In the latest sign of the volatile state of the commodities’ markets, the U.S. Treasury Department on Monday dialled back the scope of its sanctions against Russia, aluminum and palladium prices plunged while Canadian metal companies’ shares also slipped.
Last week, palladium hit US$1,040 per ounce - its highest price since February - in what many executives attributed to fears that the U.S.-Russia trade spat would create a shortage of the precious metal, mainly used by the automotive industry.
The up and down seesawing of global metals, which also occurred when nickel surged 10 per cent last week only to fall, has put many executives in the awkward spot of looking skeptical about market movement that accrues to their benefit. In many cases, executives are urging investors to ignore short term movements and focus on the fundamentals.
"As bullish as I am on nickel in the near term, I think the move is temporary," Anthony Milewski, chairman of Cobalt 27 Capital Corp., which has nickel investments, told the Financial Post. "This particular move has been driven by sanctions on Russia - I think it's a scare as much as anything."
The company stock fell 1.94 per cent on Monday, while the S&P TSX Capped Materials Index fell 1.2 per cent on the day.
At Toronto-based North American Palladium Ltd., chief executive Jim Gallagher said that the surge could help his business, but is too fleeting to base any strategy around.
"It's very hard for mining companies to react to the tweetstorm," said Gallagher, referring to short-lived moves in spot prices based on fears about U.S. trade policies, amid U.S. President Donald Trump's pronouncements on social media.
Indeed, his company stock fell 3.55 per cent on the Toronto Stock Exchange on Monday, but is up 44.45 per cent this year.
So far, the U.S. has sanctioned 14 individuals as well as many companies who are believed to be closely allied with Russian President Vladimir Putin.
The sanctions did not target Russia’s Norilsk Nickel, a major producer of nickel and palladium, but did target one of its major investors, the billionaire Oleg Deripaska. That left investors with questions about whether the company would face disruption and what impact on markets might occur.
On Monday, U.S. Treasury Secretary Steven Mnuchin assuaged those fears, by giving companies that work with a different company controlled by Deripaska — the aluminum producer Rusal — an extension of five months to unwind their business deals.
“RUSAL has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska,” Mnuchin said in a statement, “but the U.S. government is not targeting the hardworking people who depend on RUSAL and its subsidiaries.”
Bloomberg reported that Mnuchin also met with Russian Finance Minister Siluanov during International Monetary Fund meetings in Washington last week and laid out a path for easing sanctions on Rusal — if Deripaska divests and relinquishes control.
Aluminum prices dropped on Monday by as much as 9.4 per cent.
Gallagher said such trade wars can occasionally be beneficial to his companies, through higher palladium prices, for instance.
But such gains are usually balanced by other factors: For instance, his company spends up to $3 million per year on steel products used as ground support in its mine outside Thunder Bay, and a supplier recently sent word to expect a price increase of up to 30 per cent, according to Gallagher.
So he continues to pitch investors on palladium as a metal that will go into deficit, based on demand from automotive sales and other factors such as labour conditions.
Gallagher said the predicted shift to electric vehicles in the next decade, occasionally hurts palladium companies: Investors only remember that the metal is used in catalytic converters to control emissions in conventional engines, forgetting that hybrid vehicles — which will be part of the shift — also need catalytic converters.
"I think most people are saying you're going to get fluctuations in reaction to the latest (tweet) but you got to stick to the long term plan," said Gallagher.
?EUR? Email: gfriedman@postmedia.com | Twitter: GabeFriedz