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Aluminum climbs to a six-year high due to Rosal’s sanctions

posted onApril 13, 2018
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Aluminum climbed to a six-year high on Friday and posted its biggest weekly gain as U.S. sanctions on leading Russian producer Rusal sent buyers and business partners to find supplies. Standard metals contracts on the London Metal Exchange (LME) hit their highest level since March 2012 at $ 2,340 a tonne before falling to a low of 1.7 percent at $ 2285. 

Over the course of the week, aluminum posted a 12 percent jump in its biggest week of gains since the London Stock Exchange began trading in 1987, according to Reuters data. Prices of the metal climbed to the highest since 2012 Thursday, helping push this week’s gain to almost 14 percent, the most in Bloomberg records going back to June 1987.

“People are rushing to secure supply,” Ryan McKay, a commodity strategist at TD Securities in Toronto, told Bloomberg. “People are expecting that a significant amount of the metal produced by Rusal is going to be off the market.

Rusal produces around 6 percent of the world’s aluminum and  had sales of nearly $10 billion in 2017, with about 15% coming from the United States -- its second largest market after Russia. The company's shares have plummeted 56% since the sanctions were announced. The Moscow-based company also controls about 28 percent of Norilsk Nickel, which operates some of the richest mines in palladium, platinum, and nickel.

Earlier this month, the U.S. sanctioned several Russian oligarchs, officials, businesses and agencies, freezing assets that are subject to U.S. jurisdiction and forbid Americans in general from doing business with them. "We cannot allow those seeking to sow confusion, discord, and rancor to be successful," President Donald Trump said in a statement released by the White House. 

Russian lawmaker Konstantin Kosachev, chairman of the international affairs committee of Russia's upper house of parliament, described the action as baseless and unfriendly, Interfax news agency reported. 

Christopher Granville, a managing director at TS Lombard, in a note to clients said: "The new US sanctions against Russia are a negative game-changer for three reasons: they directly affect portfolio investments; they are de-linked from clear conditionality; and they will be applied 'extra-territorially.

Short term price hikes won't do much to affect the cost of the consumer goods, but if aluminum remains expensive, companies will eventually look to raise prices on products that use the metal.

With reporting by Reuters, Bloomberg