Aluminum stocks are up today on new reports of the US international trade drama. It appears President Joe Biden’s administration is considering a possible Russian aluminum ban. This news shows great potential for American aluminum companies, and this enthusiasm is reflected in fluctuating market prices.
Aluminum is an extremely important product. Although it is not a precious metal, it is a very valuable material due to its conductivity, lightness and recyclability. The metal is used in building materials, aircraft and car parts, kitchen utensils, appliances, military applications and more.
Due to its versatility and many uses, America has a strong demand for the material, both manufacturing its own aluminum through private companies and importing the metal through a number of countries. The largest aluminum exporters to the United States are Canada, China, Mexico, United Arab Emirates, Bahrain and Thailand. The country also receives imports from Russia; about 10% of the aluminum in the United States comes from the Eastern European nation. Although US imports from Russia are small, the country remains dominant in the aluminum industry. Russian aluminum manufacturer Rusal is the world’s second largest producer of metal.
However, following the Russian invasion of Ukraine, supply chains were disrupted and ethical dilemmas piled up. The war prompts much of the Western world to impose harsh sanctions on the country, attempting to stifle the Russian economy. But while they talk a lot, the US and EU haven’t picked and chosen which imports they’re excluding Russia from. In the aftermath of the war, American and European imports of metals like aluminum and nickel actually increased. This week, it looks like the US government is trying to put things right.
Aluminum stocks gain as Russian aluminum ban teased
Aluminum stocks are the big winners today. Alcoa Corporation (NYSE:AA) is growing by more than 5%, with trading volume almost three times higher than in an average session. aluminum century (NASDAQ:CENX) is up over 9% with a similar volume spike.
The spikes come as investors expect an influx of business for U.S. aluminum makers. Those expectations are boosted by rumors that President Joe Biden is mulling a ban on Russian aluminum imports. As Bloomberg reports, three options are on the table for action against Russia. These options include an outright ban, raising tariffs until an effective ban, and the specific punishment of Rusal.
The decision would come as Russia’s tactics in Ukraine turn more violent. The country is stepping up bombing campaigns in Ukraine’s biggest cities, and in a recent speech Russian President Vladimir Putin again signaled his willingness to threaten nuclear war.
By banning imports, it is believed competition could increase among US manufacturers, spurring immediate gains. However, the effects are not all positive. Bloomberg Journalists draw attention to recent concerns from US officials that aluminum sanctions could drive up prices. These fears would seem justified; since the article was published, aluminum prices immediately jumped 7%. Rusal warned that sanctions against him would destabilize the entire aluminum industry. Sanctions imposed on the company in 2018 crippled Rusal, but they have led to major supply problems and major reductions in production and the global workforce.
As of the date of publication, Brenden Rearick had no position (directly or indirectly) in the securities mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com publishing guidelines.