Aluminium hit a six-year high on Friday and posted its biggest weekly gain since the current contract was launched, after the United States imposed sanctions on Russia's UC Rusal, the world's second-biggest producer. Traders have scrambled to stockpile aluminium this week, given concerns that the removal of Rusal metal from the market would further tighten availability.
"If you look at the scope of Rusal supply, they were a very cost-efficient supplier and a very substantial one, and they were well meshed into a lot of other manufacturers downstream," Natixis analyst Cameron Karami said. "If Rusal supply does (largely) go out of the market, i.e., if they can't continue to sell via a third party, that will lead to a meaningful deficit, and that is certainly still positive for prices."
On-warrant aluminium stocks in London Metal Exchange warehouses, or metal available to the market, fell nearly 100,000 tonnes, exchange data showed on Friday, almost the same quantity as was added to headline stocks the previous day. Traders say the aluminium delivered to LME warehouses this week was probably produced by Rusal and that the cancelled warrants - material earmarked for delivery and no longer available - are likely to represent metal from other companies.
London Metal Exchange aluminium hit its highest since March 2012 at $2,340 a tonne before retreating to close at $2,285, down 1.7 percent. Its near 12 percent gain for the week was still the biggest since the contract was launched in its current form in 1987, according to Reuters data.
US sanctions on Russian entities are hitting companies controlled by tycoon Oleg Deripaska, including aluminium giant Rusal. Mining company Rio Tinto said on Friday it was declaring force majeure on certain customer contracts after the US imposed sanctions on Rusal. Almost all Rio's aluminium output comes from a joint venture with Rusal in Australia.
Almost all the aluminium in the United States was removed from Comex warehouses this week. Stocks tumbled by about 44,000 tonnes to 11,168 tonnes. The rush for stocks was reflected in time spreads on the LME, with the premium on the cash aluminium contract rising to $56 a tonne over the three-month future, its highest in at least a decade.
LME copper ended the day up 0.1 percent at $6,830 a tonne. The base metals were broadly benefiting from sharper appetite for cyclical assets on Friday, reflected by strength in equities. LME zinc finished up 0.7 percent at $3,117 a tonne, while lead closed down 1.3 percent at $2,303. Tin ended up 0.7 percent at $21,050, and nickel finished the day 1.6 percent higher at $13,940 a tonne.