Aluminium price rallies

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

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.