Surging volumes and volatility in industrial metals so far this year, largely due to U.S. sanctions slapped on Russian aluminum producer, Rusal, have been a major money-spinner for several brokers and banks after years of tepid market conditions, according to a monitored report.
The lurching market, however, has also created difficulties for some managing risk, while producers and consumers have struggled to lock in prices through hedging programmes.
Ten London Metal Exchange (LME) members who participated in a poll have seen profits improve during the first five months of this year, with an average rise of 30 percent.
The results varied widely, with one reporting a single digit rise while another surged about 70 percent.
“Business has been very, very good for anybody in our shoes that thrives on volatile markets. Trump talking about sanctions on Rusal was enough to really blow the market into the stratosphere,” said the head of metals at an LME broker, who declined to be named.
“But anybody who’s involved in the risk side of things, the market-making side of things, would have had an incredible scary ride through April.”
Volumes on the LME, the world’s largest market for industrial metals owned by Hong Kong Exchanges and Clearing, jumped 31 percent during the first five months of the year to 80.5 million lots.
April, when the United States imposed tough sanctions on United Company Rusal, was a stand out, with average daily volumes skyrocketing 63 percent.
Benchmark LME aluminum prices shot up 35 percent in 10 days to the highest in nearly seven years after U.S. President Donald Trump unveiled the move against Russian oligarchs.
They then slumped about 20 percent over the next four sessions when Washington relaxed the sanctions.
“I’ve worked in this market for 30-odd years and I’ve never seen volatility like that in any metal market,” the LME broker said.