The recently announced sanctions against key Russian individuals, such as Oleg Deripaska, CEO, United Co. Rusal, the world’s second-largest aluminum producer, are having a pronounced impact on aluminum futures and prices for alumina. The spot price for aluminum on the London Metal Exchange (LME) settled at $2,528.50 per metric ton (mt) after briefly piercing the $2,700/mt threshold earlier this week. These are highs not seen since 2011.
Last week, Rio Tinto said it would declare force majeure for contracts involving shipments of alumina from a refinery it operates with Rusal in Australia and for bauxite shipments to a Rusal alumina refinery in Ireland, which feeds smelters in Europe. Rio’s announcement rattled metals markets.
Rusal’s aluminum, alumina and bauxite production accounts for approximately 7%, 7% and 4% of the global production in 2017, respectively. The company’s inability to conduct business is creating great uncertainty in the marketplace.
The LME announced a temporary suspension on trading Rusal metal unless “the metal owner can demonstrate that it will not constitute a breach of the sanctions.” This move by the LME caused aluminum futures to surge to $2,229/mt last week. The prior closing spot price for aluminum was $1,967/mt. While the LME’s stance surprised a number of analysts, longtime E&MJ readers will remember that the exchange has taken action against Rusal previously and prevailed in court.
Other western companies are also trying to avoid becoming entangled in the sanctions. Glencore CEO Ivan Glasenberg resigned his position as a director of Rusal. Glencore holds a 9% stake in Rusal, which is valued at about $1 billion. The company said it was committed to complying with the sanctions. It also said it was halting a previously announced exchange of Rusal shares for En+ Group plc.
Deripaska is the majority owner in both Rusal and En+. A Rusal spokesperson said Deripaska called the sanctions against him baseless, ridiculous and absurd.
Sanctions aside, many doubt the 10% tariff announced by the President Donald Trump will have a positive impact for the U.S. market. Stocks for major U.S. aluminum companies were mixed. Alcoa saw the value of its stock increase recently as it produces alumina, while both Century and Kaiser (alumina consumers) saw stock values drop. Alumina prices were already heading north (approximately 10% to $500/mt) due to lower output from Alunorte’s alumina refining capacity. Located in Brazil, the word’s largest alumina refinery had declared force majeure during March after Brazilian authorities requested a 50% reduction in production while it recovered from heavy rains, floods and concerns of possible water contamination.
As it is with most commodities, China remains the wild card. China’s first-quarter 2018 total aluminum output was reportedly down 2.5% year-on-year to 8.8 million mt. March output was estimated at 3 million mt, a 2.7% year-on-year decrease. Year-to-date, China has reduced its reliance on alumina imports by as much as 60%. It could be sustaining itself on increased domestic sources and, with these alumina price swings, the market might see China export alumina.