This Russian metals giant could be too big to be sanctioned

From its base in a former Arctic gulag, Russia’s MMC Norilsk Nickel PJSC mines much of two metals essential for greener transportation and computer chips.

So far, the United States and its allies have not sanctioned the company, nor its oligarch chief executive, underscoring the dilemma some analysts face in seeking to punish Russia without harming their own access to key raw materials.

The mining company is responsible for about 5% of the world’s annual production of nickel, a key component of electric vehicle batteries, and about 40% of its palladium, which goes into catalytic converters and semiconductors. Nornickel, as the company is known, also supplies energy transition metals such as cobalt and copper.

The price of these metals has jumped since Russia invaded Ukraine, fearing that Western sanctions or logistical difficulties resulting from the conflict could choke off the supply. On Friday, nickel traded at its highest level in a decade and is up 37% so far this year. Palladium is up about 57% year-to-date.

Despite rising metal prices, Nornickel’s share price, like that of other Russian commodity companies, has fallen and is down 17% year-to-date. On Saturday, Fitch Ratings downgraded Nornickel’s debt to junk, reflecting the tougher environment in Russia and the weakening financial flexibility of its commodities companies.

Several Western companies say they are looking to diversify their supply away from Nornickel. It mirrors a trend for several commodities, including oil and steel, as Western buyers shun Russian suppliers, fearing they’ll be hit with sanctions or simply have trouble getting their goods out of the country. .

A Nornickel spokesperson said the miner is committed to fulfilling its obligations to its customers, partners and employees. CEO Vladimir Potanin, who also has a 31% stake in the company, declined to be interviewed.

Western sanctions in response to the current conflict have so far largely bypassed companies that supply the West with oil, gas and other key commodities.

Few companies are as essential in major commodity markets as Nornickel, especially for palladium.

“If we have sanctions and we can’t access this palladium, you have to expect disruption globally,” said Gabriele Randlshofer, chief executive of the International Platinum Group Metals Association, a trade group whose members include buyers and suppliers of palladium.

“At the moment, all companies are considering [who supplies them]they have to,” she said.

Among the companies looking for alternative nickel supplies is Outokumpu Oyj, one of the world’s largest stainless steel makers. The Finnish company said about 6-7% of its nickel comes from Nornickel, with the rest coming from recycled steel. “Given the situation in Ukraine, we are looking for alternatives for Russian nickel supply,” a spokeswoman said.

Germany’s BASF SE, meanwhile, said it would fulfill existing contracts with Nornickel but would not pursue any new business with the Russian company. The chemicals giant described Nornickel as a major supplier of nickel and cobalt for its production of cathode materials as well as a source of palladium and platinum.

On Friday, UK steel executive Peter Davies received an email from a Polish steel company he has invested in saying they were unable to buy nickel due to related issues. to the conflict in Ukraine.

“Expect an earthquake in [the] steel industry,” the plant said, according to a copy of that email.

Repercussions are being felt in industries that have traditionally relied on Russian raw materials.

Refiners have been reluctant to buy Russian oil, according to traders and oil executives. Swedish refiner Preem AB and Finnish Neste Oyj, for example, say they have stopped buying Russian oil and plan to replace it with crude from northern Europe.

Severstal PAO, one of Russia’s biggest steel companies, struggled to sell its steel as soon as Moscow forces entered Ukraine, according to a person familiar with the matter, who said potential buyers were worried possible penalties. In the case of Severstal, they came, as the European Union sanctioned its majority owner Alexey Mordashov on Monday.

Market prices for metals produced by Nornickel reflect similar concerns, analysts said.

“It helps to make the markets nervous, everyone looks at it and says if we take nickel (from Nornickel) out of the market, that’s important,” said Andrew Mitchell, director of nickel research at the firm. energy consultancy Wood Mackenzie.

Nornickel production is important, analysts say, as demand for nickel is expected to rise sharply amid the growing popularity of electric vehicles. Nickel had the biggest supply shortfall of any base metal last year relative to market size, at around 6%, according to BMO analysts.

Nornickel is led by CEO Mr. Potanin, a former Russian deputy prime minister under Boris Yeltsin who helped forge the privatization deals that followed the breakup of the Soviet Union and put much of the vast wealth in the country’s raw materials in the hands of a group of businessmen now referred to as oligarchs. More recently, Mr Potanin played a key role in organizing the 2014 Winter Olympics in Russia, an idea that followed a skiing trip to Austria with Russian President Vladimir Putin, the Wall previously reported. StreetJournal.

Nornickel has two other well-known oligarchs as investors. The company said Roman Abramovich owns around 2% of its shares. United Co. Rusal International, which is partly owned by Oleg Deripaska, has a 26.25% stake.

The company operates mines in one of the northernmost cities in the world, Norilsk, a former penal colony.

Norilsk has also gained a reputation as one of the dirtiest cities on the planet due to pollution from mining and refineries. In 2020, nearly 45 tons of jet fuel seeped into the ground from a pipeline owned by Nornickel. This followed a spill of 20,000 tonnes of diesel from a holding tank at one of its other facilities in the same year.

The region also provides the company with some of the best mineral deposits in the world, which are mined up to 5,000 feet below permafrost.

“It’s still probably the largest ore deposit in the world,” Mr Mitchell said.

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About Keith Tatum

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