As rumors of a US government ban on Russian aluminum swirl, the global metals market has been weighing possible supply disruptions, sending the market into chaos. Volatility has ruled the day as uncertainty grows.
Experts note that unsold metal usually ends up delivered to the London Metal Exchange warehousing system, which is a series of storage warehouses which the exchange has authorized to store LME-registered metal.
Wolfe Research mining and metal analyst Timna Tanners said in an interview with CNBC, “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. So definitely this quarter reflected those challenges.”
She warned the next quarter could be problematic for the market unless there is some action taken to prevent the potential dumping of Russian origin metal, and an decrease in Chinese demand in infrastructure and property construction.
Last week it was reported Washington was looking at attempting to sanction Russian aluminum one of three ways, an outright ban, increasing tariffs so high they would serve as an effective ban, or simply sanctioning the Russian company, Rusal, which supplies the metal.
Experts in the industry however, warn that such a move could destabilize metal markets across the globe. Aluminum is crucial to most heavy industries, so an embargo could potentially force end consumers into a mad search for a replacement metal to use in their applications.
After China, Russia is the world’s second largest producer of aluminum. Bloomberg data shows that in the US Russian supplies account for 10% of total aluminum imports. Even given the current geopolitical situation, Russia was still the third largest exporter of aluminum to the United States in August.
CBA mining and energy analyst Vivek Dhar said in an interview with CNBC, that if Russian aluminum were blocked from the US, it would cause a surge in LME supply warehouses. That will compound the already pummeled aluminum market, which has seen demand wane as we head into a recessionary period causing, complex supply chain problems.
Another problem would arise if LME supply warehouses will up with Russian aluminum. The global aluminum supply chain is dependent on bauxite and alumina, which are critical to make the metal. ING economics commodities strategist Ewa Manthey notes that Rusal is not only a major supplier of aluminum, but it is also a critical element in the global supply chain of bauxite and alumina. Sanctioning Rusal could have significant effects on other aluminum producers due to this.
