Aluminium prices fell on Monday after the United States lifted sanctions on the world’s second largest aluminium producer United Company Rusal . The United States announced in December its intention to lift the sanctions on Rusal and other Russian firms linked to oligarch Oleg Deripaska which were imposed in April. Benchmark aluminium on the London Metal Exchange (LME) had surged to a seven-year high the when sanctions were imposed on fears of a supply squeeze, but ended the year down 18.6 percent mainly due to the U.S.-China trade war.
Aluminium fell 2 percent at $1,882 a tonne on Monday by 1515 GMT, erasing the previous session’s gains that took the metal to its highest since Dec. 24. “This doesn’t have the equivalent shock factor as the initial decision … this was largely priced into the market,” said Macquarie analyst Vivienne Lloyd, referring to the lifting of sanctions.
Meanwhile, the LME lifted its suspension on placing Rusal metal on warrant after blocking the metal in April. BMO Capital Markets analyst Colin Hamilton said there was potential for aluminium stocks that were previously held off-exchange now becoming visible to the market which could cause some near-term pressure on prices.
“However, we remain of the view that, with the market in heavy deficit and demand set to improve, the skew of price risk into mid-year is to the upside,” he said in a note.
Inventories of aluminium stand at 1.3 million tonnes in warehouses approved by the LME, near their lowest since May 2018. There is likely to be little price support from top aluminium consumer China in the near term, with the country shutting down for the week-long Lunar New Year break early next month. Anticipated restarts to alumina production, including at Norsk Hydro’s Alunorte plant in Brazil, could keep pressure on prices, analysts have said. The Rusal sanctions helped boost Chinese exports of aluminium in 2018 by 20.9 percent as producers plugged the supply hole left by Rusal. The removal of the sanctions will mean aluminium users around the world will pay less for their material, but U.S. tariffs on imports of the metal mean limited gains for the country’s consumers. In the latest in the Sino-U.S. trade dispute, Chinese Vice Premier Liu will visit the United States on Thursday and Friday for the next round of trade negotiations with Washington.