Metal ETF Lurches as Trump Sanctions Keep Market Out of Step

(Bloomberg) -- Conflicting U.S. signals on Russian sanctions have metal traders struggling to stay in step, with aluminum and palladium markets bearing the brunt of the confusion.

Aluminum prices rallied 21 percent in the two weeks after the U.S. slapped sanctions on United Co. Rusal as buyers clamored to replace supplies from the Russian giant. Palladium also surged on speculation MMC Norilsk Nickel PJSC would be the next target. By mid-April, prices of both metals started to plunge as the U.S. softened its stance, and have since bounced around as investors assess the Trump administration’s next move.

Gyrations in exchange-traded-funds backed by palladium have also been head-spinning.

In early April, investors withdrew the most since 2015 from the biggest palladium-linked ETF in the U.S. as they retrieved metal to fill an anticipated void in supply, according to data from ETF Securities (U.S.) LLC, which oversees the fund. Three weeks later, as the U.S. stance relaxed, buyers piled back in at the fastest rate in a year, snapping up discounted metal as prices fell.

The recent swing in ETFS Physical Palladium Shares “likely comes in response to the news flow around Russian sanctions,” Maxwell Gold, a director of investment strategy at ETF Securities, said in an email. “The softer stance by the U.S. last week decreased the likelihood of further sanctions spreading to other metals like palladium, which has about 40 percent of annual supply coming from Russia.”

Palladium-backed ETFs have become a reliable source of supply for consumers who have been grappling with a global shortage of the metal. In early April, investors pulled about $17 million from the ETFS fund as speculation on the possibility of Norilsk sanctions mounted. On Friday, the fund saw inflows of $9 million as prices of the metal tumbled amid signs that Norilsk wouldn’t be hit with U.S. trading curbs.

Holdings in all palladium-backed ETFs tracked by Bloomberg have dropped 18 percent this year to the smallest in more than eight years. The metal for immediate delivery rose 1.8 percent to $965.50 an ounce at 9:04 a.m. in New York.

“We’re still seeing global palladium ETF holdings being sourced for industry use in response to the continued palladium supply deficit,” Gold said.

To contact the reporters on this story: Luzi Ann Javier in New York at ljavier@bloomberg.net, Carolina Wilson in New York City at cwilson166@bloomberg.net.

To contact the editors responsible for this story: James Attwood at jattwood3@bloomberg.net, Joe Richter, Steven Frank

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