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Aluminium and nickel gain amid fallout from US sanctions on Rusal

London

AFTER two weeks of extraordinary trading, investors are taking stock of the fallout from US sanctions against Russia's United Co Rusal.

Aluminium and nickel surged last week as global supply chains were disrupted by the sanctions. Major shipowners and Japan's buyers are among the latest to cut dealings with Rusal, the world's biggest aluminium maker outside of China.

"The market is in complete shock right now," David Wilson, strategist at Freepoint Commodities, said. "Everybody in the metals business who has operations in the US is going: 'we can't use this stuff'. And that means millions of tonnes of metal that can't be used."

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Aluminium has surged about 23 per cent since the start of April. The metal fell 0.6 per cent on Friday to settle at US$2,469 a tonne at 5.51pm in London, curbing its weekly gain to 8.1 per cent. Goldman Sachs Group Inc has said that the rally may have further to go, forecasting prices could spike to US$3,000 in the near term.

Alcoa Corp projected a wider global deficit of aluminium this year amid delays in Chinese plant expansions. The market for alumina, the main ingredient in aluminium, is also set to swing into deficit as a giant plant in Brazil operates at a reduced rate. "Fundamentally, the issue is how this all shakes out in the real world," Paul Gait, an analyst at Sanford C Bernstein, said in a Bloomberg TV interview. A key question now is whether Rusal can "get its metal out by other means", he said.

On Friday, Russian Finance Minister Anton Siluanov told reporters in Washington that his government doesn't plan to nationalise Rusal. The company has submitted its proposal on possible support and the government is weighing it, but the country isn't considering state purchases of aluminium as of now, he said.

Orders to remove aluminium from London Metal Exchange warehouses have jumped as consumers rushed to secure supplies. Cancelled warrants increased 23 per cent last week, according to data from the exchange.

Treasury Secretary Steven Mnuchin said that the sanctions had the effect the Trump administration wanted, and hinted at the possibility of further moves. Speaking in an interview on Fox Business, he didn't rule out additional penalties, saying the US "is not afraid to use these tools - we will use these tools - but we're not going to broadcast to the world our exact thinking".

Nickel, the other standout metal, posted the biggest weekly advance since February, climbing by 6.4 per cent. The rally has since pulled back after touching a three-year high, with the metal slipping 1.6 per cent on Friday to settle at US$14,830 a tonne. Prices jumped last week as traders speculated that other Russian companies could be subject to sanctions. The delisting of two defunct brands of MMC Norilsk Nickel PJSC nickel also sparked confusion.

Copper climbed 2.4 per cent last week to post the biggest gain in two months. Prices rose 0.1 per cent on Friday to settle at US$6,992 a tonne.

Exchange data on Friday showed orders to remove copper from LME warehouses jumped the most since 2015, rising 44 per cent to 46,475 tonnes. The increase in cancelled warrants was driven by activity in Asia. BLOOMBERG