Nickel Surges on Fears Fresh Sanctions Could Follow Rusal Shock

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(Bloomberg) -- Nickel surged to a three-year high amid growing fears the metal could be hit by a fresh round of sanctions against Russia as U.S. action against United Co. Rusal continues to roil the aluminum market.

Nickel, used in steelmaking and batteries, jumped as much as 4.6 percent to $14,870 a ton on the London Metal Exchange, the highest level since February 2015. Bullish sentiment was also boosted after production slumped 18 percent at Vale SA and as BHP Billiton Ltd. forecast booming usage in electric vehicles.

“There’s definitely some pricing in of the possibility that nickel will be incorporated” if there’s a fresh round of sanctions against Russia, said Colin Hamilton, managing director for commodities research at BMO Capital Markets Ltd. Similar fears have also helped fuel an eight-day rally in palladium prices, he said. Russia is the top producer of palladium, a precious metal used to curb pollution from gasoline-fueled vehicles.

Any sanctions against leading producer Norilsk Nickel PJSC could crimp output at a time when the market is headed for deepening deficits. The market could remain undersupplied through 2025, just as demand for electric vehicle batteries surges, Eduard Haegel, asset president for BHP Billiton’s Nickel West facility, said at a conference in Shanghai.

Sanctions Fallout

Aluminum jumped to fresh six-year highs as buyers scrambled to cope with ongoing chaos in the global supply chain more than a week after the U.S. slapped sanctions on Rusal, the top producer outside China.

The metal climbed as much as 3.2 percent to $2,481 a ton on the LME, the highest level in intraday trading since August 2011. While a gauge of market strength is flashing signals that the rally has gone too far, Goldman Sachs Group Inc. predicts that the metal could spike to $3,000 in the near term.

See also: How U.S. Sanctions on Russian Aluminum Shook Markets: QuickTake

Rio Tinto Group, the second-largest aluminum maker outside China, flagged it may need to cut production in the wake of sanctions. The company is working with customers to minimize disruption and remains in the process of declaring force majeure on some contracts, it said Wednesday in a production report.

Legal Quagmire

Rusal’s cargoes are severely disrupted. At least one Japanese buyer asked the company to halt shipments due to concerns over inability to pay in dollars and fears of secondary sanctions, according to an official at the buyer. The producer’s exports via TransContainer were suspended, RBC reported, citing the shipper’s CEO.

The legal quagmire surrounding financing, trading and purchasing of Rusal metal by end-users has put a large chunk of world stockpiles in limbo. Russian aluminum has made up a significant part of global inventories since at least the early 1990s, when the Soviet Union’s collapse triggered a flood of exports.

©2018 Bloomberg L.P.

With assistance from Mark Burton, Winnie Zhu

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