Aluminum prices rise on panic buying as fears of Rusal collapse grow

As Russia’s currency and capital markets dipped on delayed response to Friday’s US sanctions against a handful of Kremlin-friendly billionaires, one vital metal used across the globe in aircraft manufacturing and the auto industries is soaring today.
Aluminum prices initially soared on Friday and then again on Monday, amid growing fears that sanctions on Russian metal producer will prevent it from supplying the global commodity market, and could threaten a significant part of the global supply chain.

The US Treasury sanctioned Russian individuals, officials, state-owned firms and companies, including Rusal, the world’s second largest maker of aluminum, under provisions of a law Congress passed last year to retaliate against Moscow for meddling in the 2016 U.S. presidential election, last Friday.

Aluminum for delivery in three months soared as much as four percent to $2,124 a metric ton on the London Metal Exchange, extending a 1.6 percent gain in the previous session and likely the biggest jump in more than two years.

The stock of Rusal simultaneously tumbled a whopping 50 percent Monday alone amid fears that US sanctions which have been designed to make it impossible for Deripaska’s commodity giant to do business in U.S. dollars would terminally cripple the company, forcing an imminent bankruptcy and collapse for the company owned by one of President Vladimir Putin’s closest allies.
The action targeted Russian oligarchs whose companies have wide-ranging involvement in international capital markets. Of these, Rusal may be the most important one as it accounts for about 17% of supply outside of China, according to Harbor Intelligence, whose managing director, Jorge Vazquez said sanctions could going to create chaos in the short term.

Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd. said: “This does warrant a little bit of panic buying by traders; the risk is large enough and real enough to buy on the back of insecurity of supply”.

The company warned that the sanctions may result in technical defaults on some credit obligations and be materially adverse to the business and prospects of the group, according to statement by Rusal on Monday, adding its annual report may also be delayed.

It said: “The company’s primary focus remains its business and, most importantly, all of its global customers, investors and partners.”

The US sanctions could lead to other unexpected downstream effects. As Bloomberg points out, the move also raises questions for Glencore and its billionaire chief Ivan Glasenberg, the commodity giant who is one of Rusal’s top shareholders, owning an 8.75 percent stake and also the biggest buyer of its metal, having bought $2.4 billion of metal from it last year. Ivan Glasenberg sits on the Rusal board.