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Metal prices surge amid geopolitical conflict...

ICICI Securities 09 Mar 2022

What’s Buzzing:

Amid the current geopolitical conflict, global metal prices have not only held their ground but also witnessed a rising trend. The current Russia-Ukraine conflict is playing the role of a catalyst in supporting the up-move in global metal prices.

Context:

The Russia-Ukraine conflict, has provided traction to global metal prices. In YTD CY22, a healthy rally was witnessed in both ferrous and non-ferrous metals. During YTD CY22 (in January 1-March 8, 2022), aluminium prices on the LME increased ~24% to US$3471/tonne. On the ferrous front, during the above mentioned period, Chinese HRC export price increased by 13% YTD to US$855/tonne while domestic HRC prices increased by 9% YTD to Rs 69500/tonne.

Our Perspective:

Russia is a powerhouse in the global metal sector. In CY21, globally, Russia was the fifth largest crude steel producer with an output of 76 MT and third largest steel exporter with volume of 30 MT. Also, in CY21, Ukrainian crude steel output was at 21 MT, while Ukrainian steel exports were at 15 MT. Accordingly, in CY21, both Russia and Ukraine combined accounted for ~45 MT of global steel exports. Russia is also a major player in the global aluminium sector. Russia accounts for ~6% of global primary aluminium production and is also one of the major exporters of aluminium. The US is also reliant on Russian-supplied aluminium, which accounts for ~10% of total US aluminium imports. Hence, due to supply related fears on the back of the ongoing conflict, both ferrous and aluminium prices have seen an uptick during the current calendar year (YTD). Aluminium is also a deficit commodity, which has further supported its sharp uptick in prices. During CY21, the aluminium deficit was at ~1.1 million tonnes (MT), which is expected to further expand in CY22E. For aluminium, on the demand side, while there is healthy traction from renewables, packaging, EVs, etc, on the supply side, on account of energy intensive nature of primary aluminium, there were only limited capacity additions. Hence, aluminium is expected to remain a deficit commodity even in the medium term, which would continue to support global aluminium pricing. The up move in metal prices is likely to benefit companies like Hindalco, Tata Steel, JSW Steel, SAIL, etc, as it would have a positive rub-off on their realisation.

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