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Aluminum prices are climbing after the U.S. announced new sanctions late last week on Russia, with targets including the country’s aluminum giant, United Company Rusal PLC. And prices look set for further gains.
The U.S. Treasury Department on Friday issued new sanctions on Russian entities and individuals in response to what it said was Moscow’s attempt to “subvert Western democracies and malicious cyber activities.” The sanctions include Rusal, which is responsible for 7% of the world’s aluminum production. Shares of the company traded in Hong Kong 0486, -50.43% fell by more than 50% Monday.
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On Monday, aluminum prices for the metal on the London Metal Exchange were up more than 7% from their early Friday levels ahead of the U.S. Treasury announcement, with gains driven on the assumption that the global market will tighten, said Karen McBeth, content director of Metals Pricing and Market Engagement at S&P Global Platts.
The LME cash settlement price rose from 89.222 cents a pound, or $1,967 per metric ton, on Friday morning, before the announcement, to 95.8 cents, or $2,113 per metric ton, Monday morning, according to McBeth.
The U.S. imported 744,266 metric tons of aluminum products from Russia in 2017, making Russia the third-largest import source for all aluminum products, she said, citing U.S. Census Bureau data.
“If these sanctions remain in effect, the impact on the U.S. aluminum price is very significant and could be lasting,” said McBeth, especially as they come on the heels of the 10% tariff on U.S. aluminum imports, including those coming from China. Russia was second-largest import source behind China for the unwrought aluminum category, which is a “major category,” she said. Unwrought aluminum refers to the metal in its basic cast form, or unfinished condition.
Aluminum producer Alcoa Corp. AA, +6.99% which is based in Pittsburgh, saw its shares rise around 7%,. Shares of Century Aluminum Co. CENX, +14.12% , the second-largest U.S.-based producer after Alcoa, jumped nearly 13%.
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“Along the value chain for aluminum, each piece of the price is going to rise in the U.S.,” said McBeth. Aluminum processors and fabricators, and end users such as can companies and automotive companies, have already gotten a taste of that price climb.
The Platts U.S. Midwest transaction premium rose by 2 cents a pound to 21 cents on Friday, from 19 cents on Thursday. The Platts price assessment is a component of the “all-in” price used to price nearly all aluminum products in North American, consisting of the LME cash settlement in cents per pound, plus the premium for delivery to a U.S. plant.
Certain categories of processors, such as extruders and foundries, which make aluminum automotive parts and building and construction products, are likely to see further price increases on their products, as offers for aluminum billet were up 1 to 2 cents a pound on Friday, said McBeth.
Short term, the aluminum market will need to get more clarity in regard to the details of the sanctions, she said. Many traders and consumers assume that the sanctions mean that they cannot actually trade with Rusal directly, and some are concerned that they can’t use a U.S. bank to finance trades with the Russian company, though they are trying to understand the implications of Treasury Department imposed transition period to June 5, she said.
“U.S. aluminum fabricators and end users could be placed at a competitive disadvantage to those outside” the nation, “while U.S. primary aluminum producers, which President [Donald] Trump had sought to protect, could benefit,” McBeth said.