Flames rise from molten aluminum in a molding unit at the Alumetal Group Hungary Kft. aluminium processing plant in Komarom, Hungary on Monday, March 19, 2018. The European Union believes it’s on track to be exempted from imminent U.S. tariffs on foreign steel and aluminium, dialling down the risk of a trans-Atlantic trade war. Photographer: Akos Stiller/Bloomberg  

Aluminum Sanctions Convulse Market as Rally to $3,000 Forecast

(Bloomberg) -- Aluminum surged to a six-year high as the impact of U.S. sanctions against United Co. Rusal continued to reverberate through the global market more than a week after they were announced, with buyers rushing to secure supplies amid forecasts that the price may hit $3,000 a metric ton.

The metal, used to make everything from cans and cars to airplanes, reversed an early drop to gain as much as 1.5 percent to $2,435 a ton on the London Metal Exchange, the highest intraday price since September 2011. It traded at $2,429 at 7:52 a.m. in London, extending Monday’s 5 percent jump.

The aluminum market is in turmoil following the U.S. action against Russia’s Rusal, which has unleashed a supply shock that’s still unfolding as the company accounts for about 17 percent of worldwide production outside China. The Russian supplier has been shut out of the Western financial system, lacerating its share price while boosting rivals. Rio Tinto Group, South32 Ltd. and Alumina Ltd. are among the potential beneficiaries, according to UBS Group AG.

“The market is looking at $2,800, $3,000,” Jackie Wang, an analyst at CRU Group, said from Beijing. There are concerns about possible production cuts by Rusal, either because its sales are blocked or the raw material supply chain is affected, according to Wang. LME prices last topped $3,000 in 2008.

Aluminum Sanctions Convulse Market as Rally to $3,000 Forecast

Rusal’s shares rose in Hong Kong after losing more than half their value last week. Russia won’t inject sovereign bonds into Rusal’s capital as the country doesn’t use local-currency sovereign bonds and any public debt to support companies under sanctions, according to the Finance Ministry.

Shares in rival suppliers gained again, including China Hongqiao Group Ltd., which added as much as 3.4 percent in Hong Kong. In Australia -- Alumina Ltd., a partner with Alcoa Corp. in the world’s largest bauxite and alumina producer -- advanced as much as 4.1 percent before closing level.

Prices of alumina, the semi-processed material used to make aluminum, are rocketing. India’s National Aluminium Co. sold a cargo of alumina last week at $601 a ton free-on-board, the highest level at which Nalco has sold in 12 years, Chairman T.K. Chand said Monday.

The sanctions have thrown an estimated $3 billion of aluminum produced by Rusal into limbo as metal produced by the company accounts for more than a third of holdings in warehouses monitored by LME. The exchange has banned, with effect from April 17, deliveries of Rusal-branded metal into its sheds.

Russia produces about 6 percent of global aluminum supply, and any move to extend the scope of sanctions to nickel could see an more significant impact as the nation contributes 10 percent of supply, UBS said in a note. But including copper would have a smaller impact as Russia accounts for 4 percent.

While Russian aluminum supplies are getting shunned, China continues to churn out the metal. Data on Tuesday showed China’s primary aluminum output rose 4 percent to 2.78 million tons in March. First-quarter production expanded 0.3 percent to 8.12 million tons.

©2018 Bloomberg L.P.