Rusal may lose 1.5 million tons of exports due to US and UK sanctions

Rusal (MOEX: RUAL) may lose 1.5 million tons of exports due to the US and UK sanctions imposed at the end of last week, say Kommersant’s interlocutors familiar with the internal analysis conducted by the aluminum company. Sanctions also create risks for production, which could fall to 2008 levels. The concern is that many aluminum processors may completely abandon the use of Russian metal in order not to take risks.

The imposed US and UK sanctions on Russian aluminum threaten Rusal’s export supplies of 1.5 million tons, or about a third of total exports, a source close to the company told Kommersant. The United States has banned supplies of Russian aluminum, copper and nickel, and the LME exchange has been banned from accepting new shipments of metal. The company fears that the cumulative effect of the sanctions will reduce production to levels close to 2008 lows.

Rusal, according to Kommersant’s interlocutor, believes that sanctions may have an impact on the export of semi-finished products and value-added products.

About a quarter of the aluminum produced by Rusal is used to produce semi-finished products.

Another danger is the risk of self-sanctions on the part of Rusal’s main clients, which is aggravated by the reluctance of traders and financial institutions to work with Russian metal in the LME system. “Moreover, aggressive US attempts to force third countries such as Turkey and China to sever ties with Russia further complicate the situation. This poses a direct threat to our supply chain, especially given the interconnected nature of global production networks,” the source says. The lack of a reliable mechanism for tracking metal in expensive products may lead to processors completely abandoning purchases of Russian metal, Kommersant’s interlocutor believes. In this case, Rusal will be forced to redirect some of the aluminum to warehouses, which are already almost full. This, in turn, will lead to an increase in working capital and a decrease in profitability.

Rusal officially announced on April 15 that the new restrictions will not affect the company’s supplies, access to the banking system, production or product quality. However, according to a source familiar with the situation, the company expects to discuss a number of measures with the government to support the industry. Among them: the state purchases up to half of the export volume, permission to reduce production to a quarter of the current volume and the removal of aluminum from the export duty.

Evgeniy Zainullin