How Hindalco, Vedanta, Nalco Stand To Gain From Russia-Ukraine War

As the harsh sanctions on Russia after its invasion of Ukraine threaten to disrupt the country's commodity exports, India's metals companies stand to gain.

Russia is a major global exporter of commodities, including aluminium and steel. In 2021, the country produced about 3.9 metric tonnes of aluminium (6% of world supply), while Russia and Ukraine together account for about 10% of global steel exports, according to SteelMint.

Prices for aluminium, the world’s most widely used base metal, have been rallying for weeks to record on the back of escalating geopolitical tensions in Ukraine.

The global aluminium market is already facing a deficit due to production cuts in Europe amid high energy prices as well as restricted supply from China. Further disruption in supply—as a fallout of sanctions on Russia by the U.S. and its allies—could drive aluminum prices even higher.

The sanctions could also lead to cost escalations due to the need for alternative sourcing, delays in establishing new sources and securing payments as well as consequent deferrals in shipment releases, according to a report by Motilal Oswal Securities.

Higher LME prices are likely to benefit Indian aluminium producers like National Aluminum Co., according to the report. Motilal Oswal raised its FY23 Ebitda estimates for Nalco by 29%, Vedanta Ltd. by 13% and Hindalco Industries Ltd. by 9%.

The geopolitical tensions could aid the domestic steel industry, according to a report by SteelMint. The European Union, followed by Turkey and Mexico, have the largest exposure to Russia's exports, and are likely to face supply disruptions and shipment delays in steel and related raw materials, the report stated.

Indian steel mills can benefit if EU countries—hit by a shortfall in gas supply and a rise in prices of Russian imports—look for alternate sourcing destinations. Turkey may also increase sourcing from India to feed its domestic demand, according to Motilal Oswal.

Russia is the world's third-largest exporter of coal, a key raw material for manufacturing metals. Coal prices are also at a record high with the Australia Newcastle benchmark hitting $446 a tonne on Wednesday, according to a report by Antique Stock Broking.

Russian coal is crucial for China since it effectively banned imports from Australia amid a trade spat between the two countries.

Coal India Ltd. shares have tracked global prices of the fossil fuel to jump more than 21% in the last five days, despite a pullback on Friday.