Aluminium stumbles as rising inventories underscore weak fundamentals

By Onome Amuge

Aluminum prices declined at the close of trading activities in the week as rising inventories pointed to ample supply, reversing some of the gains that followed reports of a possible U.S. ban on imports of Russian metal.

Benchmark aluminum on the LME fell 1.7 percent at $2,319 a tonne, having risen 2.4 percent on Thursday following news of a possible U.S. import ban.

According to market data, Russia produces six percent of the world’s aluminum and U.S. measures to block trade in its metal could disrupt the market. The London Metal Exchange (LME) is also considering barring Russian metal from its system.

Aluminium inventories rose in LME-registered warehouses by 41,400 tonne to 367,200 tonnes and in Shanghai Futures Exchange warehouses by 12,293 tonnes to 186,804 tonnes.

Reports show that aluminum is continuing to pour into LME warehouses, lifting inventory levels at a time when demand is deteriorating and the market is on high alert for signs that unwanted Russian metal could end up on the bourse.

As a result, the LME is undertaking a three-week discussion process to consider banning new deliveries of Russian supplies, with feedback on the issue due by October 28. Some buyers are seeking to avoid Russian metal and traders have been warning for weeks that large volumes could be dumped on the LME, particularly in the aluminum market, which could roil benchmark prices.

Asides the LME’s potential ban, the US is eyeing three possible measures on Russian aluminum after the missile strikes on Kyiv and other Ukrainian cities during the week.

Analysts noted that sanctions on Russian-owned Rusal, the world’s second largest aluminium company, would be the most severe by freezing it out of Western markets. They added that import tariffs or a full ban on US imports would be less disruptive for the metal used in packaging, construction and transport.

“When the fundamentals are so relatively weak, we would need to see real action for prices to rise,” Ole Hansen, analyst at Saxo Bank, remarked.

Meanwhile, other metals were mixed on the LME with copper little changed, zinc gaining two percent, while lead traded lower.