With aluminum tariffs in the works, the international market is increasingly bifurcated and in the West, the dominant theme is shortage: Aluminum crunch, refining crunch, wheat crunch, freight crunch, LNG crunch narrowly avoided – for now. Plus, in markets, inflation persists; debt risks brew among emerging economies; and Germany, as its trade surplus shrinks, reconsiders dependence on not only Russia and China, but also the US.
Bloomberg and Reuters reported this week that the White House is mulling a full ban on Russian aluminum in response to Russia’s intensified attacks on Ukrainian cities. The metal has long been spared from sanctions given its crucial and ubiquitous use in manufactured products. Now, three options are reportedly being considered: A full ban, an effective ban by way of punitive tariffs, or sanctioning Russia’s aluminum producer Rusal.
Any restriction would likely increase global aluminum prices and disrupt the metals market as consumers scramble to secure alternate sources. And the US deliberations over banning Russian aluminum come as London Metal Exchange is discussing whether to ban all Russian metals from the bourse. Considering the wide-ranging role of aluminum in modern industry, the implications would be enormous – across everything from consumer inflation to defense industries that depend on aluminum inputs.
Or at least, they will be in the West. Russian metal companies are likely to continue to find a warm reception not only in China but also in Hong Kong, where Rusal is listed on the city’s exchange, a sanctioned Russian steel tycoon’s superyacht is currently docked, and local authorities say they won’t enforce the US’s “so-called sanctions.”
Zooming out, it’s not just geopolitical tension with Russia that threatens the international aluminum market. There’s a separate, wildcard risk coming out of China, too. China produces 60 percent of the world’s primary aluminum; research published last spring identified indicators of forced labor associated with that aluminum production. With the Uyghur Forced Labor Prevention Act now in enforcement in the US – and US allies internationally increasingly taking similarly serious action on the subject – aluminum exports from China could soon find themselves facing greater scrutiny and, even, restrictions.
These twin pressures make the aluminum case a prime example of today’s bifurcated global market – and the challenge the West faces as it seeks to shore up supply in this new reality. China and Russia are the world’s first and second largest aluminum producers, respectively. Amid growing geopolitical tension, the West is poised to restrict aluminum imports from at least one if not both, in a bid for leverage. But Russia and China will continue to trade with each other. In metals as in energy, the market seems to be splitting into two – one with the resources and one with the legacy architectures of influence. For how long can the latter outweigh the former? And at what point will the West have to start competing with supply?