Aluminum gave up the gains after Thursday’s record surge, with the London Metal Exchange’s plan to discuss a potential ban on Russian metal exacerbating supply concerns while stimulus measures in China bolstered the demand outlook. 

Aluminum slipped as much as 2.7 per cent, the most in a week, following a record 8.5 per cent intraday gain the prior session after Bloomberg reported the bourse plans to launch a discussion paper on whether and under what circumstances it should block new supplies of Russian metal from being delivered to its network of warehouses.

Most other metals pared early gains on Friday, with zinc gaining as China stepped up measures to support its embattled property sector. The People’s Bank of China and the China Banking and Insurance Regulatory Commission recently told the country’s six largest banks to each offer at least 100 billion yuan (US$14 billion) of financing support in any form including mortgages, loans to developers and purchases of their bonds, people familiar with the matter said.

Any move by the LME to block Russian supplies could have significant ramifications for the global metals markets, as the country is also a major producer of vital materials including nickel and copper.

The biggest impact would be on aluminum, as about half of Europe’s smelting capacity already has been curtailed due to record electricity costs in the wake of Russia’s invasion of Ukraine. A ban would likely lead to increased trading volatility, after the metal was caught in recent weeks in a heavy selloff as global recession fears mounted. 

The potential ban has fueled worries about a possible short squeeze on aluminum, Wang Xianwei, an analyst with China Futures Co., wrote in a note. Still, the LME will aim to avoid repeat of a similar squeeze that occurred to nickel in March, he added.

Goldman Sachs Group Inc. downplayed the likelihood of such a ban and said the pressure on metals prices would continue, “given the current environment of physical demand weakness in Europe.” The geopolitical situation doesn’t incentivize delisting Russian metals from the exchange, analysts, including Nicholas Snowdon, said in a note Thursday.

Meanwhile, speaking to the demand outlook for industrial metals including copper, China’s factory activity continued to struggle in September as the country’s economic recovery was challenged by lockdowns in major cities and a property market downturn.

Aluminum was 1.6 per cent lower to settle at US$2,162 a ton on the LME. The metal recorded a fifth weekly loss. Zinc rose 1.3 per cent and copper added 0.2 per cent.