Aluminum Soars On "Panic Buying" Amid Fears Of Imminent Rusal Collapse

While Russia's currency and capital markets are tumbling in a delayed response to Friday's US sanctions against a handful of Kremlin-friendly billionaires, one vital metal used across the globe in aircraft manufacturing and the auto industries is soaring today as a consequence to sanctions against Russia.

Aluminum prices have soared, first on Friday and then again on Monday, amid growing fears that sanctions on a Russian metal producer will prevent it from supplying the global commodity market, and could threaten a significant part of the global supply chain.

On Friday, the Treasury sanctioned Russian individuals, officials, state-owned firms and companies, including Rusal, the world's second largest marker of aluminum, under provisions of a law Congress passed last year to retaliate against Moscow for meddling in the 2016 U.S. presidential election. The action actions target Russian oligarchs whose companies have wide-ranging involvement in international capital markets.

Of these, Rusal may be the most important one as it accounts for about 17% of supply outside of China, according to Harbor Intelligence, whose managing director, Jorge Vazquez said that sanctions are "going to create chaos in the short term."

This does warrant a little bit of panic buying by traders - the risk is large enough and real enough to buy on the back of insecurity of supply,” said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group Ltd.

And panic buying there is: aluminum for delivery in three months soared as much as 4% to $2,124 a metric ton on the London Metal Exchange, extending a 1.6% gain in the previous session, heading for the biggest gain since December.

At the same time, the stock of Rusal tumbled a whopping 50% today alone amid fears that US sanctions - which have been designed to make it impossible for Deripaska's commodity giant to do business in U.S. dollars - would terminally cripple the company, forcing an imminent bankruptcy and collapse for the company that is owned by one of President Vladimir Putin’s closest allies.

Adding fuel to the fire, the company warned that the sanctions may result in technical defaults on some credit obligations and be “materially adverse to the business and prospects of the group,” Rusal said in a statement Monday, adding its annual report may also be delayed. “The company’s primary focus remains its business and, most importantly, all of its global customers, investors and partners.”

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