September 19, 2022

Citing moral grounds, some European aluminum consumers are hesitant to purchase Russian aluminum, according to Reuters reports from an annual conference held in Barcelona, Spain last week. This conference is part of a traditional “mating season,” where aluminum buyers and sellers negotiate annual contracts. According to one anonymous trader cited by Reuters, Russian aluminum is trading for a $100 to $150/mt discount to LME. Russia’s main aluminum producer, Rusal, was not invited to the conference, but several representatives nevertheless attended, according to Reuters. It is possible the discount on Russian aluminum is evidence of that country's supply being offered at sequentially lower rates, to try to find buyers. The apprehension to seek out Russian metals comes despite a crippling power crisis across Europe that has forced nearly one million mt, or approximately 22% of the continent’s aluminum production, to go offline.

Aluminum prices have tumbled alongside European production in recent months. With last trade on the 3M Select contract at $2,248.50/mt (7:00 AM CST), prices are down nearly 10.5% from the early August highs. Also, this is barely off the 2022 low price of $2,233/mt, which was set on September 7.  Aluminum end-users might utilize the recent price drop by applying hedges that provide upside price protection, such as buying swaps or call options, both of which would establish a maximum price. Such positions are standard for end-user hedging; however, they can result in opportunity costs or cash costs if metal prices decrease. Please contact AEGIS for specific strategies that fit your operations. (9/19/2022)

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