Force majeure pressure drives aluminium prices to 6-year high

Force majeure pressure drives aluminium prices to 6-year high

"Consumers are concerned. Even taking old stuff that is pre-sanctions, they're nervous".

The LME has banned the metal produced by Rusal after April 6, aster the sanctions were announced from being delivered to settle future contracts. Rusal have thrown an estimated $3 billion of aluminum into limbo. However, it said traders were "generally comfortable" dealing in metal produced and sold by Rusal before that date.

That hasn't been the case for all aluminum buyers.

"RUSAL asked us to halt payments soon after the U.S. sanctions were announced as they can't access United States dollar accounts", a source at a Japanese manufacturer told the agency.

On April 10 the LME issued a direction that with effect from April 17, any metal owner wishing to place metal of any Rusal brand on warrant "may only do so where the metal owner is satisfied, and can demonstrate to the reasonable satisfaction of the LME, that it will not involve any breach of the sanctions". But they are likely to scrutinise the product's previous transactions to see if there is a risk of a violation. For example, banks may want to establish that Rusal or another sanctioned company didn't receive financing for the metal at any point.

The uncertainties put a large part of the world's stockpiles in limbo. Russian aluminum has made up a significant proportion of the global aluminum inventories since at least the early 1990s, when the collapse of the Soviet Union triggered a wave of exports. The sanctions on Rusal, which produces 7 percent of global supply, pushed aluminum prices in London to their biggest weekly gain on record.

Eoin Dinsmore, head of aluminium at CRU Group, estimated that a quarter, or just under 1-million tonnes, of global aluminium inventories outside China and outside the LME were likely to be Rusal-produced metal.

Already on April 12 the LME saw its second-largest aluminum delivery in four years. The bulk of the inflow came from Rotterdam and Vlissingen, two locations where traders historically held large volumes of Russian metal. Until Tuesday traders can deliver Rusal aluminium to the exchange as normal.

"If certain brands trade at a premium, then it would be logical for metal owners to withdraw such metal and sell it in the physical market, while warranting metal which did not command a premium", the LME said. You're not going to sell it; but outside USA, the Rusal metal will be in high demand.

"We are holding internal discussions on what actions are needed to take", a Sumitomo spokesman said.

Others, however, said Japanese buyers would be able to find replacements for refined metal from Australia, the Middle East, Malaysia and India, although securing alternatives for specialized value-added products would be harder.