Aluminum is heading for its biggest weekly increase since at least 1987 as investors and the global industry battle with supply disruptions after the U.S. imposed sanctions on Russia’s United Co. Rusal.
Prices have jumped 13 percent on the London Metal Exchange this week after surging to a six-year intraday high of $2,331 a metric ton on Thursday. They fell 1.1 percent on Friday to $2,298 by 1:03 p.m. in Shanghai.
The sanctions on Rusal, the biggest aluminum maker outside China, have roiled the market, with all parts of the supply chain rushing to assess the risks of handling the company’s metal. The moves will cause significant disruption in the near term, according to Goldman Sachs Group Inc., which flagged upside risks to its end-year forecast of $1,950 a ton.
Attention is turning to how other producers, especially China, will make up for the shortfall from Russia. Aluminum’s huge gains on the LME have outstripped more modest increases in Shanghai in the past week, making exports more profitable for Chinese traders just as their domestic market struggles with bloated stockpiles. Customs data on Friday showed outbound Chinese shipments in the first three months already at a record for the period.
Higher ex-China prices, and the collapse in Rusal’s share value, will “incentivize a restructuring of Rusal’s assets and redirect global aluminum flows to establish a new equilibrium,” Goldman Sachs analysts including Jeff Currie wrote in an emailed note. “There is significant upside risk and potential volatility as markets find the new equilibrium.”
Goldman also flagged disruptions could be “short-lived” as traders exploit new arbitrage opportunities. And ICBC Standard Bank Plc analysts said they don’t expect a sudden shortage of primary aluminum worldwide, with the impact likely to be felt more in regional premiums and more specialized downstream markets. “The past week’s events are unlikely to justify a materially higher medium-term price outlook,” said bank strategist Marcus Garvey.
U.S. delivery premiums rose by the most ever as buyers anticipated a sharp downturn in supply. LME inventories expanded to the biggest since August as traders sought to register Rusal material before an exchange deadline.
Source: Bloomberg
