The EU may include an embargo on Russian aluminium imports as part of their thirteen sanctions package, causing the metal’s price to jump and protestations from the industry association.

Discussion have already begun on the next sanctions package that the EU would like to release in time for the second anniversary of the invasion of Ukraine on February 24.

Aluminium prices rose over 3% on January 23 on the news and led the gains among base metals after reports suggesting the possibility of further sanctions by the EU on Russian aluminium.

“There are speculations of a potential complete ban on aluminium imports in the upcoming Russian sanctions package scheduled to be released next month,” ING said in a note. “Russian metals had broadly escaped sanctions until last month, when the UK prohibited British individuals and entities from trading physical Russian metals, including aluminium, nickel and copper. UK is the only country in Europe to have adopted such measures.”

The ban could play havoc with the prices. When Office of Foreign Assets Control (OFAC) banned westerners from doing any business with oligarch Oleg Deripaska, the owner of RusAl, Russia’s biggest aluminium maker, in 2018, prices for the metal spiked 40% overnight on the London Metal Exchange (LME). That caused OFAC to delay the sanctions and eventually to overturn them when it was pointed out the ban would add some 15 cents to the cost of a can of Coke in the US.

The mooted ban could potentially lead the LMEto reopen the debate over whether it should ban deliveries of Russian metal, says ING. Just over 90% of the aluminium on the LME was of Russian origin at the end of December.

The EU passed a twelfth sanctions package in December that included bans on trading in Russian diamonds and introduced new restrictions on imports of things like aluminium wire. The main thrust of the most recent sanctions packages has not been to introduce new bans on product and services, but rather to make the existing eleven rounds of sanctions work better.

The key component in the new package may be energy-intensive aluminium imports that have 85% unaffected in the current sanctions regime.

A diplomat told Politico that sanctioning aluminium indirectly targets Russian energy which makes up 40% of the expenses in aluminium smelting.

Other targets for the new sanctions could be nuclear technology and fuel as well as liquified natural gas (LNG) imports, but both have been put off as the EU remains heavily dependent on both for the meantime.

The senior EU diplomat said with significant sectors already under sanctions, the attention has now shifted to less obvious areas like aluminium.

Nevertheless, getting the proposals through will be difficult. Central European countries, such as Hungary, have resisted sanctions on the Russian nuclear fuel and technology due to ongoing projects with Russia’s Rosatom, which is building two new reactors in Hungary.

Additionally, many EU countries are opposed to sanctions on Russian LNG. Europe currently buys half of Russia’s gas exports with Spain and Portugal seeing imports of Russian LNG soaring in the last year. Poland, Estonia, Latvia, and Lithuania are advocating for a ban on LNG and aluminium imports, alongside further sanctions in the aviation sector.

Harbor aluminium, a sector consultant, warned that expanding the ban imposed in December on wire rod, extruded products, and foil would have server economic consequences. The new may include additional aluminium semi-finished products and/or some or all primary aluminium products.

“The ban would inflict material damage to the European aluminium supply chain, given its irreplaceable need for Russian aluminium products (especially slab and PFA) at a time when European primary aluminium production has declined by 1mn tonnes since 2021, while Middle Eastern and Indian primary aluminium units are being impacted by the Middle East conflict and Red Sea disruption,” Harbor said.

The ban would also materially downgrade Europe’s aluminium carbon footprint as EU consumers would need to import more aluminium from non-green origins to substitute the loss of low-carbon Russian aluminium products.

And it would erode European downstream industry competitiveness (via higher European premiums) and thus relatively strengthen competing downstream players across the Rest of the World, such as Turkey, South East Asia, India and Latin America (via lower premiums that would result from an increased supply of Russian primary units in these markets), Harbor says.

“In our view, an EU ban on imports of Russian primary aluminium products (not our base scenario) would not reduce the world’s supply of primary aluminium (only change its flows) and thus be irrelevant to LME prices beyond short-term volatility,” says Harbor. “Indeed, EU restrictions would redirect metal units from Europe to the rest of the world—i.e., Turkey, India, China, South East Asia, Africa, and Latin America.” “We don’t expect the LME to ban Russian aluminium from the exchange (even if the ban were to include all Russian primary aluminium) as we see the LME continuing to serve its function as a market of last resort for the world's primary aluminium market. Russian aluminium would still be traded in all regions of the world except for Western Europe and the US,” said Harbor.