Automakers Face A Sharp Rise In Metal Prices Due To The Risk Of Supplies From Russia

LONDON, March 8 – Saving up for a new car? It is better to start saving more money.

The Russian invasion of Ukraine is driving up the price of metals used in cars, from aluminum in the bodywork to palladium in catalytic converters and high-grade nickel in electric car batteries, and drivers are likely to pay the bill.

While metals have yet to be hit by Western sanctions, some shippers and auto parts suppliers are already avoiding Russian goods, putting additional pressure on automakers already suffering from chip shortages and rising energy prices.

“So what’s going on here?” asked Carlos Tavares, chief executive of Stellantis (STLA.MI), the world’s fourth-largest automaker, speaking to reporters last week.

“First, there is an escalation in raw material and energy costs, which is putting more pressure on the business model,” he said.

Aluminum and palladium hit record highs on Monday, while nickel, which is also used to make stainless steel, hit $100,000 a tonne for the first time on Tuesday. More

Andreas Weller, chief executive of Aludyne, a manufacturer of aluminum and magnesium die-cast parts for automakers, said aluminum costs have risen 60% in the past four months in his European business and energy bills have skyrocketed.

With annual sales of $1.2 billion and rising costs by “hundreds of millions of dollars,” Weller, whose company is based in Southfield, Michigan, said he was forced to ask customers to pay more than was already agreed upon.

“Some are more understanding and cooperative than others, but without that we can’t survive,” Weller, who owns four foundries and one mechanical plant in Europe, told Reuters.

Stellantis CEO Tavares said ending the chip shortage could help automakers offset higher metal and energy prices, but he doesn’t expect a solution to semiconductor problems this year.

“WE’RE LEAVING”

Consumers are already paying the price for the woodchip shortage as it has led to lower vehicle inventories and higher prices – even before higher metal prices hit gas stations.

According to consulting firms LMC and JD Power, the average US new car deal price in February was $44,460, up 18.5% from the same month in 2021.

German automakers such as Volkswagen (VOWG_p.DE) and BMW have already been hit by Russia’s invasion of Ukraine as it forced wiring harness makers in the country’s west to halt production. The wiring harness is a vital piece of kit that neatly bundles up to 5 km (3.1 miles) of cables in the average car, and Ukraine is a key supplier. More

As for metals, Russian companies are major suppliers to Germany. In 2020, they accounted for 44% of Germany’s nickel imports, 41% of titanium, a third of iron and 18% of palladium.

With an output of 108 million tonnes last year, Russia is the world’s fifth-largest iron ore producer, according to Credit Suisse, supplying European steel companies now facing higher prices and possible difficulties in purchasing the metal, according to Credit Suisse.

According to the US investment bank JPMorgan, Austrian Voestalpine and Sweden’s SSAB (SSABa.ST) are exposed to this risk.

Voestalpine said it has enough stock for the coming months, but is expected to have to buy raw materials from other suppliers after that. SSAB did not respond to a request for comment on shipments from Russia.

Faced with the choice of buying Russian goods and indirectly financing a Russian invasion, which Moscow calls a special military operation, the German steel and aluminum supplier Voss Edelstahlhandel decided to draw a line.

“Despite the fact that aluminum is not on the sanctions list, Russia uses it to bring money into the country, and therefore we are leaving,” CEO Torsten Studemund told Reuters.

Russia is a major producer of aluminium, the most energy-intensive metal in production, accounting for 6% of world production.

“ACCUMULATOR MINERAL DISASTERS”

Studemund’s company is also struggling with high nickel prices.

Caspar Rawls, director of data at specialized consulting firm Benchmark Mineral Intelligence (BMI), said that although Russia accounts for 5% of world nickel production, it supplies about 20% of the world’s high-quality nickel.

The metal is being used to make batteries for electric vehicles (EVs), posing a new challenge for automakers already investing billions in switching to internal combustion engines just as demand for zero-emissions models is starting to rise.

Some of Russia’s high-grade nickel is likely to end up in China, which is unlikely to impose sanctions on Russia, but it all comes at a time when automakers are facing rising bills for other EV battery minerals as demand outstrips supply.

“This is a major problem in the battery supply chain as you have record high lithium prices and very, very high cobalt and nickel prices,” Rawls said. “It only exacerbates the mineral problems in the batteries.”

Batteries are one of the most expensive components in electric vehicles, and automakers are hoping they will become cheaper to offer more affordable electric vehicles.

BMW said it has focused as much as possible on nickel recycling for batteries, with up to 50% of nickel scrap being used in the high-voltage battery of the new BMW iX model.

When it comes to palladium, automakers are also in a quandary.

The automotive industry uses it in catalytic converters for gasoline models or in platinum for diesel models, which still make up the vast majority of car sales.

Palladium prices have been rising for about six years now, with Russia accounting for about 40% of the global market.

“There is no other choice but palladium and platinum for catalytic converters, and you cannot build a car without a catalytic converter,” said Chris Blazy, chief executive of precious metals dealer Neptune Global.

He said he bought a lot of palladium in December at $1940 an ounce. On Monday, it hit a record high of $3,440.

Blasi calculated that the cost of palladium used in an average car is around $200, but that amount could easily double.

“Either consumers will pay more for cars, or if automakers can’t pass them on to others, they’ll have to save somewhere else,” he said.

Additional reporting by Ben Kleiman and Paul Lienert in Detroit and Christoph Steitz in Frankfurt; Editing by David Clark

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