Aluminum Extends Rally After Exchanges Ban Rusal Metal

By David Hodari

Aluminum futures pushed higher on Wednesday, extending their rally as White House sanctions on Russian companies continued to ripple through the market.

The industrial metal was up 2.6% at $2,267 a metric ton in late-morning trading in London--matching its year-to-date high--having risen 10.5% so far this week.

In other major metals markets, copper edged down 0.1% to $6,963 a metric ton, and gold ticked up 0.3% to $1,344.61 a troy ounce.

Aluminum's gains intensified late Tuesday after the London Metal Exchange fell in line with U.S. sanctions on Russian individuals and announced a "temporary conditional suspension" on metal from the world's second-largest aluminum producer, United Co. Rusal.

While the LME's ban takes effect April 17, CME Group Inc.'s Comex index also announced on Tuesday that it had "revoked the approved status for registration for delivery, and delivery of" 11 aluminum brands from its exchange "with immediate effect." Of those 11 brands, six were from Rusal and all were Russian.

Rusal was one of 12 companies owned by seven Russian tycoons that the U.S. government sanctioned last week over Russian activity around the world including military interventions in Ukraine and Syria and cyberattacks. The sanctions froze the U.S. assets of those targeted and prohibited Americans from doing business with them.

The LME's move was "completely [down to] political pressure [as] the LME cannot be seen to be doing business with a company that has sanctions placed on it," said Geordie Wilkes, head of research at Sucden Financial Limited.

Aluminum's leap between Friday and Tuesday marked its hottest three-day streak since 2009, said John Meyer, an analyst at SP Angel.

Tuesday's announcement from the LME was a departure from the exchange's initial divergence from Washington, and was "a game changer," according to analysts ING in a note.

Many in the market had previously warned that the LME's earlier decision not to echo sanctions on Russia would prompt a divergence between various local premiums around the world. The LME's about-turn on the matter meant that was no longer as likely.

"We could now see a rush of Rusal stock on to the LME, and thereafter all eyes are on the Shanghai Futures Exchange-London Metal Exchange arbitrage... as it becomes profitable for China to export," ING added.

China is relatively insulated from the supply anxieties rattling aluminum markets, as the country is largely self-sufficient in aluminum production.

Investors were bracing for further tremors.

"Rusal metal is likely not to be deliverable to the LME and if this is the case... we would expect to see the rally continue," Sucden's Mr. Wilkes said.

Still, there might be some temporary volatility. "Traders can only deliver Rusal metal if they can prove that it was produced and supplied before April 6th," when the U.S. announced its sanctions, Mr. Wilkes said.

Among precious metals, silver was down 0.24% at $16.53 a troy ounce, platinum was up 0.20% at $931.15 a troy ounce and palladium was up 0.18% at $957 a troy ounce.

Among base metals, zinc was up 0.03% to $3,250.50 a metric ton, tin was up 0.53% at $21,025 a metric ton, nickel was up 0.29% at $13,780 a metric ton and lead was up 0.17% at $2,392 a metric ton.

Write to David Hodari at [email protected]