Aluminum Prices Retreat as US Eases Sanctions on Rusal

Aluminum continued its downtrend on Tuesday (April 24) after the US indicated it could soften its sanctions stance on Russian companies, including aluminum giant Rusal.

On Tuesday, aluminum on the London Metal Exchange closed down 3 percent at US$2,227 per tonne, after touching its lowest point since early April at US$2,200.

Aluminum has declined more than 9 percent since Monday (April 23) after the US Department of the Treasury made clear that it’s not pushing for the Russian producer’s collapse.

“The US government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” Treasury Secretary Steven Mnuchin said.

He added that the treasury is considering a request to lift sanctions against the company and extend the period during which US companies can keep trading with Rusal. Mnhuchin also clarified what dealings are permissible during that time.

“Risks to aluminum prices remain, since the deadline for Rusal sanctions has simply been pushed back until October and we expect the volatility to persist,” said Christian Georges, an analyst at Societe Generale (EPA:GLE). “Chinese aluminum is likely to provide the missing volume in global supply, but if alumina is lacking it’s a problem for many producers.”

Last week, aluminum prices surged to their highest in seven years on the back of the US sanctions on Russian companies.

“We should be getting used to the fact that Trump has a lot of bark and less bite. We’ve seen it with a lot of policies. He introduces them, markets react, then he backtracks or nothing comes of it or they get delayed,” said William Adams, head of research at Fastmarkets.

“Aluminium is going to remain volatile depending on how the sanctions play out, but at the end of the day it will return to the range either side of US$2,200 until we see evidence of stronger economic growth.”

Looking ahead, analysts at Wood Mackenzie said the treasury’s announcement provides “much-needed breathing space” for the aluminum market, adding that they expect a near-term correction and volatility.

Meanwhile, market watchers polled recently by FocusEconomics estimate that the average aluminum price for Q2 2018 will be US$2,128.

The most bullish forecast for the quarter comes from Natixis (EPA:KN), which is calling for a price of US$2,350; meanwhile, Capital Economics is the most bearish with a forecast of US$1,980.

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Securities Disclosure: I, Priscila Barrera, hold no direct investment interest in any company mentioned in this article.