Russian sanctions to expand to nickel

In May, British Prime Minister Rishi Sunak announced at the G7 Summit that the United Kingdom plans to ban Russian copper, aluminium and nickel. Although the British government has yet to introduce any legislation, it is widely anticipated that the plan to ban Russian metal import will be enacted into law as the West ramps up financial pressure on Russia amid a protracted war in Ukraine."It is understood that there is a clear determination to cut off the dependencies on Russia - especially when it comes to critical items. The ban on oil products took effect earlier, and we have also seen a long list of commodities and other goods the importation of which have been banned. Sooner or later, I would expect nickel to be added to this long list - barring any developments toward a positive resolution of the war," said Tan Albarak, an international trade lawyer specialising in export control and economic sanctions at Reed Smith.Since Russia's invasion of Ukraine in February 2022, the West has responded with an unprecedented level of sanctions, imposing import bans of Russian oil, coal and gas in much of the world.The EU and the UK have banned the import of Russian oil since November 2022, the trade restriction gradually expanded to maritime transportation and services related to Russian oil products.As nickel is classed as a critical raw material in the EU and supply is limited compared with other metal such as aluminium, there has been no trade restrictions on Russian-origin nickel to-date.However, this is likely to change as the West expands the scope of sanctions on a growing list of commodities exported from Russia.Russia and nickelWith Russia being the top three refined nickel producers in the world, and one of the key high-grade nickel suppliers in Europe, the EU's import ban legislation is likely to adopt some exemptions, or "carve-outs" to reduce the supply disruptions to downstream consumers.In addition, it may not be possible to completely phase out the use of Russian nickel ores, as some European smelters relied on the feedstock for nickel production.According to industry body the Nickel Institute, stainless steel production accounts for 69% of the metal demand, followed by batteries manufacturing, which make up 11% of total global consumption. High-grade nickel is a crucial raw material in the production of nickel manganese cobalt batteries, which are widely used to power electric vehicles."We have seen the EU create carve-outs in its sanctions packages that authorize certain transactions that would be deemed as having a critical function in ensuring continued energy supply within the Union. Already in the existing regulations in the context of other prohibitions, we see such carve-outs for titanium, aluminium, copper, nickel, palladium and iron ore. Thus, it would not be surprising if such an approach was also extended in the event of an import ban," Albayrak said.An alternative option to carve-outs would be a quote system, where metal imports from Russia could be gradually reduced over a set period, as seen in the two-year quota system for the imports of certain continuous steel slabs, suggested Albayrak."So that could also present a viable transition period where it may not be realistic or economically viable to cut off critical dependencies all at once," he added.Divided front against Russia Despite the general Western's political position, several countries such as China, India, Turkey and the UAE are not enforcing sanctions against Russia. China is the world largest stainless steel producer and the biggest nickel consumer by volume globally. The country produced 58.29Mt of stainless steel in 2021, an increase of 12.5% from the previous year, data from International Stainless Steel Forum (ISSF) showed. Although Chinese stainless steel mills relied heavily on nickel pig iron (NPI), which is sourced from Indonesia and the Philippines, the country has capitalised on the opportunity to import more Russian nickel at a discount as shipments fall elsewhere.According to China Custom data, Russian unwrought nickel imports to China jumped to 7,026t in May this year, up 23-fold from 300t a year ago. Russia exported 11,986t of nickel to China in the first five months this year, an increase of 3% compared with the same period in 2022.In 2022, China imported 155,699t of nickel in 2022 and Australia was the top nickel supplier to the country, exporting 47,910t and accounting for 31% of total imports. Russian imports accounted for 29% or 45,100t of the total shipments.In contrast, EU's nickel imports from Russia fell in the first quarter (Q1) this year. According to EU's data, Russian-origin nickel accounted for 33% of total imports in Q1, compared with 53% in the same period in 2022. • The increased imports from Russia were partly driven by consumers' stockpiling amid lower nickel prices on the London Metal Exchange (LME). The 3-month LME nickel contract fell below $22,000/t in mid-May, while it briefly climbed above $23,000/t in mid-June, it remained significantly below the prices in the first quarter this year, where nickel was mostly trading above £26,000/t and even exceeded £30,000/t on several sessions. While many international trading companies will not risk violating sanctions because of the potential severe reputational and financial losses, some Chinese buyers have been able to circumvent the restrictions as "smooth payment channels" exist in the country, a Chinese trader told Mining Journal.Despite some countries' lack of sanctions enforcement, Albayrak believes the West is unlikely to take a tougher political stance and would prefer "a carrot, rather than a stick approach". "I see a certain level of fatigue in the West. It would seem the US/EU/UK have already imposed most of the sanctions that can be imposed on Russia. While there is theoretically room for more substantive measures, these would likely be of a last resort nature. The focus, rather, seems to be on the effective enforcement of existing measures and anti-circumvention," Albayrak said. As many in the market expect the war and sanctions to continue for at least another two years, the repercussion of a protracted war on the economy has been evident while the global political landscape could face a seismic change."It is seen that the prolonged Russian sanctions also have a political dimension here and comes with the byproduct of consolidating the China-Iran-Russia axis. This would no doubt spill into other areas of cooperation between those countries," Albayrak said.

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