Automakers face sharply rising metal costs as Russian supplies endangered

LONDON (Reuters) – Looking for a new savings journey? Better start putting more cash aside.

The Russian invasion of Ukraine has raised prices for metals used in cars, from aluminum in the chassis to palladium in catalytic converters to high-quality nickel in electric car batteries, and drivers are likely to foot the bill.

While metals have not yet been a target of Western sanctions, some shipping companies and auto parts suppliers are already avoiding Russian goods, putting more pressure on automakers already suffering from a shortage of chips and rising energy prices.

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“So what happens from here?” asked Carlos Tavares, CEO of Stellantis (STLA.MI)the world’s fourth-largest automaker, when he spoke to reporters last week.

“First of all, what happens is we have a cost escalation that is coming from raw materials and energy, which is going to put more pressure on the business model,” he said.

Aluminum and palladium both hit record levels on Monday while nickel, which is also used to make stainless steel, topped $100,000 a tonne for the first time ever on Tuesday. Read more

Andreas Wheeler, CEO of Aludyne, which makes cast aluminum and magnesium parts for automakers, said his European company has seen a 60% increase in the cost of aluminum over the past four months, as well as rising energy bills.

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

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

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Ending the chip shortage could help automakers offset higher metal and energy prices, Stellantis CEO Tavares said, but he doesn’t expect any resolution to the semiconductor issues this year.

“We give up”

Consumers are already paying the price for the shortage of chips as this has led to lower car inventories and higher prices — even before higher metal prices hit the front yard.

According to consultancy LMC and JD Power, the average deal price for a new vehicle in the U.S. was $44,460 in February, up 18.5% from the same month in 2021.

German car manufacturers such as Volkswagen (VOWG_p.DE) And BMW had already been hit by the Russian invasion of Ukraine that wire makers in the west of the country were forced to halt production. The wiring harness is a vital assortment of parts that neatly assemble up to 5 kilometers (3.1 mi) of cable in a typical car – Ukraine is the main supplier. Read more

And when it comes to metals, Russian companies are among the main suppliers to Germany. In 2020, they represented 44% of Germany’s imports of nickel, 41% of titanium, a third of iron, and 18% of palladium.

With a production of 108 million tons last year, Russia is the world’s fifth-largest producer of iron ore, according to Credit Suisse, supplying European steelmakers who now face higher prices and potential difficulties in procuring the metal.

Voestalpine in Austria and the Swedish SSAB (SSABa.ST) Both are exposed to these risks, according to US investment bank JPMorgan.

Voestalpine said it had enough stock for the coming months, but expected that it would have to source raw materials from other suppliers after that. The SSAB did not respond to a request for comment on supplies from Russia.

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Ingots of 99.98% pure palladium and 99.97% are seen at the Krastsvetmet Nonferrous Metals Plant in the Siberian city of Krasnoyarsk, Russia, November 22, 2018. REUTERS/Ilya Naymushin

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

“Although aluminum is not on the sanctions list, Russia is using it to bring money into the country and so we have resigned,” Reuters CEO Thorsten Studmund said.

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

Metal Batteries for Batteries

Studemund also faced higher nickel prices.

While Russia accounts for 5% of global nickel production, it provides about 20% of the world’s high-grade nickel, said Casper Rawls, chief data officer at specialist consultancy Benchmark Mineral Intelligence (BMI).

The metal is being used to make electric car batteries, posing a new challenge for automakers that are already investing billions to move away from combustion engines, just as the demand for zero-emission models has begun.

Some high-quality Russian nickel could potentially end up in China, something that is unlikely to impose sanctions on Russia, but all of this comes at a time when automakers are facing rising bills for other electric car battery metals as demand outstrips supply.

“This is a major concern for the battery supply chain, as you have record high prices for lithium, very high prices for cobalt and nickel,” Rawls said. “This is just to add to the metallic problems of the batteries.”

Batteries are among the most expensive components in electric cars and automakers hope they will become cheaper so they can offer affordable electric cars.

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BMW said it is focusing as much as possible on nickel battery recycling, with up to 50% of the scrap nickel used in the new BMW iX’s high-voltage battery pack.

When it comes to palladium, automakers are also in trouble.

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

Palladium prices have risen about six years ago and Russia accounts for about 40% of the world market.

“There is no other option than palladium and platinum for catalytic converters, and you can’t build a car without a catalytic converter,” said Chris Blasey, CEO of precious metals trader Neptune Global.

He said he bought a lot of palladium in December at $1,940 an ounce. On Monday, it reached a record high of $3,440.

Blasey estimated the value of the palladium used in the average car to be around $200, but that could easily double.

“Either consumers will pay more for cars, or if automakers can’t pass them up, they will have to find cost savings elsewhere,” he said.

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Additional reporting by Ben Kleiman and Paul Linert in Detroit and Christoph Stitz in Frankfurt. Editing by David Clark

Our criteria: Thomson Reuters Trust Principles.

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