Aluminium, nickel prices spike on fresh Russia sanctions

Aluminium, nickel prices soar on the LME after new Russia sanctions

On Monday, aluminium and nickel prices soared on the London Metal Exchange (LME) following the imposition of new U.S. and UK sanctions that banned the trading of the metals originating from Russia.

The sanctions, announced over the weekend, are part of a broader effort by the Group of Seven (G7) nations to reduce Russian revenues from the commodities amid the ongoing war in Ukraine.

As a result, the price of aluminum for delivery in three months soared by as much as 9%, reaching over $2,700 per ton before settling slightly lower, while nickel prices rose by approximately 4%.

These measures specifically target aluminium, nickel, and copper sourced from Russia after Saturday and do not apply to metals produced prior to this cutoff.

Russia notably accounts for about 6% of global nickel production, 5% of aluminium and 4% of copper. Russia is the world’s second-largest producer of refined class 1 nickel behind China — the only type that is deliverable on the LME.

In a news release, Treasury Secretary Janet Yellen said:

“Our new prohibitions on key metals, in coordination with our partners in the United Kingdom, will continue to target the revenue Russia can earn to continue its brutal war against Ukraine”.

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Metals, mining shares jump on sanctions news

Multiple metals producers and mines saw their shares rise after the sanctions were announced.

Pittsburgh-based aluminium producer Alcoa saw its stock increase by 5.4%, while shares of Rio Tinto, a diversified miner in London, rose by 0.9%. The LME and the Chicago Mercantile Exchange (CME) have barred new Russian metals produced after the deadline from being traded.

In a note to clients cited by MarketWatch, a team of metals strategists at the investment bank Citigroup, led by Tom Mulqueen, wrote:

“We think the net impact is positive for LME-traded primary aluminum, copper and nickel flat prices as it shifts the prior discount for new Russian units of these metals off-exchange and creates vulnerability to near-dated spread tightness through future inventory cancellations”.

“However, the measures are not meaningfully targeting physical trade of units outside the LME warehouse system, which should moderate the scale of the price impact. We think the measures are intended to (and will) drive deeper discounts for new Russian metal production versus global prices by constraining options for their sale and finance”.

ING says sanctions will be bullish for LME prices

In a note on April 15, Ewa Manthey, a commodities strategist at the Dutch bank ING, wrote that the move will prove bullish for metals — and nickel prices in particular.

Russia will be “forced” to accept lower prices for the commodities, although they will continue to flow to sanction-neutral countries, such as China, according to the analyst:

“The move will be bullish for prices on the LME, which are used as a benchmark in contracts around the world. The LME nickel prices, in particular, remain vulnerable to major price spikes following the nickel squeeze in March 2022 after Russia’s invasion of Ukraine and a build-up in short positions on the exchange. However, the LME has placed daily limits which prevent prices from rising more than 12% in a day for copper and aluminium and 15% for nickel. [...]

The LME is a market of last resort for the physical metals industry. Although most metals traded globally are never delivered to an LME warehouse, some contracts stipulate that the metal should be LME deliverable.

This means that Russian companies will be forced to accept lower prices. Russia-origin metals will trade at even wider discounts and will continue to flow to sanction-neutral countries, like China, the world’s biggest aluminium consumer”.

At the time of writing on Tuesday, April 16, aluminium futures were down 0.67% at $2,528 per ton. Nickel prices were down 0.42% at $17,771.5.

Copper prices recently jumped to their highest level in 15 months, with analysts at Citigroup calling the start of this century’s second bull market for the commodity.