FORECAST: Aluminium prices to remain high, volatile – Goldman Sachs

High and volatile aluminium prices are likely to persist in the near term on uncertainty caused by the US Treasury Department's sanctions on Russian oligarch Oleg Deripaska and aluminium producer UC Rusal, investment bank Goldman Sachs said in a report on Thursday April 12.

“[The] US Midwest physical premium has already spiked post the sanctions announcement and is likely to remain highly volatile,” according to the report.

Aluminium prices and premiums soared while market participants grappled with the potential loss of supply from the Russian company, which is responsible for 7% of global aluminium production.

On the London Metal Exchange, the three-month contract closed the official session at $2,303.50 per tonne ($1.04 per lb) on Friday April 13, up 15.9% since its April 6 close at $1,988 per tonne (90.2 cents per lb).

American Metal Market’s assessment of the US Midwest P1020 premium stands at 22-23 cents per lb, up 18.4% from 18.75-19.25 cents per lb on April 6.

How long prices remain elevated depends on how quickly the lost material can be filled by US domestic producers and imports from other suppliers, according to Goldman Sachs. But there are significant challenges, the bank noted, citing the time it takes to ramp up domestic production as well as output limitations from major exporters.

In particular, aluminium producers in Canada and the United Arab Emirates are operating at full or nearly full capacity, according to Goldman. And long lead times for vessels to transport Australia-origin material make that option unlikely as well.

Market sources also voiced doubts that US producers can quickly increase their output.

“New production coming on will take time,” one trader source told American Metal Market. “You’re not getting any help there.”

“I think [new US production] would take a very long time. Even something like Mount Holly could take 30 days,” another trader remarked, referring to Century Aluminum’s smelter in Hawesville, in the US state of Kentucky.

Prices could stabilize in the medium to long term once the market adjusts to these disruptions – so long as the Trump administration does not introduce quotas.

“On the longer-term basis, a couple months, surely Canada will divert every European shipment they can to the US because it’s by far the best market. There are no quotas right now, so other countries could increase imports,” a third trader said. “I don’t necessarily think in the mid- to long term the loss of Rusal is all that devastating. But if quotas are announced, then we have a bigger issue.”

Rusal’s competitors have been mulling their options to capitalize on the widening supply deficit.

“We have sold aluminium from the Pacific to the US in the past. We manage our aluminium business on a global scale, so we will move product around to optimize and provide secure supply to our customers,” Alf Barrios, chief executive of Rio Tinto Aluminium, said in a call with American Metal Market on April 12.