Japan traders ask Rusal to stop shipping aluminum after US sanctions

Galtero Lara
Abril 17, 2018

Although the European Union has a temporary exemption from the U.S.'s Section 232 tariffs on steel and aluminum, it is demanding compensation at the World Trade Organization, Reuters reported.

The exchange said it was "plausible" that, as a result of the sanctions, the proportion of warrants represented by Rusal brands may increase but argued that "by ensuring that all warrants relating to Rusal brands are composed of pre-April 6 metal, the LME does not believe that those taking delivery on the LME will be burdened with unusable metal". But added that traders were "generally comfortable" dealing in metal produced and sold by Rusal before that date.

That has not been the case for all aluminium buyers. Some told their suppliers they won't accept delivery of any Rusal metal, regardless of when it was produced, according to executives at trading companies and metal users, who asked not to be identified.

Banks are also navigating the issue.

On April 10 the LME issued a direction that with effect from April 17, any metal owner wishing to place metal of any Rusal brand on warrant "may only do so where the metal owner is satisfied, and can demonstrate to the reasonable satisfaction of the LME, that it will not involve any breach of the sanctions". For example, banks may want to establish that Rusal or another sanctioned company didn't receive financing for the metal at any point. The uncertainties did up a huge part of world's stockpiles in limbo.

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Aluminium from Eastern Europe of which majority was produced by Rural accounted for 450,000 metric tons which comprises 36% percent of global stockpiles tracked by the LME as on April, 6.

Eoin Dinsmore, head of aluminium at CRU Group, estimated that a quarter, or just under 1-million tonnes, of global aluminium inventories outside China and outside the LME were likely to be Rusal-produced metal.

In practice, the most straightforward way for traders to deal with their stocks of old Rusal metal may be to deliver it to the LME.

The LME was also concerned "to ensure that the metal delivered on its market is of a sufficiently high standard to ensure that the LME aluminium price (which, by definition, should correspond to the value of the warrants delivered in settlement on the LME market) remains representative of the requirements of global aluminium buyers, and hence that the exchange's prices remain the global reference". Until Tuesday traders can deliver Rusal aluminium to the exchange as normal.

"For stuff on the ground in the US, it's hard to see another option. You're not going to sell it", said Dinsmore of CRU. But outside the US, the Rusal metal will be in high demand. "It's needed to alleviate some of the tightness", he said.

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