Potential Russian Aluminium Ban might Induce a Turning Point in Aluminium Prices

SHANGHAI, Oct 10 (SMM) - According to media reports, LME launched a discussion paper on the possibility and conditions of banning new deliveries of Russian metals. China Securities pointed out that this sanction was likely to change the global supply-demand structure of aluminium. If the Russian aluminium companies are prohibited from LME, the suppression on aluminium prices might be lifted. At the same time, the aluminium smelters in southwest China continued to reduce the production, which will not resume the normal level until the middle of 2023. At the same time, overseas aluminium smelters already suffered substantial losses, and further decline in aluminium prices will jeopardising their following operation. Therefore, it is expected that aluminium prices will begin to rise.

Russia is rich in mineral resources and a major producer of metals. In particular, it supplies 5.8% aluminium worldwide, with trades accounting for about 12%. In addition, Rusal is the largest supplier of aluminium for Europe, as 40% of European aluminium supplies come from Rusal.

The current fall in aluminium prices was mainly attributed to the weaker demand for LME aluminium from Europe. Meanwhile, the market participants were worried that the stocks of Rusal's undelivered long-term orders will be delivered to LME warehouses, further weighing on the LME prices. The continuous weakening of LME prices has led to the opening of China’s import window for aluminium ingots, which was the major reason for dropping SHFE aluminium prices despite the constantly falling domestic aluminium inventories.

SMM data shows that the overseas aluminium capacity cuts during 2021-2022 amounted to 1.476 million mt.

According to the International Aluminium Association (IAI), the global aluminium output with China excluded was down 1% in the first seven months of 2022. Among them, aluminium output in Western Europe slumped by 11% year-on-year, and annualised run-rates are now consistently below the 3 million mt for the first time since this century. The aluminium output in North America dropped 5.1% over the same timeframe. The increase in South American output was overshadowed by the output cuts in Western Europe and America.

Huatai Securities said that as the prices of electricity and natural gas in Europe remained high, the overseas aluminium smelters were forced to shut down due to high costs. From 2021 to 2022, the cumulative overseas production reduction may reach 1.35 million mt, accounting for about 1.7% of global production capacity. What’s worse, the chances are little that the production will recover in the short term, and more cuts are still likely.

According to Citic Securities, the growth rate of aluminium supply slowed down significantly due to factors such as overseas energy crisis, unexpected production reduction of domestic aluminium smelters, and the shortage of power supply. Although the demand for aluminium is at the seasonal low, it is likely to rise driven by the increasing consumption in the fields of automobile, photovoltaics, and power grid. Therefore, the aluminium prices are expected to grow in the future.