Aluminum market braces for turmoil
The global metals market has been weighing potential supply disruptions following news that US government is considering a ban on Russian aluminum. Prices have been in a disarray amid growing uncertainty.
According to experts, unsold metal tends to end up in the London Metal Exchange (LME) warehousing system, which are warehouses authorized by the exchange to store LME-registered metal.
“It’s been very disappointing for the poor aluminum market to see kind of a double whammy from weakening global demand, in China in particular, but also Russia dumping aluminum on the global market,” Wolfe Research mining and metal analyst Timna Tanners told CNBC on Thursday. “So definitely this quarter reflected those challenges.”
The next quarter could also be affected unless there is some action to stop the potential dumping of Russian-origin metal and a lift in Chinese demand, both in infrastructure development and property construction, Tanners warned.
Last week, media reported that the White House was mulling an effective ban on Russian imports of the metal used in transport and construction. The reports indicated that Washington was eyeing three options, which could include an outright ban, increasing tariffs to levels so punitive they would impose an effective ban, or sanctioning Russian company Rusal, which produces the metal.
Industry experts have warned that such a move could destabilize metal markets around the globe. The embargo on aluminum, which is crucial to most heavy industries, could potentially force consumers in the US and other countries into a rush to find replacement metal.
Russia is the world’s second-largest producer of aluminum after China. Data cited by Bloomberg shows that in the US alone Russian supplies traditionally account for some 10% of total aluminum imports. The country was the third-largest aluminum exporter to the US in August.
CBA mining and energy commodities analyst Vivek Dhar explained to CNBC that, while the LME does not publish where aluminum is sourced when inventories rise, a surge in global stockpiles is a bad sign given that base metal prices have already been hit by recessionary concerns. Any influx of Russian aluminum into LME warehouses would also pose a more complex problem, Dhar noted.
Washington’s sanctions against Rusal could also have ramifications for global aluminum supply chains, according to ING economics commodities strategist Ewa Manthey. The Russian company is not only a major producer of primary aluminum, but it is also embedded in global supply chains of bauxite and alumina, which are needed to make the metal, she said.
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