Indonesian nickel players likely beneficiaries of sanctions on Russian metals: DBS

INDONESIAN nickel and Chinese aluminium players will likely benefit from sanctions against Russia’s metal and steel sector, DBS Group Research said.

This comes amid tighter nickel and aluminium supply and higher metal prices, according to a report dated Oct 5.

DBS recommends Aneka Tambang and Vale Indonesia for nickel players. It has “hold” calls on both counters and target prices of 2,100 rupiah (S$0.20) and 7,600 rupiah, respectively.

Meanwhile, for aluminium players, it recommends Chalco and China Hongqiao, where the research team has “buy” calls and target prices of HK$5 (S$0.90) and HK$12, respectively.

On Thursday, the London Metals Exchange (LME) announced it would restrict new deliveries of copper and zinc from Russia’s Ural Mining & Metallurgical Co (UMMC) and one of its subsidiaries after the UK sanctioned co-founder Iskandar Makhmudov on Sep 26.

Effective immediately, metal from UMMC or its Chelyabinsk Zinc unit can only be delivered to LME warehouses if the owners can prove it will not breach sanctions. This includes proving that the metal was sold before the UK-sanctioned Makhmudov and none of these companies has an economic interest in the metal.

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On May 5, the UK sanctioned Evraz, a major manufacturer of Russian steel. The US and EU also sanctioned key steel and gold makers like Severstal and Nord Gold.

In April, the LME also suspended the placement of Russian-branded metals in its UK warehouses following the UK government’s additional 35 per cent duties on Russian base metal imports. Similarly, the US raised a 35 per cent tariff on imports of Russian steel and aluminium in June.

DBS noted that any move by the LME to block Russian supplies could have significant ramifications for global markets as Russia is a major producer of aluminium and nickel.

Any dent to metal supply globally could also affect the world’s energy transition to renewables and electric vehicles (EVs), which are more metal-intensive than their fossil fuel-based counterparts.

In a separate report on Wednesday, Fitch Ratings said the energy transition will “significantly increase” demand for metals used in EVs and renewable power generation facilities. These include nickel, copper, cobalt and lithium.

“This will require a vast supply response in the next two decades and investments from miners, although we view the repositioning of their businesses towards a higher share of energy-transition metals in revenue and cash flows as credit positive,” the credit rating agency said.