European aluminium premiums ‘will fall’ after US sanctions loosen

Participants in the European aluminium market expect a bearish reversal of premiums after the United States Treasury decided on Monday April 23 that it will not impose secondary sanctions on non-US market participants for doing business with Russian supplier Rusal.

The Treasury said that it wanted to mitigate the consequences for those affected by the sanctions because it wanted to target Russian oligarch Oleg Deripaska, Rusal’s ultimate owner, and not “the hard-working people who depend on Rusal and its subsidiaries.”

It also announced it was extending the period allowed to US market participants to wind down their positions with Rusal to October 23, rather than June 5.

On April 6, the US Treasury imposed sanctions on a group of Russian government officials and oligarchs, and the companies they control, for reasons that included Russia’s involvement in the annexation of Ukraine’s Crimea peninsula and the unrest in Syria, it said.

Rusal declined to comment on the matter when contacted by Metal Bulletin.

Falls in prices, premiums
On the London Metal Exchange, the three-month aluminium price closed at $2,295 per tonne on Monday, down by 7.5% on the day.

The Rotterdam duty-unpaid aluminium premium was unchanged at $150-165 per tonne on Monday, although participants were expecting the premium to go down in the next few days.

The US Treasury’s initial sanctions on Rusal earlier this month, and the potential for secondary sanctions on non-US market participants, have propelled the duty-unpaid premium upward by 55% since the sanctions were implemented early in April.

The market has seen offers for duty-unpaid aluminium in Rotterdam as high as $200 per tonne in recent sessions, but several market participants no longer see such prices as achievable following the Treasury’s latest decision.

With the threat of secondary sanctions on non-US parties being removed, more market participants are expected to be able to use Rusal metal, which was shunned when the US Treasury sanctioned the company. There are also expectations that non-US banks might be able to finance fresh Rusal materials again.

That would make the market less tight because non-US market participants can now use a wider selection of branded material, including Rusal products.

It also allows non-US market participants to tap into a significant amount of Russian metal in Europe again. According to the EU, imports of unwrought aluminium from Russia made up nearly 38% of the region’s total aluminium imports in 2017.

“There’s no secondary sanctions [on non-US market participants]. Everyone is back in the game,” one trader in Europe said.

“The past two weeks have been a roller-coaster for the aluminium markets,” a second trader said, adding that the market is expected to turn bearish.