Europe searches for other sources of natural resources following sanctions on Russia

March 10, 2022

Sanctions placed on Russia following its invasion of Ukraine have driven up costs of natural resources such as coal, oil and palladium and has left a number of European nations scrambling for alternative sources.

Australian and South African miners are exploring ways to meet the demand and increase production of a number of commodities, however, logistics and cost constraints make it difficult to rapidly boost output, companies said.

Reuters reported that customers are approaching suppliers they have no existing relationships with, desperate to secure the commodities, major producers said. Miners typically utilize long-term contracts, making surplus supply scarce.

Russia accounts for 25-30 percent of the world’s palladium supply.

South Africa’s Sibanye-Stillwater, the world’s largest primary producer of platinum, said some clients have asked about its ability to produce more platinum group metals (PGMs) but that it has very little flexibility to increase production in “any material way” in the short to medium term.
“Accelerating projects is possible but … this is not a quick fix and will generally still take months or even years before the benefits are apparent,” Sibanye told Reuters.

Automakers, who use palladium in engine exhausts to reduce emissions, will start substituting platinum for palladium if palladium prices stay high, Sibanye CEO Neal Froneman said.

Platinum prices have also risen due to uncertainty over Russian supplies, but more mutedly as platinum is forecast to remain in oversupply this year.

South Africa’s Impala Platinum, the world’s third-largest producer of PGMs, also said it has limited capacity to plug the gap left by Russia’s palladium supplies. Russia’s Norilsk Nickel alone produces around 38 percent of global palladium and 11 percent of global platinum, Sibanye said.

While miners are benefiting from the rise in metal prices, Sibanye’s Froneman cautioned that supply chain disruptions could have a destructive impact on demand further down the line.

More costly metals are also a headache for carmakers hoping to make electric vehicles more affordable.

Coal supplies have also been effected as Russia supplies about 70 percent of the coal used in Europe.

“Due to the conflict, we are fielding requests from Europe for security of met coal supply,” said Gerhard Ziems, group chief financial officer of Coronado, one of the world’s largest producers of metallurgical coal, used in steelmaking.

Coronado will boost output to about 18-19 Mt in 2022 from 17.4 Mt last year, he said. Ziems estimated the Russia exports about 45 Mt of met coal per year.

“In circumstances where the international community is shunning Russian coal, supply shortfalls need to be sourced from elsewhere which includes established markets such as Australia and the U.S. in which Coronado operate,” he said.

Australia’s top independent producers, Whitehaven Coal and New Hope Group, said they have been approached to supply countries, including Poland, which have traditionally relied on Russian coal, and the latter said it was looking at ways to supply the European market.
“We have a mix of contracted and spot sales which allows us to take advantage of tactical opportunities in the market,” a Whitehaven spokeswoman told Reuters.

The Australian government said last week that it would help its coal-importing Western allies to find alternatives to Russia for supplies by connecting them with local producers.

Glyn Lawcock, head of mining research at Barrenjoey, said while the idea appeared simple, the execution was not, as Australian miners were already flat out.

“It’s not like people have volumes sitting there to give out. Ukraine/Russia produces high grade pellets for markets… there is no one sitting on surplus material,” Lawcock said.

Australian Resources Minister Keith Pitt said this was an opportunity for Australian miners, and called for expansion of coal mines in the country, as these could help desperate European nations wean themselves off Russian coal.



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