Rusal Discusses Deals in China to Ease Sanctions Crunch

• April 19 2018
• Alfred Cang, Yuliya Fedorinova

United Co. Rusal officials met Chinese companies and traders this week to discuss the possibility of buying alumina and selling aluminum in the Asian country as U.S. sanctions freeze out the Russian producer from markets around the world, according to people …

United Co. Rusal officials met Chinese companies and traders this week to discuss the possibility of buying alumina and selling aluminum in the Asian country as U.S. sanctions freeze out the Russian producer from markets around the world, according to people with knowledge of the talks.

Rusal’s delegation in China, which includes senior marketing and sales representatives, is discussing potential options but hasn’t reached any sort of agreement and may not do so, according to the people, who asked not to be identified because the matter is private. Chinese officials were cautious about any sort of deal because of the risk of contravening sanctions, the people said.

Rusal is looking for alternative sources of alumina, the raw material for aluminum, as sanctions block its normal supplies. At the same time, the company’s asking traders whether it can boost sales of the refined metal in ingot form in China, as its usual customers are cut off. Rusal’s press office declined to comment.

China may not be the savior Rusal is seeking. The world’s biggest producer has been cutting excess capacity, it’s exporting huge volumes of aluminum products it doesn’t need domestically and exchange warehouses are brimming with record stockpiles. What’s more, its own aluminum industry is being targeted by U.S. trade tariffs.

“It’s understandable that Rusal is looking for a solution from China as the country is the world’s biggest market of the metal,” said Wan Ling, an analyst at CRU Group in Beijing. “We’ll see major concerns from the Chinese side amid the current sensitivity in the global trade environment.”

The U.S. sanctions are upending the global supply chain for aluminum, which is used in everything from planes made by Boeing Co. to Ford Motor Co. trucks. Rusal is the biggest producer outside China, supplying about 6 percent of the world’s aluminum or about 17 percent of production outside China. It operates mines, smelters and refineries from Ireland to Jamaica.

Shares Surge

Rusal’s Hong-Kong traded shares, which have lost more than 60 percent since the sanctions were announced, rallied by more than 27 percent on Thursday to HK$1.81. The company is likely to target sales in alternative markets across the Middle East, Turkey and China to make up for lost exports to western markets, Morgan Stanley analyst Susan Bates said in an emailed note.

Aluminum and nickel have been driven to multi-year highs as the turmoil unleashed by U.S. sanctions reverberates. On Thursday, aluminum surged to the highest level since 2011, trading at $2,668.50 a ton at 4:20 p.m. in Singapore. Goldman Sachs Group Inc. forecasts prices could surge to $3,000 in the near term as the impact overwhelms the market.

— With assistance by Jack Farchy