Sun, Apr 15, 2018 - Page 14 News List

Aluminum surges after wild week on Rusal sanctions

Bloomberg

It was an unprecedented week for aluminum.

The US’ decision to blacklist United Co Rusal, the world’s second-biggest aluminum maker, set off a rush to secure supply. Prices rose by a record this week, with ripple effects felt by automotive parts makers in Atlanta, Georgia, Swiss commodity traders and processing plants in the Irish countryside.

“There’s a scramble to replace Russian material with non-Russian material, which in some cases should be doable, but in others not so much,” Societe Generale SA analyst Robin Bhar said in London.

The sanctions are having an immediate and disruptive effect on global supply chains, which feed raw material into cars, airplanes and packaging.

Rusal accounts for about 6 percent of the global aluminum market and is now completely cut off from the Western financial system.

On Friday, Maersk Line, a unit of the world’s largest shipping company, said it would no longer accept cargo related to those on the US Department of the Treasury’s sanctions list.

Aluminum surged 12 percent this week, the biggest increase since the London Metal Exchange launched the current version of the contract in 1987.

On Friday, prices retreated from near a six-year high as the metal fell by 1.7 percent to settle at US$2,285 per tonne at 5:52pm in London.

“Everybody’s been forced to take a hard look at aluminum,” said Fiona Boal, the director of commodity research at London-based Fulcrum Asset Management LLP, which has US$7 billion under management. “We haven’t seen that contagion risk for a number of years.”

Analysts at ICBC Standard Bank PLC said they do not expect a sudden shortage of primary aluminum worldwide, but the impact would be in regional premiums and more specialized downstream markets.

“Exactly how the aerospace, packaging, electronics and, to a degree, automobile consumers of Rusal material resolve this problem is currently very unclear,” the analysts said.

Customers fearing a supply crunch are snapping up stockpiles on the London Metal Exchange.

On Friday, canceled warrants rose 35 percent to 370,350 tonnes, the biggest increase since 2011. The measure tracks orders for aluminum in warehouses monitored by the exchange.

“We are not sure how Rusal’s supply will come back into the market,” Natixis SA analyst Cameron Karami said in London. “Short-term inventory will get drawn down.”

The US premium, a measure of the cost to secure London Metal Exchange aluminum and ship it to the US midwest, jumped this week by the most on record.

The duty-paid premium to suppliers surged to a range of US$0.2175 to US$0.2355 per pound, up from a prior range of US$0.1725 to US$0.18, Austin, Texas-based researcher Harbor Intelligence said.

Rusal’s competitors have climbed since the US sanctions were announced late last week.

Alcoa Corp and Century Aluminum Co are among the US-based winners, with gains this week of 14 percent and 8.1 percent respectively, while Norsk Hydro ASA is up 13 percent.

The structure of the aluminum market has flipped into backwardation. The rush to secure metal from the exchange has pushed aluminum for delivery now above prices further in the future.

One-year metal is US$87 per tonne more expensive than one-month, the biggest gap since 2007.

The price of alumina, the key ingredient for making aluminum, is approaching an all-time high.

Rusal on Thursday declared force majeure on some alumina shipments, a person familiar with the matter said.

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