Aluminum extends gains after record spike on Russia supply fears

Aluminium extended Thursday’s record surge, after the London Metal Exchange’s potential ban on Russian metal exports exacerbated supply concerns.

The metal jumped by a record 8.5% on Thursday before paring some gains, after Bloomberg reported the bourse plans to launch a discussion paper on whether and under what circumstances it should block new supplies of Russian metal from being delivered to its network of warehouses.

Any move by the LME to block Russian supplies could have significant ramifications for the global metals markets, as the country is also a major producer of vital materials including nickel and copper.

The biggest impact would be on aluminium, as about half of Europe’s smelting capacity has already been curtailed due to record electricity costs in the wake of Russia’s invasion of Ukraine. A ban would likely lead to increased trading volatility, after the metal was caught in recent weeks in a heavy sell-off as global recession fears mounted.

The potential ban has fueled worries about a possible short squeeze on aluminium, Wang Xianwei, an analyst with China Futures Co., wrote in a note. Still, the LME will aim to avoid repeat of a similar squeeze that occurred to nickel in March, he added.

Goldman Sachs downplayed the likelihood of such a ban and said the pressure on metals prices would continue, “given the current environment of physical demand weakness in Europe.” The geopolitical situation doesn’t incentivise delisting Russian metals from the exchange, analysts including Nicholas Snowdon said in a note Thursday.

Meanwhile, speaking to the demand outlook of industrial metals including copper, China’s factory activity continued to struggle in September as the country’s economic recovery was challenged by lockdowns in major cities and an ongoing property market downturn.

Aluminium added 0.8% to $2 214 a ton on the LME as of 10:03 a.m. in Shanghai for a weekly gain of more than 2%, following four weeks of losses. Other base metals were mixed, with copper down 0.2% and zinc up 1.4%.

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