Is an Aluminum Crisis Coming This Time?…US Sanctions on Russia Raise Concerns Over Domestic Industry Impact

Russia, the World's 2nd Largest Producer
Prices Surge Amid Sanctions Review News
Concerns Over Disruptions in Domestic Industry Production

Aluminum ingots stored at the casting plant of RUSAL, Russia's largest aluminum smelter.
[Image source=Reuters Yonhap News]

As civilian casualties in Ukraine continue unabated due to Russia's all-out missile attacks, the United States is considering the card of 'aluminum sanctions,' raising concerns within the domestic industry. If the price of aluminum, used in car engines, wheels, and more, soars to unprecedented levels, it could lead to the worst-case scenario of increased production costs and deteriorating corporate profitability.

Bloomberg reported on the 12th (local time) that the Biden administration is considering significantly raising tariffs on Russian aluminum, effectively imposing a ban-level sanction. This is the first raw material sanction imposed on Russia since its invasion of Ukraine in February.

Aluminum, a raw material used in key products such as automobiles and smartphones, has so far been excluded from sanctions. The White House is reportedly reviewing three options: ▲a complete ban ▲imposing punitive high tariffs to effectively prohibit transactions ▲sanctions on Russian aluminum producer Rusal.

Russia ranks second in global aluminum production after China. If sanctions materialize, a sharp price surge is inevitable. Following Bloomberg's report that the U.S. is considering banning Russian aluminum, international aluminum prices jumped 7.3% compared to the previous day.

The problem is that with aluminum production already significantly reduced this year, adding sanctions on Russia could lead to a crisis. In China, the largest producer, Yunnan Province in the southwest, the main production area, has requested aluminum companies to reduce output by 10-20% due to power shortages caused by heatwaves, leading to forecasts that aluminum inventories will hit historic lows. Europe is also experiencing a production decrease of 1.2 million tons.

The domestic industry will also be directly hit. Concerns are growing that prices will rise across the board in plastics, textiles, electric vehicle batteries, rebar, and lumber. Aluminum is mainly used in alloy form for automobiles, building materials, electrical wires, and home appliances. In particular, in the automotive sector, it has long been regarded as a key lightweight material to improve fuel efficiency. It is used throughout vehicles, including engines, transmissions, chassis, and suspensions.

Recently, as electric vehicle adoption has increased, aluminum has become even more essential. Due to the weight of batteries, electric vehicles tend to be hundreds of kilograms heavier than similarly sized internal combustion engine vehicles, so the use and application of lightweight yet durable aluminum are on the rise. According to Automotive Aluminum Market data, the global aluminum market for vehicles is expected to grow by about 8-9% annually, reaching approximately $111.8 billion by 2026.

The automotive industry does not currently face immediate production disruptions due to aluminum supply shortages, but if these conditions persist long-term, it is expected to lead to price increases and challenging circumstances. Aluminum is considered an essential material, second only to steel among raw materials purchased by domestic automakers such as Hyundai Motor Company.

Earlier this year, aluminum prices surged due to logistics disruptions caused by the resurgence of COVID-19 and the Russian invasion. According to the London Metal Exchange, aluminum inventories fell below 300,000 tons in late August, reaching the lowest level ever recorded. Since then, there has been a slight rebound, with inventories around 340,000 tons as of the previous day, which is less than one-fifth of the nearly 1.9 million tons recorded in March last year.

An industry insider said, "Although companies have their own inventories and government stockpiles, and the proportion of aluminum sourced from Russia is not large, immediate production disruptions are unlikely. However, if supply instability worsens, price increases will be inevitable."

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