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Base Metal Commentary

By: Natalie Scott-Gray, Senior Metals Demand Analyst, EMEA and Asia region

The Aluminium Market at Risk of Further Regional Divides?
 
Natalie Scott-Gray 
Senior Metals Analyst 
Natalie.scott-gray@stonex.com

Aluminium is the second worst performing base metal on YTD basis (at the time of writing), with a muted 1% gain. However, this weak price performance is not reflective of events over the last six weeks, with aluminium encountering significant volatility. Indeed, aluminium rose by 12% in the first five weeks of the year, jumping to its highest level since June 2022 at $2,659/t, before then descending back to its current level $2,388/t. In this article, we explore the key driving forces behind aluminium’s dramatic price action, while discussing the impact that a potential U.S. ban on Russian metal would have on the market in both the near and longer-term.  

What is Driving Aluminium Prices?
 
 LME 3M ALUMINIUM PRICE
 
Source: Bloomberg
 
Impact of U.S. Sanctions on Russian Aluminium

Background
•    The market is awaiting an official announcement from the United States over the decision to impose a 200% tariff on Russian aluminium imports (please note, the decision was meant to be released 6th February). 

•    The move from the U.S. has arisen due to concerns that inflows of Russian metal into LME warehouses will distort global benchmark prices. Please note, based on the LME report ‘Country of Origin Stock Data’, the percentage of live tonnage of Russian primary aluminium in global LME warehouses has risen from 14.9% (on 6th October 2022) to 40.6% by end-January 2023. 

•    However, despite the reported increase, the LME stated that it deems Russian aluminium to be below “unpreceded levels”, based on the previous high of 73.7% in November 2014. 

PERCENTAGE MARKET SHARE OF GLOBAL LME ALUMINIUM CLOSING STOCKS (by Region) - PRE U.S. SANCTIONS (2018)

Source: LME
PERCENTAGE MARKET SHARE OF GLOBAL LME ALUMINIUM CLOSING STOCKS (by Region) - POST U.S. SANCTIONS (2018)
Source: LME
 

Our View
•    If the U.S. move ahead with these tariffs, in our view the impact on LME aluminium prices is forecast to be limited, given that Russian imports only make up ~3.5% of total imports into the U.S. (its lowest level this decade). In addition, the U.S. can increase imports from Canada, China and Mexico to replace lost Russian flows. However, where we do suspect that a near-term impact will be felt, is within regional premia, given that the U.S. market is in a structural deficit of close to 2.3Mt. 

U.S. MONTHLY IMPORTS OF PRIMARY ALUMINIUM

Source: Bloomberg, https://esta.cbp.dhs.gov/
 

•    Furthermore, if the scenario arises, that the LME implements sanctions on imports of Russian material into U.S. warehouses (as it did when the UK banned imports of Russian material in 2022), once again, we expect the impact to be limited, given that no Russian metal is held in these warehouses, with most of the metal located in Asia. 

LME PRIMARY ALUMINIUM STOCKS

Source: Bloomberg
 

•    Therefore, we forecast that the largest risk to heightened price volatility would arise from an outright ban from the LME on Russian metal; however, we suspect the chance of this to remain low, especially given comments from the LME in which it alludes to “Asian-based consumers” finding Russian brands “broadly acceptable”. 

REGIONAL ALUMINIUM PREMIA 

Source: Bloomberg, CRU
 

SHFE VERUS LME ALUMINIUM PRICE 

Source: Bloomberg
 

 

 
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