As Rusal Sanctions Ease, Traders Eye Other Metal Shock Threats

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(Bloomberg) -- The turmoil in the metals market that sent aluminum to its worst slump in almost eight years isn’t over. Buckle up for a longer bumpy ride ahead.

Aluminum led losses among metals Monday after the U.S. Treasury Department opened the door to relief from sanctions to United Co. Rusal, the largest aluminum producer outside of China. That triggered a selloff in the lightweight metal less than a week after the Rusal curbs sent prices soaring to an almost seven-year high.

Court Decision

While the Treasury Department’s statement signal the refined metal produced by Rusal could soon be back in the market, other uncertainties persist. Among those is the question of the flow of alumina, the main raw material used to make the refined metal.

Alumina surged last week to a record $800 per ton, helping drive aluminum prices to the highest since 2011 and pushing the volatility in the metal to the highest since 2010. Norsk Hydro ASA’s giant Alunorte alumina refinery in Brazil has been running at just 50 percent since a late-February court order amid accusations that a rainstorm led to contamination of an Amazonian river. A court decision due in the next few weeks on full resumption of production at the refinery adds another big variable to the price outlook.

The volatility is likely to spill over to producers. A decision favoring a restart of Alunorte’s operation “could hit” companies that sell alumina, including Alcoa Corp. and South32 Ltd., said Andrew Cosgrove, a metals and mining analyst at Bloomberg Intelligence. Norsk Hydro, along with companies such as Century Aluminum Co. that buy the raw material, stand to benefit, he said.

The aluminum market was already reeling earlier this year after President Donald Trump slapped a 10 percent import tariff on some shipments of the metal into the U.S. Tariffs are expected to move back to the forefront, according to Wood Mackenzie Ltd.

“With the excitement over the Rusal sanctions now subsiding, it’s back to business as usual,” Wood Mackenzie analysts said in a note emailed April 23. “Section 232 trade tariffs and duties on Chinese imports will now come back to the center of attention for the aluminium market.”

Duterte Output

Traders are also eyeing the outlook for the nickel market. The price of the metal, used in steelmaking and batteries, tumbled Monday after the U.S. Treasury’s statement on Rusal cooled speculation that the restraints would spread to other Russian mining companies. But output in the Philippines, a top producer, is being constrained by nationwide mine closures and suspensions ordered by President Rodrigo Duterte’s government.

“Given Duterte’s hard-line stance, it could be something that could disrupt the market,” Daniel Ghali, a commodity strategist at TD Securities in Toronto, said in a telephone interview Monday. “There could be further supply risk on the horizon given that the Philippines is one of the biggest suppliers of nickel ore.”

Copper Mining

Copper, often considered an economic barometer, has been out of the headlines lately amid the Russia sanctions, but concerns about abundant supply show no signs of subsiding. The metal has slumped about 4 percent this year amid rising inventories and fears that a trade spat between the U.S. and China could curb global growth. And in Chile, the top copper-producing country, miners expect to avoid major strikes this year, sapping speculation that output will be interrupted.

“Copper supplies will likely grow by 4 percent in 2018 to a new record high of nearly 21,000 tons,” according to a report from CME Group Inc. As copper mines remain profitable, “there is every reason to think that copper supplies will continue to grow well beyond 2018 to the probable detriment of copper prices.”

©2018 Bloomberg L.P.

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