All eyes on alu­minium as US im­poses trade sanc­tion

Com­mod­ity-re­lated stocks go on a roller coaster ride

The Star Malaysia - StarBiz - - News - By INTAN FARHANA ZAINUL in­tan­zainul@thes­

PETALING JAYA: In­vestors in alu­minium stocks must have had a heart of steel. Within the first four months of the year, alu­minium prices have been topsy-turvy, amid pol­icy changes in the United States on the com­mod­ity.

Si­mul­ta­ne­ously, shares in South-East Asia’s largest alu­minium smelter, Press Metal Alu­minium Hold­ings Bhd, have been on a roller coaster ride, along­side the car­nage in the mar­ket over the US-China trade war.

Press Metal’s share price went up to as high as RM5.79 on March 1 but was bat­tered down to a low of RM3.85 on April 6, as in­vestors turn anx­ious on the im­pact of the US Pres­i­dent Don­ald Trump’s plan to im­ple­ment tar­iffs on steel and alu­minium im­ports.

But the counter marked a sig­nif­i­cant re­bound this week, surg­ing more than 23% to close at RM4.75 on Fri­day, fol­low­ing the US’ sanc­tions im­posed on Rus­sian alu­minium gi­ant United Co Rusal Plc (Rusal).

Alu­minium for de­liv­ery in three months climbed as much as 3.6% to US$2,331 a tonne on the Lon­don Metal Ex­change, the high­est since March 2012.

Ad­di­tion­ally, the stock was boosted by the rally in the lo­cal bourse’s bench­mark FBM KLCI.

The sanc­tion by the United States on Rusal has roiled the mar­ket and all eyes are now on the other alu­minium pro­duc­ers.

It is worth not­ing that Rusal is the largest alu­minium pro­ducer in China with more than 6% mar­ket share.

Un­der the sanc­tion, Rusal is barred from con­duct­ing any trades in US dol­lar or do­ing busi­ness with US cit­i­zens.

As such, there has been panic buy­ing for alu­minium pro­duced out­side Rus­sia, which pushes the price of the com­mod­ity.

Alu­minium prices on the Lon­don Metal Ex­change (LME) jumped about 9% in the past two days af­ter sanc­tions on 12 Rus­sian com­pa­nies, in­clud­ing Rusal.

Ac­cord­ing to Press Metal head hon­cho Tan Sri Paul Koon Poh Keong, the com­pany has re­ceived ad­di­tional en­quiries for its prod­ucts this week.

He pointed out that although it is still early to con­clude the im­pact of the sanc­tion on the com­pany’s sales, the higher alu­minium price is a pos­i­tive de­vel­op­ment.

“The mar­ket is re­act­ing very strongly to the news of the sanc­tion by the United States on Rusal. The alu­minium pro­duc­ers stand to gain from a surge in price,” he told Star­Biz.

“The short-term im­pact of the sanc­tion is that alu­minium price will con­tinue to be sup­ported on the ‘high side’ due to sup­ply dis­rup­tion,” he added.

Press Metal ex­ports 85% of its prod­ucts over­seas, mainly to Asia and Eu­rope.

The Fi­nan­cial Times re­ported that in­ven­to­ries of alu­minium on the LME rose by 9% last Thurs­day, rais­ing fears that Rus­sian metal is be­ing off­loaded.

A to­tal of 94,450 tonnes of alu­minium worth US$200mil was placed in LME ware­houses, data showed.

The in­flow re­port­edly came af­ter the LME said on Tues­day that it would no longer ac­cept Rusal metal af­ter April 17.

How­ever, Koon reck­ons that alu­minium buy­ers would pre­fer to buy alu­minium pro­duced out­side Rus­sia, es­pe­cially for com­pa­nies that ex­ports their end prod­ucts to the United States.

“It is still the first week of the news on the sanc­tion and so far, the mar­ket is still very cau­tious on the use of the Rus­sian alu­minium. Right now, no­body is jump­ing into any ma­jor de­ci­sion yet,” he said.

The sanc­tion by the United States against Rus­sia has trig­gered a re­view on the out­look for alu­minium pro­duc­ers. For once, will the sanc­tion dis­rupt the sup­ply of alu­minium this year?

Ac­cord­ing to newswires, alu­minium prices saw the high­est weekly jump in more than three decades.

An­a­lysts are hav­ing a mixed view about the im­pact of the sanc­tion on Rusal alu­minium, as it is still in an early stage.

AmIn­vest­ment Re­search said the fear of Rusal pro­duc­tion to be “shed off” from the global mar­ket has pushed alu­minium prices to an all-time high this week, af­ter the re­cent plunge for the past seven weeks.

The re­search house is main­tain­ing its out­look on the alu­minium price un­til fur­ther clar­ity on the two mea­sures by Trump.

It ex­pects av­er­age sell­ing price for alu­minium at US$2,150 per tonne this year.

“As for now, we be­lieve it is pre­ma­ture to con­clude these two mea­sures by the Trump ad­min­is­tra­tion – which are to im­pose 10% tar­iff on im­ported alu­minium and to im­pose a sanc­tion on Rus­sia-re­lated en­ti­ties and in­di­vid­u­als – are a done deal,” it said in a report.

“We ex­pect Press Metal’s share price to swing in tan­dem with the global alu­minium prices,” it added.

Mean­while, an an­a­lyst with a for­eign bank pointed out that alu­minium prices are ex­pected to hold strong due to sup­ply dis­rup­tion and that the de­mand for the metal would re­main re­silient.

“Rusal would need to find a so­lu­tion to sell its prod­ucts in the mar­ket; un­til then alu­minium prices would re­main sup­ported,” the an­a­lyst said.

Prices of alu­mina, a key raw ma­te­rial for alu­minium pro­duc­tion, also in­creased 26% in the past one month, mainly im­pacted by a par­tial shut­down at the world’s largest alu­mina re­fin­ery in Brazil.

This would put more pres­sure on the price of alu­minium this year, the an­a­lyst added.

Tak­ing a hit: A worker marks stacks of alu­minium in­gots at a smelter op­er­ated by Rusal in Sayanogorsk, Rus­sia. The sanc­tion by the United States on Rusal has roiled the mar­ket and all eyes are now on the other alu­minium pro­duc­ers. — Bloomberg

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