Aluminium jumps to record as Russian attack boosts supply risks

]LONDON] Aluminium rallied to a record in London, exceeding its 2008 peak, as the deepening Ukraine crisis added to supply risks in a market already seeing critical shortages of the most widely-used base metal.

US President Joe Biden warned that Russia faces "severe sanctions" after his counterpart Vladimir Putin ordered a military attack on Ukraine. That raises the possibility of measures that could affect Russian supplies of aluminium as well as other commodities from oil to nickel.

"The market will be monitoring whether this will disrupt Russia's shipments of aluminium ingot to Europe," said Zhong Mingzheng, an analyst with Jinrui Futures. Any disruptions to Russia's natural gas exports might also hamper aluminium production by raising energy costs at European smelters, she said.

The metal rose as much as 2.9 per cent to US$3,388 a tonne on the London Metal Exchange, extending its blistering rally. The gains will heap fresh inflationary pressure on buyers who use the metal in everything from cables to drinks cans.

The aluminium market has some fairly recent experience of handling big disruptions to flows of Russian aluminium. US sanctions on major producer United Co Rusal International PJSC in 2018 sent prices soaring about 30 per cent and sparked a frenzied hunt for alternative metal. The penalties were lifted after billionaire Oleg Deripaska agreed to reduce his ownership and relinquish control.

To be sure, there is no guarantee that the situation in Ukraine, or any planned sanctions by the US or Europe, will affect aluminium or any other metal. Russia is also an important producer of nickel, palladium and copper.

Aluminium has seen a dramatic turnaround over the past 2 years, after being hit particularly hard early in the pandemic as lockdowns sparked a collapse in usage in the automotive and aerospace sectors. The metal has since more than doubled as high energy prices sparked widespread smelter shutdowns in China and Europe, just as demand in areas including construction and packaging started roaring back.

Raw materials from nickel to crude oil have surged in recent months as consumption has risen sharply with the world emerging from the pandemic, while supply has lagged. With aluminium inventories now reaching critically low levels, the metal's soaring price is adding to cost pressures on manufacturers, and analysts see further gains. Goldman Sachs Group predicted prices will reach US$4,000 within 12 months amid "unprecedented" supply tightness. BLOOMBERG