Aluminum surges on supply constraint fears
MCX aluminum prices have touched record high over the US sanctions on Russian entities

Aluminum prices skyrocketed last week after the US imposed sanctions on some of the wealthy Russians and their businesses. While aluminum prices at the London Metal Exchange (LME) were at the six-year high, prices at the Multi-Commodity Exchange (MCX) touched record high levels. Market expects prices to cool because the fundamentals do not support any rally.

On April 6 the US administration imposed economic sanctions against seven wealthy Russians, 12 companies controlled by them and 17 senior Russian government officials for allegedly meddling with the 2016 US elections. Americans were forbid from doing business with these entities.

Those under sanctions included billionaire aluminum tycoon Oleg Vladimirovich Deripaska and his company Rusal, which controls around seven per cent of total global aluminum output. Also Rusal is the world’s second largest aluminum company by primary production output. It was the largest until overtaken by China Hongqiao Group in 2015.

Concerns about supply disruption rocked the market. Both the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME) announced that they would not accept Rusal aluminum. While CME’s ban was effective from April 10, LME said it would not accept Rusal metal after April 17.

Aluminum prices, which were trading at $1,991 per tonne on April 4, went up to $2,277 per tonne by April 12, making a gain of around 15 per cent. This was the highest-level aluminum witnessed at the LME in six years. In the MCX, aluminum touched an all-time high of Rs 149.2 per kg.

“Aluminum prices had spurted fearing supply constraints. But the supply-demand scenario does not warrant any price rise. The market outplayed the fundamentals,” said Kaynat Chainwala, research analyst (base metals), Angel Commodities Broking.

According to her, the closure of some of the Chinese smelters and factories due to pollution concerns, had led to worries in the market last year about aluminum output because China accounts for 60 per cent of the global aluminum production.

India accounts for 5 per cent of global primary aluminum production. In 2016-17, India exported Rs 2,346 crore of aluminum and aluminum products to the US, according to the Indian government data.

But the yearly data from China at the end of December showed that production stood at 32.27 million tonnes, which was higher than the production of the previous year. Further, the LME and Shanghai warehouses too have adequate aluminum stocks.

Due to these weak fundamentals, aluminum prices could not sustain gains after the US imposed tariffs on imports of aluminum and steel. On March 8, the Donald Trump administration announced plans to impose 25 per cent tariff on steel and 10 per cent tariff on aluminum imports from countries other than Mexico and Canada, to safeguard the domestic manufacturing sector.

Subsequently, tariffs and retaliatory tariffs were imposed by both China and the US on the import of select products. The developments triggered fears about a trade war between China and the US and that worsening further to affect the global trade.

The day after the announcement was made, aluminum prices moved marginally up from $2,106 per tonne to $2,120 per tonne. However, prices could not sustain the gains and kept declining thereafter and went down to $1,991 per tonne by April 4.

“We do not expect that the Russian sanctions would continue to support aluminum prices, unless the situation further deteriorates. Market would fall back to previous levels. In LME, we look towards $2,000 per tonne as a possible level in a month’s time and Rs 138 per kg would be likely for the MCX aluminum,” said Chainwala.

Sangeetha G.