Aluminum and Nickel Surge on Russia Risk as Stocks Shrink Again

(Bloomberg) -- Aluminum hit a record and nickel jumped to an 11-year high as traders brace for supply disruptions from Russia -- a major producer of both metals -- at a time when global stockpiles have already shrunk dramatically.

Commodities markets have been roiled by Russia's invasion of Ukraine as big corporates withdraw from the country, lenders pull back from financing deals and the threat of new sanctions deters buyers. It's also getting increasingly difficult to transport commodities like metals, which are shipped in containers. Almost half of the world's container ships will no longer go to and from Russia, based on announcements by shipping companies as of Tuesday.

At the same time, inventories of materials including aluminum tracked by the London Metal Exchange have dropped to critical levels and slipped further on Wednesday. Supplies are especially tight in Europe, where surging power prices have forced smelters to reduce production. Spiking premiums in Europe had prompted traders to start shipping metal in break-bulk vessels all the way from warehouses in Malaysia's Port Klang even before the war broke out.

Read: Europe Is Desperate for Aluminum and Traders Are Getting Creative

Aluminum rose as much as 3.4% and nickel as much as 5.6% after Shanghai Futures Exchange contracts spiked at the start of their evening session. Zinc surged more than 4% on concerns that high energy costs will lead to further smelter curtailments. Russia's United Co. Rusal International PJSC is the biggest aluminum producer outside of China and MMC Norilsk Nickel PJSC accounts for about 10% of refined nickel.

“You're taking out a large supplier in an already tight market,” said Geordie Wilkes, head of research at Sucden Financial Ltd. “We were bullish on both materials before the conflict. Now we see further gains in the near term.”

So far, Norilsk Nickel's shipments have not been significantly disrupted, according to a person familiar with the matter. While some shipholders have declined to transport its nickel and a shortage of containers is a concern, the effect is not material and buyers are still taking the metal, the person said on Wednesday.

Read: Nickel Market Eyes Fate of Siberian Metal as Sanction Fears Bite

Maersk handles some shipments for aluminum giant United Co. Rusal International PJSC, and the suspension poses a risk to its exports, a person familiar with the matter said earlier in the week.

Large volumes of aluminum as well as copper flow regularly from St. Petersburg in Russia to the European ports of Rotterdam and Vlissingen and are at threat of disruption as the chaos in shipping markets spreads.

Metal inventories on the LME continued to shrink on Wednesday -- orders for aluminum jumped by 70,700 tons, the most since June, as requests for metal rose in Port Klang. Freely-available nickel stockpiles fell to the lowest since December 2019.

Meanwhile China's top government officials have issued orders to prioritize energy and commodities supply security, sparked by concerns over disruptions stemming from the war. Russia accounted for nearly 18% of China's imports of refined nickel as of the end of last year, and made up about 12% of aluminum shipments.

Aluminum set a fresh record of $3,597 a ton on the LME before settling 2.6% higher at $3,569 at 5:53 p.m. on the LME. Nickel rose 3.1% while copper gained 1%.