By Pratima Desai
LONDON (Reuters) - Aluminum users around the world will pay less for their material after the United States lifted sanctions on major producer Rusal, but U.S. tariffs on imports of the metal mean limited gains for the country's consumers.
The U.S. Treasury on Sunday lifted sanctions on the core empire of Russian tycoon Oleg Deripaska, including aluminum giant Rusal and its parent En+, despite a Democrat-led push to maintain them.
That pushed aluminum prices on the London Metal Exchange down 2 percent on Monday to near $1,880 a tonne.
(Graphic: Aluminum prices - https://tmsnrt.rs/2TpTnaA)
Prices of the metal used widely in transport and packaging have dropped 30 percent since hitting a seven-year high of $2,718 a tonne in April, after the imposition of sanctions.
"Since the first time the deadline was extended, the market started to price in the idea that sanctions would be lifted eventually," Julius Baer analyst Carsten Menke said.
The United States extended several times its deadline for U.S. consumers to wind down business with Rusal.
"U.S. tariffs on aluminum imports mean U.S. manufacturers will pay more than consumers in Europe," Menke said. "But from a global supply perspective, U.S. tariffs don't matter so long as the motivation to ship exists."
(Graphic: Costs of aluminum for U.S. and European consumers - https://tmsnrt.rs/2B9WOv9)
Tariffs mean producers need a strong incentive to sell to U.S. consumers and this can be seen in the physical market premiums that are paid above LME aluminum prices.
The premium for shipping to the United States stands at around $0.19 a lb or $420 a tonne, double the $200 a tonne seen at the start of 2018 and about 20 percent above the levels at the time tariffs were announced in early March 2018.
(Graphic: U.S. aluminum premiums - https://tmsnrt.rs/2Ba6B4n)
CANADA EXEMPT?
U.S. premium contracts show a decline to $350 a tonne by July 2020, a level producers say is needed to attract aluminum to the United States.
(Graphic: Future U.S. aluminum premiums - https://tmsnrt.rs/2Sb38vX)
The United States is a major consumer of aluminum. It is expected to account for 5 million to 6 million tonnes of demand this year in a market estimated at 68 million tonnes.
Rusal supplied only around 10 percent of the U.S. aluminum market in 2017. Canada, with a share of more than 50 percent, is the largest supplier.
If, as some expect, tariffs are lifted or Canada is exempted or gets quotas, premiums could fall much further.
"Any deal with Canada would allow 2.5 million tonnes of primary aluminum to enter the U.S. duty-free and significantly dilute the proportion of U.S. imports from duty-paid countries," Wood Mackenzie analysts said in a note.
For European consumers, premiums at $69 a tonne, down nearly 60 percent since early May, are expected to slide due to high stocks of aluminum held by traders in the region.
(Graphic: European aluminum premiums - https://tmsnrt.rs/2Sbx6jA)
"Rusal will also have aluminum it couldn't sell that will start making its way to Europe," an aluminum producer said.
"We will probably also see a lot of aluminum in Europe heading for LME warrant."
The LME on Monday lifted a temporary suspension on storing metal produced by Rusal in LME-approved warehouses with immediate effect, after the United States formally lifted sanctions against the Russian firm.
(Graphic: Aluminum stocks - https://tmsnrt.rs/2TeEGHj)