Deripaska, Rusal sanctions bullish for US aluminium market; Glencore affected

The United States has sanctioned and frozen the assets of Oleg Deripaska and UC Rusal that are subject to US jurisdiction, prompting bullish sentiment and expectations of tightness in the US aluminium market, industry participants told Metal Bulletin.

"All assets subject to US jurisdiction of the designated individuals and entities, and of any other entities blocked by operation of law as a result of their ownership by a sanctioned party, are frozen, and US persons are generally prohibited from dealings with them. Additionally, non-US persons could face sanctions for knowingly facilitating significant transactions for or on behalf of the individuals or entities blocked today," the US Department of the Treasury said on Friday April 6. 
Rusal, one of the world's largest aluminium producers, responsible for 7% of global aluminium production, was designated an oligarch-owned company by the Treasury Department on Friday. The Treasury designated Rusal stakeholder Viktor Vekselberg as an oligarch as well.
"Rusal is aware of its inclusion in the OFAC's SDN [Office of Foreign Asset Control's Specially Designated Nationals] list. The company regrets this development and is currently analyzing the situation with its legal advisers," a Rusal spokesperson said.
The Treasury's Office of Foreign Asset Control is issuing two general licenses to minimize immediate disruptions to US persons, partners and allies. That could allow Rusal to continue to do business in the US for the time being - and is feeding uncertainty in the market.
Rusal shares on the Moscow Exchange declined by 17.7% on Friday after news of the sanctions broke.
Glencore hit
Glencore, which owns an 8.75% stake in Rusal, is expected to be significantly affected by the sanctions. Shares for Glencore closed down 2.1% on the London Stock Exchange on Friday.
Metal Bulletin reported last September that Glencore allegedly required the Russian producer to supply it with roughly 14.5 million tonnes of commodity-grade aluminium over the seven years since 2012. Notably, only units in the US or committed to go there may be subject to the sanctions.
Company representatives declined Metal Bulletin's request for comment.
"Glencore has the most to lose out of the whole thing. No one’s tied up with as much Rusal as they are," one trader said, voicing a sentiment supported by several other sources.
Uncertainty and expected tight supply
The sanction and freezing of Rusal and Deripaska's assets under US jurisdiction is expected to push the US market away from using Rusal units, which possibility is spurring bullish sentiment in the global aluminium market.
The US imported 710,000 tonnes of aluminium from Russia in 2017, according to the US Geological Survey.
The US Midwest delivered P1020 premium was assessed at 18.75-19.25 cents per lb and the benchmark Rotterdam European duty-unpaid premium at $98-105 per tonne on Friday April 6.
CME Group forward contracts for the US Midwest premium moved higher on Friday, narrowing the spread between futures and spot assessments. The forward premium for May was seen at 18 cents per lb on April 6, compared with 16 cents per lb on Tuesday April 3.
Market participants, some of whom were shocked by the sanctions, expect that development will be bullish for premiums and that the market will significantly tighten. Still, some industry participants were trying to process what the sanctions mean for Rusal aluminium units in the US as a whole.

Danielle Assalve

Perrine Faye

perrine.faye@fastmarkets.com

Justin Yang

justin.yang@fastmarkets.com

Alice Mason

alice.mason@fastmarkets.com

Michael Roh

michael.roh@fastmarkets.com

Published

Danielle Assalve

Perrine Faye

Justin Yang

Alice Mason

Michael Roh

April 06, 2018

20:09 GMT

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