Metals Cap Turbulent Week as Rusal Sanctions Fuel Supply Fears

  • Bloomberg
  • Commodities News
Metals Cap Turbulent Week as Rusal Sanctions Fuel Supply Fears
Credit: © Reuters.

(Bloomberg) -- After two weeks of extraordinary trading, investors are taking stock of the fallout from U.S. sanctions against Russia’s United Co. Rusal.

Aluminum and nickel surged this week as global supply chains were disrupted by the sanctions. Major shipowners and Japan’s buyers are among the latest to cut dealings with Rusal, the world’s biggest aluminum maker outside of China.

“The market is in complete shock right now,” David Wilson, strategist at Freepoint Commodities, said in an interview in Shanghai. “Everybody in the metals business who has operations in the U.S. is going, ‘we can’t use this stuff.’ And that means millions of tons of metal that can’t be used."

Aluminum

Aluminum has surged about 23 percent since the start of April. Prices steadied on Friday, slipping 1 percent to $2,461 a ton in London. Goldman Sachs has said the rally may have further to go, forecasting prices could spike to $3,000 in the near term.

Alcoa (NYSE: AA ) Corp. projected a wider global deficit of aluminum this year amid delays in Chinese plant expansions. The market for the main ingredient in aluminum is also set to swing into deficit as a giant plant in Brazil operates at a reduced rate.

Why aluminum bears brunt of U.S. sanctions on Russia. Read QuickTake here.

“Fundamentally, the issue is how this all shakes out in the real world,” Paul Gait, an analyst at Sanford C Bernstein, said in a Bloomberg TV interview. A key question now is whether Rusal can “get its metal out by other means,” he said.

Orders to remove aluminum from London Metal Exchange warehouses have jumped as consumers rushed to secure supplies. Canceled warrants increased 23 percent this week, according to data from the exchange.

Treasury Secretary Steven Mnuchin said the sanctions had the effect the Trump administration wanted, and hinted at the possibility of further moves. Speaking in an interview on Fox Business, he didn’t rule out additional penalties, saying the U.S. “is not afraid to use these tools -- we will use these tools -- but we’re not going to broadcast to the world our exact thinking.”

Nickel

Nickel , the other stand out metal, is up 5.2 percent for the week. Prices jumped as traders speculated that other Russian companies could be subject to sanctions. The delisting of two defunct brands of MMC Norilsk Nickel PJSC nickel also sparked confusion.

The rally has since pulled back after touching a three-year high this week. The metal slipped 2.7 percent on Friday.

Copper

Copper has climbed 2.3 percent this week, heading for the biggest gain in two months. Prices steadied near $7,000 a ton on Friday.

Exchange data on Friday showed orders to remove copper from LME warehouses jumped the most since 2015, rising 44 percent to 46,475 tons. The increase in canceled warrants was driven by activity in Asia.

To contact Bloomberg News staff for this story: Mark Burton in London at mburton51@bloomberg.net;Martin Ritchie in Shanghai at mritchie14@bloomberg.net

To contact the editors responsible for this story: Lynn Thomasson at lthomasson@bloomberg.net, Alex Devine

©2018 Bloomberg L.P.

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or

100

Related Articles