Page 34 - bne IntelliNews monthly magazine December 2023

34 I Cover story bne December 2023
Typically, the ban on imports of Russian diamonds to the EU will come into effect immediately on January 1, but the wider ban on goods produced using Russian diamonds and stones cut elsewhere, like India, will be phased in over a year to ease the pain on Antwerp.
Aluminium: Russia is an equally important producer of aluminium which has also been excluded. A previous attempt to sanction the oligarch owner RusAl, Russia’s main producer, Oleg Deripaska in 2018 backfired when the price of aluminium spiked by 40% the next day on the London Metal Exchange (LME). The US Office of Foreign Assets Control (OFAC) backed off when it was told the cost of a can of Coke in the US would rise by 15 cents and the sanctions were eventually withdrawn entirely – the only sanctions imposed on Russia since 2014 to have been withdrawn again.
Aluminium products are back on
the lists again. The twelfth sanctions package reportedly includes wire and pipes, but that has caused an outcry from the Federation of Aluminium Consumers in Europe (FACE) that warned the ban will cause chaos amongst European businesses that rely on Russian aluminium.
“Aluminium was the target of a vigorous and persever[ing] lobbying campaign from competitors of Russian producers and some industry associations,
and it finally made its way up to the Commission’s proposal for the 12th EU sanctions package,” FACE said in a statement.
Europe already has a net deficit of primary aluminium, now at more than 84%, according to FACE. Nobody foresees any new smelting production investments on the Continent, and the most optimistic recycling scenario will at best cover
half of the demand for this ever more sought-after material, according to the consumer’s association, which warns of business-busting price hikes.
Grain & trucks: A more recent example of unintended consequence has been grain exports from Ukraine. The major foreign exchange earner for Ukraine, its
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grain has been bottled up since the Black Sea Grain Initiative collapsed in July.
Ukraine redirected its exports by rail via Poland, but massive quantities of cheap low-quality Ukrainian grain crashed the local market in April and the transit of Ukraine’s grain has been banned ever since.
More recently, a new trade dispute
has broken out after Polish truckers blockaded the border to prevent Ukraine’s trucks from crossing. Already smarting from the loss of business ferrying EU goods to Russia, Poland’s truckers are complaining Ukrainian truckers, who earn a quarter of what Polish truckers do, are undercutting them and putting them out of business. This dispute is also spreading to Poland’s neighbours in adjacent Central Europe.
Determined to support Ukraine, even at the expense of hurting Poland, the EC has refused to reinstate the permit restrictions on Ukraine’s truckers that was rescinded last year, and Warsaw has refused to lift the ban on Ukrainian grain imports, as it is Brussels, not the member states, that makes trade policy.
Czech steel: Another less celebrated example is Czech steel companies, which have asked for an extension
to exemptions from a ban on buying Russian steel. Novolipetsk (NLMK) is one of Russia’s biggest steel producers, but has rolling mills in Europe in order to be close to its big customers.
Czechia’s automotive sector is a linchpin for the economy, accounting for about 10% of national GDP – one of the highest totals in the world – and is heavily dependent on the import of Russian steel which is used to make the car bodies.
NLMK produces nearly all of its flat
and long steel products in Russia, but nearly a quarter of its rolling operations are sited in Europe and these products were included in the eleventh sanctions package. Czechia got an exemption which is due to expire next year. In addition, thousands of European jobs at NLMK’s European plants are on the line. Czechia is now asking to prolong that transition period to 2028. Belgium
is likely to support Czechia’s call for an extension, as it is also home to a large NLMK steel mill.
Exodus: Just how badly Germany’s economic model has been affected by the end of cheap Russian gas remains a matter for debate, but clearly the costs
of energy have risen dramatically and are unlikely to return to the pre-war long-term averages anytime soon. That has made a swathe of German businesses economically unviable.
Manufacturing accounts for more than
a quarter (27%) of the German economy. New orders at the country’s engineering companies, long a bellwether for the health of Germany Inc., have been dropping like a stone, falling 10% in May alone, the eighth consecutive decline. Foreign direct investment (FDI) into Germany is also collapsing, down in 2022 for the fifth year in a row, hitting the lowest point since 2013. German firms are already looking for new homes, a recent study by the Federation of German Business (BDI) found.
Already 16% of the medium-sized companies interviewed by the BDI
have launched steps to relocate parts
of their business abroad, but the study found that another 30% are actively studying relocation options. The German government is planning a major four- year €4.4bn subsidy programme to keep German businesses at home. If Germany’s deindustrialisation continues then it will have Continent-wide ramifications.
“Almost two-thirds of the companies we interviewed consider prices of energy and resources to be among the most pressing challenges,” said BDI President Siegfried Russwurm, as cited by Euroactiv.
German industrial giant BASF, founded on the banks of the Rhine in 1865,
has just decided to forego a $10bn investment in a new chemical plant in Germany, choosing to locate it in China instead. As bne IntelliNews reported last year, BASF has already shuttered hundreds of factories and plants in Europe as a result of soaring gas and energy prices.