Institution: Aluminium Prices Likely to Pivot in the Near Term!

Aluminium Corporation of China (Chalco, 02600.HK) opened higher on Thursday October 13 against the general trend. On the news front, the U.S. authorities are considering sanctions against Rusal, causing international aluminium price to soar 7%.

According to media reports citing sources, the U.S. Biden administration is considering a complete ban on imports of Russia aluminium as a response to the recent escalation in Russia and Ukraine conflict. Previously, because aluminium is widely used in multiple fields such as automobile, electronics and skyscrapers, the West world has not included Rusal in sanctions.

LME aluminium once rose nearly 7% on this news, and the increase was reduced to 3.96% at the close.

The White House is considering three options: banning Russia aluminium altogether, raising tariffs to punitive levels, or sanctioning Rusal, according to people familiar with the matter.

The move will have wide-ranging ramifications for the global aluminium market, and the aluminium consuming countries, including the U.S., may need to rush to find alternatives.

Russia is the world's second-largest aluminium producer, accounting for about 6%of global production, while Rusal is Russia's only primary aluminium producer, producing 3.76 million mt of aluminium in 2021.

Aluminium price is expected to rise

Not only that, but the LME is launching a discussion paper on whether and under what circumstances the Russia metals shall be banned.

CITIC Construction Investment pointed out that the sanctions may change the global aluminium supply and demand pattern. If the Russia aluminium companies are prohibited from delivering, the forces suppressing the market may be lifted. In addition, the production reduction is carried out smoothly in south-west China, especially in Yunnan. And it is expected that the production will return to normal in the middle of next year. Judging from the situation of overseas aluminium plants, there have been substantial losses, preventing aluminium prices from further declines. As such, aluminium prices are likely to usher in a pivot soon.

Aluminium production outside China fell 1% in the first seven months of this year, according to the International Aluminium Association. Among them, aluminium production in Western Europe lost 11% year-on-year, and the annualised operating capacity was always below 3 million mt, the first time since this century; North American production fell 5% year-on-year.

Huatai Securities said that the high electricity and natural gas prices in Europe remains high have resulted in the closure of overseas aluminium smelters. It is expected that from 2021 to 2022, the cumulative overseas production reduction may reach 1.35 million mt, accounting for about 1.7% of global production capacity. Worse still, production resumption is unlikely in the near term, with the production likely to be cut further.

According to CITIC Securities, factors such as the overseas energy crisis, sudden production cuts by domestic aluminium plants, and tight power supply have led to a significant decline in the growth rate of aluminium supply. Although the demand side is currently in the off-season, it is expected to pick up somewhat driven by the continuous improvement of consumption in the fields of automobile, photovoltaic, and power grids, potentially boosting aluminium prices.