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Black Sea tensions could cause headaches for metals

Apr 24, 2014 | 07:00 PM | AMM staff

Tags  ferrous scrap, nickel, vanadium, cobalt, Turkey, Syria, Russia, Crimea sanctions


When a mainstream news story has a major impact on the metals industry it usually concerns domestic environmental, economic or political issues. But events around the Black Sea have caught the attention of many metal executives.

Uncertainty from ongoing hostilities between Turkey and Syria has the potential to disrupt ferrous scrap exports as well as other metals-related business. The relationship between Turkey and Syria has grown increasingly strained since June 2012, when Syrian air defenses shot down a Turkish reconnaissance jet. Turkey deployed troops along the border in response, and the situation has been volatile ever since.

After booking about 20 bulk ferrous scrap cargoes--including four from the United States--during the second half of March, as well as smaller shipments from nearer ports, Turkish mill buyers were expected to take a step back during the local elections, rising tensions between Turkey and Syria and the impact of any global trade restrictions on Russia.

That last issue gets to the major story in the Black Sea region--Russia’s move to annex the Crimea region of Ukraine--and whether the West’s response has the potential to seriously disrupt business.

Sanctions on Russia would be “inconvenient” but not critical for the aerospace titanium market in the West and could boost demand for nickel producers in North America and the European Union, according to a briefing paper by Roskill Information Services Ltd.

The London-based consulting firm said possible economic sanctions on select parts of the Russian economy by the United States and the European Union, in addition to restrictions already imposed on individuals in response to Russia’s action in Crimea, could have “profound implications on a wide range of businesses and sectors, not least on a number of commodities markets.”

One effect of economic sanctions against Russia is the slowing of the closing of a $3.4-billion sales deal by Montreal-based Bombardier Inc. With Canada a party to sanctions being implemented by the United States and the European Union, it “may take a little longer” than expected to finalize the deal with Russia’s state-owned Rostec Corp., according to a Bombardier spokesman.

The sale of 100 of the aircraft builder’s Q400 NextGen short-haul turboprop airliners is contingent on the establishment of a joint-venture final assembly line in Russia targeting sales in the CIS. “But we remain committed to the project and to finalizing agreements with Rostec in 2014,” the spokesman said, without specifying the duration of the expected delay. Bombardier didn’t previously have a “precise deadline” for finalization, he added.

In more general terms, Roskill noted that Russia is an important source of aerospace-grade titanium, accounting for about 12 percent of U.S. and E.U. imports, mainly through supply agreements between producer VSMPO-Avisma Corp. and the world’s two largest commercial aircraft builders, Chicago-based Boeing Co. and Toulouse, France-based Airbus SAS.

“Although disruption of supplies would be inconvenient for the aircraft companies, it would probably not be critical,” Roskill said, but acknowledged that any displacement could nevertheless “considerably alter the dynamics of aerospace supply chains.”

Roskill said that most of the world’s fabrication of aerospace titanium components takes place in the United States and Europe, while there is “considerable spare capacity” for sponge and unwrought production in Japan, Kazakhstan and the United States that could be activated “relatively quickly.”

Meanwhile, with high nickel inventories in London Metal Exchange warehouses as well as consumer, producer and port storage, it’s unlikely that sanctions targeting Russia’s nickel sector would trigger “an immediate supply shortage,” Roskill said.

North American and E.U. nickel producers could see a rise in demand as consumers in the plating and nickel-based alloys industry--including aerospace superalloys--seek alternative sources, Roskill said, resulting in increased nickel cathode orders for Rio de Janeiro-based Vale SA, Baar, Switzerland-based Glencore Xstrata Plc and Paris-based Eramet SA.

Russia accounted for 26 percent of global nickel cathode exports, or about 13 percent of total nickel consumption, in 2013, Roskill noted. It is the world’s second-largest producer of finished nickel, with China its largest export market.

Any future U.S. and E.U. sanctions combined with Indonesia’s ban on raw nickel ore exports could push more Russian nickel cathode exports into China, Roskill said. While China’s stainless steel industry typically depends on lower-grade nickel pig iron, “generally grading up to around 15-percent nickel,” it is nevertheless possible to substitute high-purity Russian nickel cathode for this material, even though this could “erode” some of the cost advantages enjoyed by Chinese stainless steel producers.

Russia is the world’s third-largest producer of vanadium--accounting for more than 8,000 tonnes of contained vanadium per year, or about 10 percent of the world total--Roskill said, and sanctions that affect London-based Evraz Plc could reduce global availability of ferrovanadium.

Vanadium oxide produced in Russia by Evraz is converted to ferrovanadium at the company’s Evraz Nikom unit in the Czech Republic, which has an annual capacity of 4,600 tonnes, according to Roskill.

Russia also accounts for about 6 percent of global cobalt mine production and 3 percent of refined output, Roskill said. Most Russian exports of concentrates and crude hydroxide are shipped to MMC Norilsk Nickel’s refinery in Finland, and sanctions that hit Norilsk or Russian-Finnish trade could cut global availability of refined cobalt and nickel products.




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