Essential Raw Material for Cars... US Sanctions Review News Raises Industry Concerns (Comprehensive)

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

[Image source=Reuters Yonhap News]

[Asia Economy Reporters Choi Seoyun and Choi Daeyeol] As civilian casualties in Ukraine continue due to Russia's all-out missile attacks, concerns are growing in the domestic industry as the U.S. is reportedly considering the 'aluminum sanctions' card. If aluminum prices, used in car engines, wheels, and more, skyrocket, 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 banning its import. This is the first raw material sanction imposed on Russia since its invasion of Ukraine in February.

Aluminum, a raw material used in major products such as automobiles and smartphones, had been excluded from sanctions. The White House is reportedly reviewing three options: a full ban, imposing punitive high tariffs to effectively prohibit transactions, and sanctions against Russian aluminum producer Rusal.

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

The problem is that aluminum production has significantly decreased this year, and 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 production by 10-20% due to power shortages caused by heatwaves, leading to forecasts that aluminum inventories will hit record lows. Europe has also seen a production decrease of 1.2 million tons.

The domestic industry will also be hit hard. There are growing concerns 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, construction materials, electrical wires, and home appliances. Especially 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, with the increase in electric vehicle adoption, aluminum has become even more essential. Due to the battery weight, electric vehicles are inevitably hundreds of kilograms heavier than similarly sized internal combustion engine vehicles, so the use and application of lightweight yet durable aluminum are increasing. According to Automotive Aluminum Market data, the global automotive aluminum market is expected to grow by 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 could lead to price increases and a challenging situation. Aluminum is considered an essential material, ranking second only to steel among raw materials purchased by domestic automakers such as Hyundai Motor Company.

According to the Korea International Trade Association, aluminum imports reached about 2.13 million tons through August this year, a 3.5% increase compared to the same period last year. By country, India leads with about 390,000 tons, followed by China (360,000 tons), the U.S. (200,000 tons), Australia (180,000 tons), and Malaysia (110,000 tons). Russian aluminum accounts for about 90,000 tons, less than 5% of total imports, but the issue is that price volatility increases due to supply disruptions. Global aluminum inventories have decreased this year, increasing the price burden compared to the past. While the total import volume increased by less than 4%, import value rose by about 34%.

President Joe Biden of the United States

Earlier this year, aluminum prices surged due to logistics disruptions caused by the resurgence of COVID-19 and Russia's invasion. According to the London Metal Exchange, aluminum inventories fell below 300,000 tons in late August, 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 inventories and government reserves, 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.