpiles of non-ferrous metals. At the first stockpile advisory committee meeting held on the 24th, the Public Procurement Service decided to increase stockpiles of aluminum, nickel, tin, copper, and others, which have high overseas dependency or are expected to see increased demand related to eco-friendly energy.

They also plan to operate with a scale of 483.5 billion won, including 250 billion won for stockpiling and 233.5 billion won for release, to respond to small and medium-sized enterprises' demand through regular releases.

Furthermore, considering the high dependence of our industry on crude oil, a $10 increase in international oil prices is expected to raise import costs by $10 billion. Margin erosion is a concern. Shinhan Financial Investment predicts that rising international oil prices will reduce margins mainly in refining, steel, chemicals, shipbuilding, automotive, and construction sectors.

This content was produced with the assistance of AI translation services.