Daily Brief - Metal Markets Melt Up

TLDR: Yesterday aluminum prices witnessed their largest intraday gain since the inception of the trading contract 37 years ago, primarily driven by new sanctions imposed by the UK and US against Russian metal supplies.

On Monday, aluminum prices soared by 9.4% during the trading day, closing at $2,562 per tonne.

The sanctions, announced late last week, directly target the trading of new Russian aluminium, nickel, and copper on two of the world's largest exchanges—the London Metal Exchange (LME) and the Chicago Mercantile Exchange.

These developments come as the LME and other exchanges struggle with high inventory levels of Russian metals, which have become less desirable in the market. The LME responded by stating that while Russian metals produced after April 13 would not be allowed in its warehouses, those produced earlier could still be stored but would be categorized separately.

Interestingly, despite the sanctions, Rusal, Russia's largest aluminium producer, claimed the measures would not impact its operations significantly. The company emphasized its robust global logistics and production systems that purportedly allow it to continue meeting international demand without interruption.

However, market analysts predict that the geopolitical tension might shift trade flows. Countries like China, India, and Turkey could become alternative markets for Russian metals shunned by Western consumers, potentially reshaping global trade dynamics in these critical industrial commodities.

Scenario Spotlight: Impact on the S&P 500

The chart above displays the historical one-month response from the SPX based on the past 21 instances when aluminum prices were above $2500/tonne.

Market Movers: Response from US Sectors

Here are the top and bottom performing US sectors, when aluminum prices have been above $2500/tonne.

The top 3 performing assets on a 1-month horizon:

1. S&P OIL GAS EXPLOR PROD: +1.78%
2. S&P Oil Equip: +1.76%
3. S&P Energy: +1.55%

The bottom 3 performing assets on a 1-month horizon:

1. S&P Homebuilders Select Industry Index: -2.38%
2. S&P Gold Miners: -1.54%
3. S&P Semi Select Industry Index: -0.93%

Earnings Spotlight: Speaking of semis

ASML is set to report its first-quarter 2024 earnings on April 17, with cautious expectations due to conservative revenue forecasts between 5 billion euros and 5.5 billion euros—a significant decline from the previous year. The company also expects a lower gross margin of 48% to 49%.

Despite these forecasts, strong demand for ASML's advanced EUV lithography machines, driven by the booming AI chip market, suggests potential for better-than-expected results.