All eyes on aluminium as US imposes trade sanction
Commodity-related stocks go on a roller coaster ride
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