Alu­minium price ral­lies

Buy­ers rush for al­ter­na­tive sup­plies amid US$3,000 a tonne fore­casts

The Star Malaysia - StarBiz - - Foreign News -

SHANG­HAI: Alu­minium held near the high­est in more than six years as the im­pact of US sanc­tions against Rus­sia’s United Co Rusal dom­i­nated trad­ing more than a week af­ter they were an­nounced, with buy­ers rush­ing to se­cure al­ter­na­tive sup­plies amid fore­casts the price may hit US$3,000 a tonne.

The metal, used to make ev­ery­thing from cans to air­planes, traded at US$2,387 a tonne on the Lon­don Metal Ex­change (LME) at 11:09 am in Sin­ga­pore, down 0.5%. On Mon­day, it ral­lied as much as 5.2% to US$2,403, the high­est since Septem­ber 2011, fol­low­ing a record gain last week.

The alu­minium mar­ket is in tur­moil fol­low­ing the US ac­tion against Rusal, which has un­leashed a sup­ply shock that’s still un­fold­ing as the com­pany ac­counts for about 17% of world­wide pro­duc­tion out­side China. The Rus­sian sup­plier has been shut out of the West­ern fi­nan­cial sys­tem, lac­er­at­ing its share price while boost­ing ri­vals.

Rio Tinto Group, South32 Ltd and Alu­mina Ltd are among the po­ten­tial ben­e­fi­cia­ries, ac­cord­ing to UBS Group AG.

“The mar­ket is look­ing at US$2,800, US$3,000,” Jackie Wang, an an­a­lyst at CRU Group, said from Bei­jing. There are con­cerns about pos­si­ble pro­duc­tion cuts by Rusal, ei­ther be­cause its sales are blocked or the raw ma­te­rial sup­ply chain is af­fected, ac­cord­ing to Wang. LME prices last topped US$3,000 in 2008.

Rusal’s shares stead­ied in Hong Kong af­ter los­ing more than half their value last week. Rus­sia won’t in­ject sovereign bonds into Rusal’s cap­i­tal as the coun­try doesn’t use lo­cal-cur­rency sovereign bonds and any pub­lic debt to sup­port com­pa­nies under sanc­tions, ac­cord­ing to the Fi­nance Min­istry.

Shares in ri­val sup­pli­ers gained again, in­clud­ing China Hongqiao Group Ltd, which added as much as 2.6% in Hong Kong. In Aus­tralia – Alu­mina Ltd, a part­ner with Al­coa Corp in the world’s largest baux­ite and alu­mina pro­ducer – headed for the high­est close since 2011.

Prices of alu­mina, the semi-pro­cessed ma­te­rial used to make alu­minium, are rock­et­ing. In­dia’s Na­tional Alu­minium Co sold a cargo of alu­mina last week at US$601 a tonne free-on-board, the high­est level at which Nalco has sold in 12 years, chair­man T.K. Chand said Mon­day.

The sanc­tions have thrown an es­ti­mated US$3bil of alu­minium pro­duced by Rusal into limbo as metal pro­duced by the com­pany ac­counts for more than a third of hold­ings in ware­houses mon­i­tored by LME. The ex­change has banned, with ef­fect from April 17, de­liv­er­ies of Rusal-branded metal into its sheds.

Rus­sia pro­duces about 6% of global alu­minium sup­ply, and any move to ex­tend the scope of sanc­tions to nickel could see a more sig­nif­i­cant im­pact as the na­tion con­trib­utes 10% of sup­ply, UBS said in a note.

While Rus­sian alu­minium sup­plies are get­ting shunned, China con­tin­ues to churn out the metal. Data showed China’s pri­mary alu­minium out­put rose 4% to 2.78 mil­lion tonnes in March. First-quar­ter pro­duc­tion ex­panded 0.3% to 8.12 mil­lion tonnes.

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