US government sanctions have threatened the viability of the largest primary aluminium producer outside China. The Trump administration sanctions prohibit UC Rusal from selling in the US and prevent US banks from providing services to UC Rusal. As a result, major metal offtake agreements have been frozen and non US banks are distancing themselves from transactions with UC Rusal for fear of secondary sanctions. This follows the Section 232 and Section 301 investigations, which taken together confirm that the Trump administration has transformed the global aluminium market.
US sanctions transform the aluminium market
CRU has determined two possible outcomes from the UC Rusal sanctions and we attribute a 50/50 chance between these outcomes.
Resolution is reached, which side-lines Oleg Deripaska and allows for Russian primary aluminium, produced after April 6, to be bought and sold in a sufficiently large market for UC Rusal primary aluminium production to continue uninterrupted.
No resolution is reached to the UC Rusal saga, despite nationalisation of the company. Russian output is reduced as a result of lower alumina imports and a shortage of buyers. A cap on Russian demand and limited exports means metal is trapped in Russia, and as a result the LME price will soar to $3,000/t to prompt exports from China.
Key stress points for UC Rusal:
1. Liquidity for ongoing operations
The sanctions mean that UC Rusal's market access has been massively constrained. The company has already received short-term liquidity from the Russian government and full nationalisation looks likely. Operations in Russia are the most insulated from sanctions. The Sunndsval (Kubal) smelter in Sweden may be unable to function as a UC Rusal entity if funding from the Russian state cannot be channelled to Sweden. The same is true of the alumina refineries in Ukraine, Australia and Ireland which may need to curtail output in coming weeks or. This may depend on whether nationalisation is possible by the respective governments.
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