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One Commodity Set To Soar On Russian Sanctions

Aluminum

U.S. aluminum prices are skyrocketing in the aftermath of Russia sanctions that targeted giant metals miner Rusal, and we’ve haven’t seen the end to the upside yet as Goldman Sachs predicts a spike to $3,000 per metric ton.

In the commodities space right now, there’s not much that looks better than aluminum.

(Click to enlarge)

Source: Bloomberg

Even on the cautious side, Goldman is predicting a surge to $2,800, but it could easily reach $3,000 in the near term.

As such, Goldman has boosted its price predictions for aluminum for three, six and 12 months.

All in all, that price target would mean an amazing 50-percent rise from prices before sanctions, and another ~25 percent increase from today.

But it could get even better of aluminum prices given the unpredictability of Trump and his knee-jerk sanctions policies. 

“U.S. sanctions on Russian oligarchs and the companies that they own or control have dramatically affected the aluminum market,” Bloomberg quoted the bank as saying. “The uncertainty associated with our forecasts is great. In the event that resolutions are not found quickly enough, prices are likely to exceed our forecasts.”

Goldman’s talking about the London Metals Exchange (LME), where prices climbed Wednesday 2.3 percent to $2,460 per ton—the highest since 2011.  Related: Elon Musk’s $2.6 Billion Tesla Challenge

But we’re about to see a major divergence of prices between the U.S. market and the LME, where April 6 sanctions against Rusal about to be figured in with new contracts, according to Reuters.

On Tuesday, Rusal’s aluminium was suspended from the LME. That means it can’t be registered as an approved brand anymore, but it already had supplies in LME warehouses that won’t be affected.

Now it’s time for U.S. premiums on aluminum to shine, which had already doubled back in January, when the specter of tariffs first emerged. Since April 6, those premiums have jumped another 15 percent—and it’s above the prices set on the LME futures exchange, according to Reuters.

Premiums are the cost on top of futures prices to obtain physical metal, and it’s already flowing to the U.S. from Canada and Australia, both of which are exempt from the tariffs.

“U.S. premiums for aluminum are up, there needs to be a divergence against the LME to incentivize exports of primary metal and semi products to the United States,” ING commodities strategist Oliver Nugent told Reuters.  

(Click to enlarge)

Source: MarketRealist

So far, aluminium giants are basking in the sanctions glory. Alcoa, the world’s sixth-largest producer of aluminum, has seen its stock jump more than 20 percent in 30 days, first boosted by tariffs, and then by sanctions on Russia.

Related: Geopolitical Tensions Fail To Boost Gold Prices

(Click to enlarge)

This is one to watch today because earnings are due after the closing bell

So exactly how tight is the market going to get? Pretty tight because Rusal is sanctioned and accounts for some 14 percent of world production outside of China. And China has to deal with higher tariffs. This is a 65-million-ton-per-year market that needs to be supplied, and no one’s sure if China can handle the extra. Premiums are looking great.

By David Craggen for Safehaven.com

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