Metal prices could see an increase of more than 25 percent from the current levels. This is what Goldman Sachs Group sees from the extraordinary rally seen in aluminum prices. The prices rose after the United States slapped sanctions against United Co, Rusal. The brokerage expects the aluminum price to hit $3,000 a metric ton and sees the increased possibility of more sanctions against coal supplies from Russia.
According to a report in Bloomberg quint, Goldman Sachs pointed out that the metal market has dramatically changed after America imposed sanctions against the second biggest producer. Brokerage houses expect price is surging anywhere $2,800 – $3,000 per metric ton in the short term. The bank has lifted its price estimations for three, six and 12-month periods. While the 25 percent gain from the targeted price is based on Tuesday’s closing price, the target price of $3,000 suggested it nearly 50 percent more than the price before the curbs came in to effect.
The financial institution indicated that the sanctions on Russian oligarchs or the companies that they control had affected the aluminum market dramatically. As a result, the ambiguity connected with the outlook is also solid. The brokerage believes that the prices could exceed its projections if the concerned parties failed to find the resolution of the issues quickly.
It is quite natural that when the United States imposes sanctions against any specific country or company, there is a supply shock globally since buyers would have to look for an alternative means of supply. As far as producers, it has weighed the impact on alumina, the semi-processed product, which is required to produce the metal. The prices of aluminum have already reached six-year highs, and further gains are forecasted by the financial service provider. However, any reversal of fortunes could drag the prices below the current levels.
Significantly, the sanctions came at a time when the upstream alumina market is facing tightness. One of the reasons for it was the operational issues at Brazil’s Alunorte refinery pointing out the refinery of Norsk Hydro ASA. Metal price reached $2,460 a ton on Wednesday on the London Metal Exchange gaining 2.3 percent. As a result, the price has hit the highest intraday level after 2011. The brokerage has a price estimation of $2,500, $2,300 and $2,000 for the three, six and 12-month period.
Possibility of Sanctions
Goldman Sachs does not rule out the possibility of sanctions against other Russian commodities. Bloomberg quoted it saying, “In the event that additional sanctions target Russian coal producers, which are a major supplier to European and East Asian markets, the long-dated aluminum price may also become unanchored. Even the partial loss of Russian coal supply would be enough to tighten the market given spare mining capacity is scarce after years of under-investment.”
As far as Rusal is concerned, the brokerage believes that it could encounter issues of sustaining output. The financial service provider thinks that though the company could produce 3.7 million ton aluminum, the domestic market could take a supply of only 1.5 million tons thus leaving the surplus of about 2.2 million tons.