US President Trump’s new sanctions on Russian oliogarchs and other top government officials have seen aluminium commodity prices spike on the London Metal Exchange (LME) over the past few days as fears about the impact on aluminium producer Rusal – which produces around 6% of the world’s aluminium – begins to play out. Rusal is controlled by Russian billionaire Oleg Deripaska.
News of the sanctions on Russia, imposed by the US Department of the Treasury’s Office of Foreign Assets Control on 6 April 2018, also hit other Russian stocks as well as the value of the rouble, which earlier this week reportedly saw its largest daily fall in value in more than three years.
The price of aluminium on the LME hit a high of $2,251/t on Wednesday 11 April before falling slightly to $2219.5/t yesterday (12 April). Over the previous month LME aluminium prices had been falling steadily from 2,096.5/t on 12 March to $1,966/t on 6 April, the day the sanctions were announced.
Rusal share value halved
According to a report in The Guardian on Tuesday 9 April, the value of Rusal shares halved in Hong Kong and more than 40% was wiped off the value of Deripaska’s London-listed holding company EN+ as investors took fright. The report also noted that shares in Rusal and EN+ had already fallen sharply last Friday (6 April) in response to the sanctions. Rusal is said to sell more than 10% of its aluminium in the US.
On the same day as The Guardian report, the LME announced that it would be temporarily suspending trading in shares of Rusal and those of its brands with effect from 00.01 UK time on 17 April unless the company could demonstrate that it would not put the LME in breach of the sanctions.
In a statement, the LME said: “The temporary conditional suspension shall continue until further notice, allowing the LME to engage with stakeholders to determine the appropriate longer-term approach.”
The effect on global commodities caused by US sanctions on Russia, imposed with the intention of punishing President Putin and his close associates for Russia’s support of Bashar al-Assad’s regime in Syria and other unacceptable activities, followed Trump’s earlier tariff announcement of 10% on aluminium and 25% on steel imports to the US.
This news was met with howls of dismay by groups representing US manufacturers. In a statement early last month (1 March), The Can Manufacturers Institute (CMI) said it was extremely disappointed that President Trump hadn’t excluded aluminium can sheets, aluminium ingot and tinplate steel from tariffs.
The CMI said tariff restrictions would have a severe economic impact on the can manufacturing industry and its employees. “Like most industries, can makers depend on predictability in supply and price,” said the CMI. “If the aluminium supply is hindered by unnecessary tariffs, it could lead to supply inefficiencies and affect product availability.”
US tinplate steel production does not meet domestic demand, it said. In 2016, US can industry demand was 2.1Mt, while domestic tinplate production was 1.2Mt. It added that only 58% of domestic demand could be met by US tinplate producers.
While the CMI has so far not respond to a request from me on the latest sanctions, which have pushed up aluminium prices, its members are unlikely to be happy about the news.
Meanwhile, Trump has threatened another $100bn of tariffs on imported goods from China,in addition to the tariffs already imposed on imports of steel and aluminium from that country.
Threat of military action
And with the US, France and the UK now threatening military action against the Russian-supported regime in Syria for the recent poison gas attacks it almost certainly carried out on the rebel-held suburb of Douma near Damascus last Saturday (7 April), we can expect relations between Russia and the west to deteriorate further.
The biggest fear is that it could potentially lead to direct (rather than proxy) armed conflict between two of the world’s biggest military powers. Even if this nightmare scenario isn’t – I sincerely hope –realised, it will inevitably hit global trade and commerce further.
We do live in very dangerous and uncertain times.