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April 10, 2018

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US sanctions on Rusal set to benefit Rio Tinto

RIO Tinto will be among the biggest winners from the US sanctions imposed on Russian aluminum giant United Company Rusal as the penalties further shake up the global metals trade and boost costs for US consumers, industry sources said yesterday.

The United States imposed the sanctions on Friday.

Rusal, the world’s second-largest aluminum producer, and its former President Oleg Deripaska were included on the list. Rusal said the sanctions “may be materially adverse to the business and prospects of the group.”

Shares plunged 50 percent in Hong Kong yesterday.

Traders and analysts said the sanctions would accelerate a rerouting of global aluminum shipments that began last month after the US imposed a 10 percent duty on aluminum imports under the so-called “Section 232” of US trade laws.

“It probably reroutes a lot of the trade flows,” said analyst Daniel Morgan at UBS in Sydney. “It is beneficial if you are a producer that is (compliant with the section 232 tariffs) because you’ve got an ability to sell into the US and other markets.”

After President Donald Trump announced the tariffs, he later exempted the European Union and other trading partners including Canada and Australia until May.

The new sanctions on Rusal would disrupt unwrought Russian aluminum imports, which in 2017 were 695,778 tons out of a total of about 5 million tons, according to the International Trade Centre.

Rio Tinto would be well placed to replace that metal with any unsold metal if the sanctions stuck, Paul Adkins, managing director of consultancy AZ China said. Rio Tinto declined to comment.

The company produced 3.6 million tons of aluminum last year from its operations including in Canada and Australia, which are exempted from the section 232 tariffs.

“All this does is make things more expensive for Americans,” said one aluminum trader in Singapore. “Everyone who has a duty free exemption is laughing.”

US aluminum premiums traded at 18.4 US cents per pound, or about US$405 per ton on top of futures prices. Those premiums are expected to climb.

“Overall, it should be near-term bullish for the premium and price,” said another physical metal trader in Singapore.

Rising premiums could draw more Chinese aluminum to the US since the additional cost of the section 232 tariff is below the US premium, said Adkins.

A source at a Japanese aluminum fabricator said his company does not plan to change its supply contract with Rusal.

However, if their customers, such as automakers, decide to follow the US sanctions, then the company may have to think twice about buying metal from Rusal, he said.




 

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