European aluminum buyers are opposing the potential ban on Russian wire rod

The Federation of Aluminium Consumers in Europe (FACE), which represents leading European processors and aluminium buyers, has voiced its opposition to the potential introduction of a ban on Russian aluminium wire rod —a low-carbon raw material used in the production of cables for green energy.

According to press reports, the European Commission is currently considering the inclusion of aluminium wire rod from Russia in the new 12th package of anti-Russian sanctions. A potential ban on Russian wire rod, which account for 17% of imports in the EU, would leave European small businesses with limited alternatives for replacing Russian products and would create “serious repercussions” for them, FACE said in a statement.

A ban on a specific type of aluminium product from Russia would exacerbate market uncertainty and unease. Following Russia's invasion of Ukraine, international manufacturers like Norsk Hydro and Alcoa have repeatedly proposed restricting trade in primary aluminium from Russia as well.

“People keep wondering “what’s next?”, and this instability contributes to keeping an upwards pressure on prices, which is terrible for the small and medium-sized enterprises (SMEs) of this very low margin industry”, FACE said. “It is a bonanza for those whose market capitalization and bonuses are linked to sales prices and who happen to be the fierce advocates of trade restrictions and sanctions.

As the transition to green energy progresses, the production of primary aluminium, which requires a significant amount of electricity, is decreasing in the EU. The net deficit of primary aluminium in Europe already exceeds 84%. No new investments in primary aluminium production are expected, while European aluminium production from scrap cannot meet the region's demand for this highly sought-after metal.

Additionally, it's important to note that Russian wire rod and primary aluminium are produced using green hydroelectric power, resulting in one of the lowest carbon footprints in the world—only 2.2 tons of CO2 per ton of metal. This is 30-70% lower than that of competitors, according to the industry publication Harbor Aluminium. Wire rod is used to make aluminium cables, which are used to connect wind and solar power stations to the energy grid. Metal with a low carbon footprint is especially important for such customers.

The example from 2018 demonstrated how politically motivated restrictions can negatively impact fragile and interconnected commodity markets. Just weeks after the United States imposed sanctions on the Russian producer Rusal, aluminium prices surged by a third, causing significant problems for metal customers worldwide. Eventually, the U.S. first eased and then completely lifted these restrictions a few months later.

Could EU officials be stepping on the same rake again? Restricting Russian aluminium wire rod will force processors and buyers to switch to products from other producers, which are more expensive and have a higher carbon footprint. If sanctions are also imposed on primary aluminium, it could create a full-scale crisis in global metal markets.