The Russian aluminium producer reached out to the Treasury Department with proposals, Mnuchin told reporters in Brazil on Friday July 20, noting that it was not the agency’s intent to “put Rusal out of business.” Many interpreted this as an indication of probable sanctions relief.

But analysts and market participants told American Metal Market that the downward trend in the London Metal Exchange price and in global premiums following April’s price rally reveals that the market has already priced in this possibility, doubting the sanctions will stick.

“[Sanctions relief] is probably expected to happen and that’s probably why there’s the adjustment [in prices],” one trader said.

“People were coming to that conclusion well before that news came out... I think [sanctions relief was expected], just the way the market has been trading in the last two months or so. We sold off dramatically from $2,700 and continued to sell off,” independent analyst Edward Meir told American Metal Market.

“Something is going to happen, but nobody knows exactly to what degree,” independent analyst Lloyd T. O’Carroll said. “I think there’s a probability of sanctions relief in some form, and it’s likely been priced in.”

Indeed, prices on the LME have trended downward since the cash aluminium price hit a more than six-year peak of $2,602.50 per tonne on April 19. The cash aluminium price stood at $2,130 per tonne at the close of the official session on Monday July 23, up slightly from Friday but still 18.2% bwlow the April peak.

Aluminium premiums have also declined from April’s record highs. American Metal Market’s assessment of the P1020 Midwest premium hit a more than three-year high of 22-23 cents per lb on April 10, more than double the 9.4-9.5 cents per lb recorded at the start of the year and the highest level since February 2015. The premium softened to 19.75-20.25 cents per lb on Friday.

The downward trend in prices and premiums suggests that these expectations were formed well before Mnuchin’s comments, likely after the Treasury Department extended the deadline for market participants to wind down their dealings with the company to October 23 and for investors to divest their holdings to August 5.

Therefore, if sanctions against Rusal are lifted, the impact on prices will likely be negligible given that this expectation is already factored into current prices.

Alternatively, if sanctions stay in place then prices are likely to climb, in line with investment firm ING Bank’s prediction that the LME aluminium price could hit $3,000 per tonne if sanctions remain.

“If they don’t reach an agreement, that definitely will spook the market,” Meir said. “I think you could see a 5-10% move higher [on the LME] from [the current price level].”

But not everyone agrees that this sentiment is factored into prices or that Rusal is even likely to receive relief.

“True, the Midwest premium has dipped below 20 cents per lb but I think the recent softness in aluminium prices is tied more to the softness in commodity prices,” according to IHS Markit analyst John Mothersole. “I believe, in general, softness is linked more to the growing fears of a full-blown global/China-US trade war than anything.”

The possibility of sanctions relief is still an uncertainty for some, since US President Donald Trump’s administration would have to consider the optics of lifting sanctions versus Rusal given the negative attention surrounding the Trump’s relations with Russia and the timing ahead of the US midterm elections, Mothersole noted.

“It would look very bad politically for the [Trump] administration to grant Rusal sanctions relief in say mid-October, less than a month out from the election,” he added.

There are also some concerns surrounding how quickly Rusal could reclaim its US market share and sell metal at the rate it had prior to the sanctions, since it would need to fill several positions after several executives had resigned from the company.

But a source told American Metal Market that the company could reclaim its position promptly with relative ease.

Sanctions relief would be a welcome development for most market participants since it would alleviate the market’s supply concerns.

“With [Rusal] coming back in their production will start to flow again, just as the Chinese are ramping up and some others like the Australians and Middle East producers. So the market is going to be well supplied in terms of aluminium. I don’t think we’ll see fireworks in terms of pricing if they [are] let back in,” Meir said.

In May, American Metal Market reported that aluminium stocks had been piling up at Russia’s port of Saint Petersburg and in Siberian fields, with Rusal struggling to sell its aluminium despite some volumes trickling to markets in Europe and Asia.

It is not yet clear whether trade flows would reorient themselves upon sanctions relief since cautious US buyers might choose to continue sourcing from non-Russian suppliers, market participants said.

Despite positive expectations surrounding sanctions relief, cleared Rusal imports would still be subject to the 10% Section 232 tariffs announced on aluminium imports in March.

Those tariffs would likely keep the P1020 Midwest premium at levels above 18 cents per lb, with or without the sanctions, according to Mothersole.

The US Treasury Department had sanctioned Rusal and former director, Russian oligarch Oleg Deripaska, in April.

The company’s aluminium extrusion billet was also granted an exclusion from the Section 232 tariffs on July 19 in the amount of 3,000 tonnes for a one-year period following a request submitted by Rusal American Corp in May.

Market participants were unable to agree on whether the exclusion invalidates the sanctions or whether US buyers can actually begin importing billet from Rusal. But sources agreed that the 3,000 tonnes involved in the exclusion is negligible compared with the company’s historical export volumes to the US.

Sources noted the irony of the Section 232 investigation on national security grounds, since Rusal’s exclusion suggests that material from Russia does not pose a security threat.