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Ukraine the wild card for macroeconomic outlook, Trafigura CEO says

Published on11 Jan 2023

The macro-economic outlook remains "relatively positive," but the war in Ukraine remains the “wild card” in the year ahead, the executive chairman and chief executive officer of commodities trading and logistics business Trafigura told Fastmarkets.

Speaking in an interview on the sidelines of the Future Minerals Forum in Riyadh, Saudi Arabia, Jeremy Weir said that Russia’s invasion of Ukraine has already been having some significant impacts, particularly on energy prices in Europe, and on supply chains globally.

High energy prices have led to capacity curtailments and closures of plants across Europe, with aluminium, zinc and ferro-alloys operations especially impacted.

At one point, all nine electrolytic zinc smelters in the EU were heavily affected by the power crisis, with many curtailing or completely stopping production. Goldman Sachs estimated there was at least 750,000 tonnes of suspended capacity, equivalent to 45% of total EU production.

Similarly, Europe has lost around 1 million tonnes of its primary aluminium output due to curtailments and closures in 2021 and 2022, the equivalent to half of its production.

At the same time, around 27% of the region’s 2 million tonnes per year ferro-alloys and silicon production capacity has been curtailed, with around 40% of furnaces closed.

Similarly, there has been an ongoing disruption to supply chains as a result of self-sanctioning against Russian material by many companies due to the war in Ukraine.

These issues persist amid concern that the United States is considering a ban on Russian aluminium.

According to Weir, the Covid situation in China also slowed growth in 2022, while rising interest rates have been putting the handbrake particularly on the United States, he said.

“But the underlying metals markets were still in deficit, even last year, and particularly those metals used in electrification. We’ve also still seen the movement towards decarbonization, along with a realization that it’s a transition, not a switch,” Weir added.

He acknowledged there is still risk of a slowdown in the United States, with some arguing the world’s largest economy will see a soft landing and others saying businesses will go bankrupt due to a fairly significant jump in interest rates.

“But I do believe China will put its foot on the gas pedal and be in expansionary and stimulus mode after the Chinese Lunar New Year holiday,” Weir said.

“Whereas before you had capital flows concerned about China growth, which was in turn depressing prices a little bit, I think now you’re going to see a release of investment, more buoyant prices, and I just don’t see a lot of downside on oil and energy prices,” he told Fastmarkets.

“Stagflation is a potential issue, but I tend to think we have a lot of investment to do, for infrastructure and decarbonization. Capital needs to be attracted to the markets to develop resources. It’s a long-term situation - there’s no short-term solution,” he added.

This article was published by Fastmarkets on the 11 January 2023 -

Article written by Andrea Hotter, Special Correspondent, Fastmarkets

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