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Aluminum prices rose to multi-year highs last week on the back of US sanctions against Russia.

The US has since softened its tone on Russian aluminum giant Rusal Co.

But even if aggressive sanctions remain in place, some think aluminum prices will continue to fall.

Aluminum prices tumbled from a a seven-year high last week after supply concerns fizzled — and some think the worst is yet to come for the metal.



Prices of aluminum have fallen more than 12% since last week, when the Trump administration walked back sanctions against Russian giant Rusal Co. — the second-largest supplier of the metal after China.

Rusal was one of dozens of Kremlin-tied entities and individuals hit with sanctions designed to punish Russia for interference in the 2016 US presidential election, its involvement with the Assad regime, and other "malign" activities.

The Treasury Department said last Monday it would consider lifting penalties against Rusal if Russian oligarch Oleg Deripaska gave up control of the company. It also extended the deadline for Americans to comply with Rusal sanctions by four months.

It isn't yet clear whether Deripaska will step down. But some commodities experts think prices will continue falling, even if Rusal sanctions remain.

"We remain in our view that the price of aluminum will continue to decline over the coming months even if the sanctions remain in place," Capital Economics analyst Simona Gambarini said.

Gambarini thinks the sanctions would not be able to curb production of the metal. In that case, buyers outside of the West might demand lower prices.

"While the developed world might shun Russian aluminum, many other countries, notably China, might still be willing to buy it particularly if it is sold at a discount," she said.

On top of that, the commodities rally earlier this month might encourage other countries to increase aluminum production. While prices of the metal have fallen sharply this week, they're still roughly 10% above pre-sanction levels.

Capital Economics analysts lowered end-of-year aluminum price projections to $2,000 per ton, down from about $2,228.

"Of course, if Rusal was entirely exempted from the US sanctions, prices could fall further," Gambarini added.

Capital Economics

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