Outlook for import of aluminium profiles from Russia to the EU markets
7. December 2023 om 19:45 Uhr
Despite the sanctions and information policy of the EU authorities, many European companies still import Russian aluminium products. There are many companies willing to resume purchases from Russia, but they are stopped by possible risks and fears of violating sanctions. In reality, the risks of co-operation with Russian producers are over-exaggerated. Supplies from Russia are an ideal solution in the context of crisis manifestations and the environmental agenda in Europe. EU sanctions do not prohibit the purchase of aluminium profiles from Russia. Moreover, today’s conditions are much more favourable than before the escalation of the Ukrainian conflict.
Traditionally, supplies of aluminium profiles from Russia have been positioned as something between imports from China and Turkey. On the one hand, Russian producers, like their Chinese counterparts, are oriented towards large wholesale deliveries, mostly conceding to the latter in prices. On the other hand, Russians offer a lower price level than Turkish companies, giving way to the latter’s flexibility and ability to provide consumers with small wholesale quantities. Low prices, along with high technological standards in Russia itself, have given aluminium profiles a reputation as the best value for money product.
Nowadays, the relevance of aluminium profiles imports to Europe is shaped by two trends – rising energy prices and “green policy”. The rising cost of electricity and gas has already caused the closure of many aluminium production plants in Europe1. The environmental policy being implemented means that production volumes cannot be expected to return to previous levels. Many European energy-intensive companies are either already moving production capacity to the US and China or are planning to do so2. On the contrary, the environmental policy is accompanied by energy efficiency projects that contribute to the growth of aluminium consumption.
As can be seen from Figure 1, in 2022, due to the conflict in Ukraine and restrictions on hydrocarbon supplies from Russia, natural gas prices rise sharply. In 2023, the reduction of fuel taxes and Europe’s reorientation towards gas supplies from the Middle East and Asia lead to a partial correction of the price level. However, this should not mislead and give false hopes of further price reductions. The current price level is associated with a drop in the consumption of hydrocarbons by the chemical and energy industries. And as soon as the plants try to increase production, the price will be under pressure again. Without a fundamental change in the situation, the EU will be a zone of higher energy prices.
Fig. 1. Gas price dynamics in 2020-2023 according to TTF Gas Hub (The Netherlands)
The EU environmental policy has an additional impact on the market, changing the structure of aluminium consumption (we wrote about it in the article “ESG impact on aluminium profile production”). Aluminium products are required for the implementation of environmental and energy saving programmes, including the development of wind turbines, electric vehicles, heat pumps, solar panels, energy efficient glazing and facade finishing. “Precedence Research” estimates that the EU will need 16% more aluminium products3 in 2032. The other side of tightening environmental policies is the decline in aluminium production in Europe (Fig. 2). Increased consumption with decreased production will guarantee the demand for imported aluminium profiles in the future. It is important to note that the environmental situation in Russia is better than in other major economies of the world – the USA, China or India, and the ESG policies implemented coincide and follow the European-wide policy.
Fig. 2. Aluminium production dynamics in Europe in 2020-2023 (thousand tonnes).
Import from Russia to Europe
Russia is a major supplier of finished aluminium products and has surplus energy capacity for aluminium production. As can be seen from Figure 2, despite the reduction of supplies to the EU, the country has not changed its aluminium production volumes and has reoriented them to other markets. Consequently, the country has retained the ability to provide the low price level required by European companies in recession. At the same time, the further presence of Russian aluminium profiles in the Eurozone will be determined by the availability of spare production capacity and the stability of import supplies.
Russian profile prices
Market analysis shows the price attractiveness of Russian aluminium profile compared to Turkish aluminium profile (Fig. 3). However, it is still inferior in price to products from China. At the same time, in the process of making a final decision on the choice of the country of supplier, import duties, delivery time and cost should be taken into account. The import duty on Russian aluminium profiles in the EU is 7.5%, and the delivery time is 5-15 days. By comparison, similar products from China are subject to a duty of 32% and take 30-45 days to be delivered. It should also be taken into account that the longer the transport time, the higher the percentage of rejected material and the higher the risk of quality loss.
Price dynamics for aluminium profiles and aluminium
While the price and prospects for imports of aluminium extrusions from Russia look quite promising, the risks require further clarification. Let’s start with, since the beginning of 2022, the majority of large Russian banks have been gradually disconnected from SWIFT. However, about 20% of banks continue to work with the SWIFT system until now. Subsidiary foreign banks also continue to operate in Russia: Austrian financial group Raiffeisen Bank, Italian banks UniCredit and Intesa, Hungarian OTP and many others. In total, about 50 representative offices of foreign banks from the EU, the USA and Asia continued their activities in the Russian Federation in 2023. In the European media space, there is an abundance of information about sanctions, while there is virtually no information that financial mutual settlements are still available.
After the restrictions were imposed on the transport sector, there was uncertainty for several months about ensuring the export of imported goods from Russia. The ban affected the operation of Russian sea and road carriers only in terms of operation within Europe. Road transport used for aluminium profile exports has either been replaced by transport from neighbouring countries or the goods are delivered with changing a truck at the border. As a result, against the background of a general decrease in import volumes, transportation is ensured without tonnage shortages or price increases.
Another type of risk is related to reputational losses in the context of strong propaganda against the backdrop of the ongoing events in Ukraine. A number of Russian companies help their EU partners to minimise direct contacts by opening offices in Europe and third countries. In order to insure oneself against possible violation of EU legislation, one can additionally familiarise oneself with the principles of sanctions policy formation in the article “EU sanctions against Russia explained”.
Organising import deliveries involves a number of peculiarities, which we have already written about in the article “How to start importing” (linking to a future article). This article was written on the basis of information obtained when talking to clients about their first experiences and problems encountered in the process. The easiest solution is to do together with an experienced customs broker. Also, when working with companies in another country, you should use the services of specialised solvency and credit risk assessment companies – Dun & Bradstreet, Creditinform, Bureau van Dijk and others. In order to assess the technical feasibility of the order, it is necessary to check whether certificates are available and whether they comply with the requirements of European legislation.
Russian producers of aluminium profiles offer the best price/quality ratio, as well as ensuring prompt delivery. Due to the repeated decrease in exports to the EU, the potential for increasing exports is enormous. Thanks to their own resources, Russian aluminium profile producers have always been able to compete successfully with companies from the European Union, Turkey and China. Moreover, the sanctions are countered by anti-crisis measures that help producers and exporters to adapt to the new market realities. And these measures make the offer of Russian aluminium profiles even more profitable than before the sanctions were imposed.
The propaganda created a perception among Europeans that it was extremely difficult and risky for companies to do business with Russia. It didn’t take long to see the effect – the volume of aluminium profile shipments decreased, and Russian producers began to offer the lowest prices on the market. It took time to resolve the uncertainty and to develop mechanisms for unimpeded and legal imports in the new realities. Today, the situation is that the resumption of co-operation will allow European businesses to reduce the cost of buying extrusions. And further development of the region will contribute to the growing attractiveness of Russian aluminium products.
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Einleitung Trotz der Sanktionen und Informationspolitik der EU-Behörden importieren viele europäische Unternehmen immer noch russische Aluminiumprodukte. Es gibt kaum weniger Menschen, die ihre Beschaffungen aus Russland wieder aufnehmen wollen, aber sie werden durch mögliche Risiken und Angst vor Sanktionsverstößen daran gehindert. In Wirklichkeit werden die Risiken einer Zusammenarbeit mit russischen Herstellern stark übertrieben. Lieferungen aus […]