By Amrith Ramkumar and Alistair MacDonald
A number of metals tied to Russia tumbled Monday after the U.S. Treasury softened its stance regarding sanctions against United Co. Rusal, the world's second-largest aluminum producer.
Aluminum for delivery in three months on the London Metal Exchange plummeted 7.2% to $2,292.50 a metric ton, while nickel shed 3.8%. The most-actively traded palladium futures in New York dropped 5.4%.
The metals had surged since April 6, when the U.S. announced sanctions against Rusal and owner Oleg Deripaska. Because Rusal owns more than 25% of Norilsk Nickel Mining & Metallurgical Co, a major nickel and palladium producer, recent volatility has also sparked a rally in those metals.
But on Monday, the U.S. hinted it would provide sanctions relief to Rusal if Mr. Deripaska divests his holdings. It also extended its deadline for companies to wind down dealings with the company to Oct. 23.
A number of Western institutions, including the LME and CME Group Inc.'s Comex, have sought to distance themselves from Rusal since the sanctions were announced April 6, leading to massive swings in stockpiles and prices.
Monday's news could cause the recent rally to reverse as traders wonder whether metals markets might not be impacted at all by sanctions, said Simona Gambarini, commodities economist at Capital Economics.
"It just is evidence of the volatility in the market and how much uncertainty is priced into the market at the moment," Ms. Gambarini said.
Aluminum had risen as much as 33% from April 6 at one point Thursday and pierced $2,700, but has fallen more than 15% since then. Nickel and palladium have also swung wildly in recent sessions.
Elsewhere in base metals, copper for May delivery fell 1.2% to $3.0980 a pound on the Comex division of the New York Mercantile Exchange, following other industrial metals lower. Prices have fallen about 5.5% in 2018 with investors worried about an economic slowdown in China, the world's largest consumer of copper, and possibly oversupply.
Among precious metals, gold for June delivery declined 0.8% to $1,327.00, extending a recent slide with the yield on the benchmark 10-year U.S. Treasury note approaching 3% and the dollar strengthening. Gold struggles to compete with yield-bearing assets like Treasurys as interest rates rise and becomes more expensive for overseas buyers when the dollar climbs.
Write to Amrith Ramkumar at [email protected] and Alistair MacDonald at [email protected]