Nickel leads base metals rally as Russia supply woes deepen

04 Mar, 2022

LONDON: Prices of aluminium, copper and nickel raced to fresh highs on Thursday as widening sanctions on Russia for its week-long invasion of Ukraine threatened to further disrupt the flow of commodities from the major producer.

Russia produces industrial and precious metals as well as natural gas used to generate electricity that powers the production of the commodities.

Sanctions on Russian banks and elites have disrupted the flow of material to global markets at a time when inventories for aluminium and other metals are at multi-year lows.

“This Russia and Ukraine conflict has only fanned the flames of the already stretched base metals markets,” said ING analyst Wenyu Yao.

“All energy prices are through the roof and that will add more risk to production in Europe, which will provide the catalyst to a rally.”

The United States is preparing a sanctions package targeting more Russian oligarchs as well as their companies and assets, two sources familiar with the matter said on Wednesday, as Washington steps up pressure on Russian President Vladimir Putin.

The sanctions prompted the world’s three biggest container lines to suspend cargo shipments to and from Russia.

Three-month nickel on the London Metal Exchange (LME) rose to its highest level since April 2011 at $27,976 a tonne. By 1730 GMT, it was up 5.4% at $27,300.

Benchmark LME aluminium was up 5% at $3,744 after hitting a record $3,755, while copper climbed 1.7% to $10,323 per tonne.

Russia produces about 6% of the world’s aluminium, 7% of global nickel and accounts for about 3.5% of copper supplies.

Tightness in the LME market can be seen in the spreads, which show premiums for metal for nearby delivery compared to the three-month contracts.

LME cash nickel commands a $610 tonne premium, close to the record $645 touched last week. Inventories of nickel in LME-registered warehouses are at their lowest since 2019 at 77,784 tonnes, with 52% of that booked for delivery.

Stocks of aluminium in LME-registered warehouses have more than halved over the past 12 months to 801,100 tonnes compared with nearly 2 million tonnes in March 2021.

Output from Chile’s main copper mines fell in January, affected mainly by a weak performance by state mining giant Codelco, government figures released on Thursday showed.

In other commodities, crude oil, palm oil and coal also extended their bull run as supply chains were disrupted.

Among other industrial metals, zinc traded above $4,000 for the first time in nearly 15 years. It was up 2.5% at $3,958 per tonne in later trading.

Lead was up 0.7% to $2,417 and tin rose 1.6% to $46,370 after it hit a record $46,475.

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