A complete US ban on Russian aluminum threatens to upend a global market already reeling from multiple disruptions, throwing a spotlight on how China could fill any supply gap.
The Biden administration is considering options including sanctions on Russia’s top producer of the metal as the White House seeks to punish Moscow for its military escalations in Ukraine, according to people familiar with the deliberations. The measures would add to a tumultuous year of price swings, and changes in supply and demand turmoil in the wake of the Russian invasion in February.
“In a scenario of sanctions against Russian aluminum, the Western aluminum market would be exposed to extreme tightening,” Goldman Sachs Group Inc. wrote in an emailed note. Prices would rise much higher and China would export more semi-processed aluminum, the bank’s analysts, including Nicholas Snowdon, wrote.
Sanctions on United Co. Rusal International PJSC would be the most important of the options under consideration, which also include a U.S. import ban or punitive tariffs on Russian supplies. Russia is the world’s second-largest supplier of aluminum after China.
Aluminum prices rose to a record high in March immediately after Russia’s attack, but have retreated as the Russian metal has continued to flow largely into global markets. Europe’s energy crisis has also hit demand and closed smelters there, while the London Metal Exchange has opened separate discussions on banning the new Russian metal from its warehouses.
Worst-Case Scenario
“The worst-case scenario is that Europe and the United States will block Russian aluminum,” the Shanghai-based Chaos Ternary Research Institute wrote in an emailed note. “Stranded Russian aluminum will likely flow to China, India, and elsewhere, followed by Chinese exports of aluminum products to Europe and the United States to fill the gap.”
China is by far the world’s largest producer and consumer of aluminum. Under a reconfiguration of trade flows, Russia’s metal could be used by its domestic industries, with China boosting overseas sales of its metal along its well-established export routes.
There is precedent for restrictions in Rusal. In 2018, the United States imposed sanctions on the company as relations with Russia deteriorated, prompting so much turmoil in the market that the measures were reversed in early 2019. At the time, there was also a lot of speculation about whether Russian aluminum could flow into China, and Rusal’s billionaire founder Oleg Deripaska even visited Beijing to discuss cooperation.
“Eventually, China will ship discounted primary aluminum from Russia and then export aluminum products to the west,” Wei Lai, an analyst at TF Futures, said by phone from Shanghai. China’s aluminum exports have already reached record levels in May this year, amid a domestic slowdown in demand.
Aluminum fell 1% to $2,282 a tonne on the LME on Thursday, after posting one of its biggest spikes on record following the white house discussion report. Rusal’s shares in Hong Kong fell as much as 8.1%.
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