Aluminum continued to lead the metals price rally March 1 — after monthly average gains of around 7% in February — as market players sought clarity on how some Russian banks’ exclusion from the SWIFT international payments system might impact supplies.
London Metal Exchange three-month spot aluminum traded at $3,461/mt at 12:58 London time March 1, up 2.8% on the previous day’s close.
Aluminum had touched a record $3,525/mt Feb. 28, when nickel broke above $25,000/mt.
Amid a barrage of sanctions imposed by the US, EU, UK, and other Western allies on Russian entities following the country’s Feb. 24 invasion of Ukraine, it was still unclear whether SWIFT-related sanctions would apply to all metals trades. The US Treasury announced Feb. 28 exemption of energy trades from these sanctions until June 24, in a move to lessen energy price inflation.
Market appraisals of the situation varied.
“Although a few Russian banks have been disconnected from the SWIFT system we expect payments to the main metal producers to continue without disruption,” an international trading house told S&P Global Commodity Insights. “This will be via the remaining Russian banks or through the international branches of Russian banks. In addition, the large metal producers such as Rusal, Norilsk Nickel, etc. have offshore treasury systems in place.”
Another diversified trading house said Russian banks’ removal from SWIFT “cuts off access to funding and access to liquidity — it will be very difficult to operate.”
The UK’s Financial Conduct Authority on March 1 temporarily suspended trading in securities of JSC VTB, an Indian subsidiary of Russia’s second-largest bank, VTB. Trades in another of the bank’s subsidiaries were suspended on the London Stock Exchange on Feb. 25.
UBS — which raised its forecast aluminum target price to $3,500/mt (from $3,300/mt) and nickel to $26,000/mt (from $24,000/mt) — noted that Russia’s invasion of Ukraine had exacerbated the inverse relationship between commodities, including metals, and equities.
“Commodity markets have moved in the opposite direction of global equities so far this year. The rise in commodity prices has been broad-based and not limited to just the energy sector, which has received the most market attention,” the bank’s analysts said in a report distributed March 1.
Canceling SWIFT payments for aluminum could “compound the difficulties of moving material out of Russia, [so] there will be more upside on the Rotterdam premium.
Sanctions, it is feared, could further squeeze aluminum inventories. These are tight following China’s recent curbs on the use of coal-based energy at smelters, which has led to a decline in global primary output levels on an annual comparison over the past three months, despite rising demand, according to the International Aluminium Institute.
“Around 5%‑6% of global aluminum and nickel supply is at risk from the Russia‑Ukraine conflict via potential sanctions on Russia,” wrote CBA analysts in a March 1 report. “Aluminium markets were already tight before the conflict due to supply cuts in China as policymakers looked to contain emissions. Prices were also supported by higher energy‑led production costs in Europe. While sanctions are unlikely to be applied directly to Russian aluminum exports, sanctions on individuals close to Putin could indirectly impact Russia’s aluminum output.”
Announcement of 2018 sanctions against Russian billionaire Oleg Deripaska, which resulted in restrictions on Russia’s Rusal — the world’s second-largest aluminum producer-led prices for the metal to initially spiking around 30%, CBA recalled.
Aluminum Long (Buy)
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