U.S.-Russia trade dispute roils metal prices
In the latest sign of the volatile state of the commodities’ markets, the U.S. Treasury Department on Monday dialed back the scope of its sanctions against Russia, causing aluminum and palladium prices to plunge while Canadian metal companies’ shares also slipped.
Last week, palladium hit US$1,040 per ounce — its highest price since February — in what many executives attributed to fears that the U.S.-Russia trade spat would create a shortage of the precious metal, mainly used by the automotive industry.
The seesawing of global metals, which also occurred when nickel surged 10 per cent last week only to fall, has put many executives in the awkward spot of looking skeptical about market movement that accrues to their benefit. In many cases, executives are urging investors to ignore short-term movements and focus on the fundamentals.
“As bullish as I am on nickel in the near term, I think the move is temporary,” said Anthony Milewski, chairman of Cobalt 27 Capital Corp., which has nickel investments. “This particular move has been driven by sanctions on Russia — I think it’s a scare as much as anything.”
The company stock fell 1.94 per cent on Monday, while the S&P TSX Capped Materials Index fell 1.2 per cent on the day.
At Toronto-based North American Palladium Ltd., chief executive Jim Gallagher said that the surge could help his business, but is too fleeting to base any strategy around.
“It’s very hard for mining companies to react to the tweetstorm,” said Gallagher, referring to shortlived moves in spot prices based on fears about U.S. trade policies, amid U.S. President Donald Trump’s pronouncements on social media. Indeed, his company stock fell 3.55 per cent on the Toronto Stock Exchange on Monday, but is up 44.45 per cent this year.
So far, the U.S. has sanctioned 14 individuals as well as many companies who are believed to be closely allied with Russian President Vladimir Putin.
The sanctions did not target Russia’s Norilsk Nickel, a major producer of nickel and palladium, but did target one of its major investors, the billionaire Oleg Deripaska. That left investors with questions about whether the company would face disruption and what impact on markets might occur.
On Monday, U.S. Treasury Secretary Steven Mnuchin assuaged those fears, by giving companies that work with a different company controlled by Deripaska — the aluminum producer Rusal — an extension of five months to unwind their business deals.
“RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska,” Mnuchin said in a statement, “but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries.”
Bloomberg reported that Mnuchin also met with Russian Finance Minister Siluanov during International Monetary Fund meetings in Washington last week and laid out a path for easing sanctions on Rusal — if Deripaska divests and relinquishes control.
Aluminum prices dropped on Monday by as much as 9.4 per cent.