Aluminium price hit by US sanctions for Rusal

Aluminium prices continued to fall on Tuesday after Washington gave U.S. customers of Russian producer United Company Rusal more time to close out
their business with the company and comply with sanctions.

The U.S. sanctions on Rusal, announced on April 6, last week drove prices for the metal to their highest since mid-2011 on fears that the global market could face shortages.

Aluminum prices on the London Metal Exchange tumbled 8.7 percent on the U.S. Treasury Department announcement, which gives Rusal longer to sell off large quantities of aluminum it had been stockpiling in the wake of sanctions.

Last week, aluminum prices rallied to their highest in years after Washington, in response to what it called “malign activities” by Russia, imposed the sanctions that will in effect choke off access for Deripaska’s businesses to the international financial system.

The US Treasury said if Kremlin-linked billionaire Oleg Deripaska sold his stake in the company, the world’s second-largest aluminium producer by output, it could cut or lift the sanctions. It also extended the time limit for US and non-US citizens to wind up business with the company by almost five months, to October 23.

Since the sanctions against Rusal were introduced on April 6, global aluminium prices have risen by as much as a third, prompting foreign leaders, led by French President Emmanuel Macron, to seek a reversal from Donald Trump. Rusal makes 6 per cent of the world’s supply of the metal.

Steven Mnuchin, Treasury secretary, said the “impact on our partners and allies” was a factor in the decision, and made clear that the sanctions were aimed at Mr Deripaska, a Russian national considered close to President Vladimir Putin. Other oligarchs were also hit by the April sanctions.

“Rusal has felt the impact of US sanctions because of its entanglement with Oleg Deripaska, but the US government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” Mr Mnuchin said.

Shares in Rusal, one of the world’s largest aluminum companies, jumped 17.7 percent on the Moscow Exchange. Earlier, Rusal had ended Hong Kong trading down 8.4 percent. Shares of its U.S. rival Alcoa slid 13.5 percent on the New York stock exchange.

Workers at one of Russia’s biggest aluminium smelters say their Siberian town is doomed unless Moscow mitigates U.S. sanctions against Rusal, a predicament mirrored across the company’s sprawling operations.

Deripaska owns a 48 percent stake in Rusal “and controls the company via his shareholder agreement with other owners,” said Oleg Petropavlovsky, a senior analyst at BCS Global Markets.

“It is not clear whether potential cancellation of this shareholder agreement would be enough” to satisfy U.S. officials, he said.

Rusal declined to comment on the Treasury Department announcement. The Kremlin and Deripaska did not immediately respond to requests for comment.

European leaders have worked to persuade U.S. President Donald Trump to ease sanctions on Russia, with the president of France poised to visit the White House this week.

Alumina prices have risen as much as 80 per cent since the sanctions were introduced.

Mr Macron and Angela Merkel, German chancellor, are both visiting Washington this week, where they are expected to meet Mr Trump as part of broader diplomatic efforts to soothe transatlantic relations already strained by tension over planned US tariffs on steel and aluminium.

Mnuchin said “impact on our partners and allies” factored into the reprieve. French sources said initial feedback had been “constructive.”

Rusal now has more time to sell off its supply. Even if sanctions are not ultimately lifted, buyers also have more time to seek other suppliers.

Last week, aluminum rallied to its highest since mid-2011 on fears the global market could face shortages as a result of the U.S. sanctions. It remains up more than 16 percent this month.

Wood Mackenzie analysts said Treasury’s announcement provides “much-needed breathing space” for the aluminum market, adding “We expect near-term correction and volatility” in prices.

Edward Meir, an analyst at INTL FCStone, said there is potential for Rusal to survive and that “the 5 mln (million) tons of Rusal production that a week ago was arguably radioactive, will no longer be so.”