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May 4, 2022

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Ukraine conflict ripple effects taking many forms

The invasion of Ukraine by Russia’s military produced immediate effects on that nation’s flows of minerals and metals. Additionally, sanctions placed by much of the world on Russian banks and corporations have led to numerous scrambles for buyers and sellers of aluminum, stainless steel and other metals and raw materials to keep their trade channels open.

In Ukraine, which is being attacked by Russia via land, air and sea, the nation’s chamber of commerce issued a force majeure (suspension of the enforcement of contracts) notice effective from Feb. 24, the day the Russian invasion started.

According to the Interfax news agency, the Chamber of Commerce and Industry of Ukraine posted a Facebook notice in late February declaring in part, that the period since Feb. 24 until the wartime conditions conclude are “extraordinary” times during which fulfillment of some contracts “became impossible within the prescribed period due to occurrence of such force majeure circumstance.”

The Davis Index metals news service reported in early March that several companies, including the global shipping company Maersk and metals producers AcelorMittal, Metinvest and Ferrexpo, had suspended or curtailed operations.

Overseas buyers of Ukraine-made steel as well as other metals and raw material feedstocks shipped via the Black Sea are among those that had to scramble to change their purchasing routines. Davis Index cites Mexican steelmakers and buyers among those who were paying more for iron ore or semifinished steel in early March.

Such shifts in purchasing habits likely were widespread as sanctions on Russia expanded. In 2021, Russia exported more than half of the 76 million metric tons of steel it made, according to S&P Global Platts.

According to the Brussels-based Bureau of International Recycling, Russia, in 2020, exported more than 4.7 million metric tons of ferrous scrap. Russian steelmakers and scrap exporters alike must navigate new banking restrictions and a commitment by many nations to conduct less business with Russia following its invasion of Ukraine.

Primary aluminum is another large-tonnage Russian export. In the first 11 months of 2021, approximately 183,000 metric tons of Russian-made finished and semifinished aluminum found its way to the United States, according to the U.S. Census Bureau. Despite previously existing sanctions, that made Russia the second-biggest exporter of aluminum to the U.S. last year, following the United Arab Emirates (and excluding free trade zone partners Canada and Mexico).

Immediately postinvasion, prices for finished aluminum and aluminum scrap trended upward. London Metal Exchange (LME) prices at the start of March reached $1.58 per pound, or $3,495 per metric ton. That is a 107 percent increase compared with the $1,684 per metric ton (76 cents per pound) value of LME aluminum at the start of March 2021.

Davis Index in early March characterized sanctions placed upon the participation of some Russian banks and companies in the global SWIFT money transfer system as meaning trade with that nation and its leading aluminum producer, Rusal, could become a “tedious process.”