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To buy or not to buy: Russian aluminium dilemma for Europe's buyers

Stock Markets Sep 15, 2022 11:59AM ET
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© Reuters. FILE PHOTO: Aluminium ingots are seen stored at the foundry shop of the Rusal Krasnoyarsk aluminium smelter in Krasnoyarsk, Russia October 3, 2018. REUTERS/Ilya Naymushin
 
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By Joan Faus

BARCELONA (Reuters) - Europe's power crisis, production cuts and shortages of aluminium have left consumers in a quandary about Russian supplies of the metal vital for the region's transport, construction and packaging industries.

Some are choosing to shun Rusal's metal, while others are more sanguine - pointing to the fact that neither the company nor its metal is under sanctions imposed on other Russian companies after Moscow's invasion of Ukraine in February.

Known in the industry as "the mating season", consumers and producers gathered at a conference in Barcelona this week to agree deals to buy and sell aluminium for next year.

Organisers declined to accredit Rusal's team for the event, without giving a clear reason, two sources familiar with the matter told Reuters. Rusal's team came to the city anyway, one of them added.

"Some people don't want Rusal's aluminium on moral grounds, because of the war in Ukraine," an aluminium trader in Barcelona told Reuters.

"Others are not worried because Rusal is still sanction free, though they are milking it, asking for discounts."

Major consumer Constellium (NYSE:CSTM) is one company that expects to keep buying Hong Kong-listed Rusal's aluminium.

Among those rejecting Russian metal for next year are one of the world's largest aluminium consumer, Novelis, a division of Hindalco Industries, and a unit of Norsk Hydro (OTC:NHYDY) supplying aluminium products to the auto and construction industries.

Some small companies in Europe, including Germany, decided not to sign up for Rusal's metal for next year, a trader told Reuters.

Some medium size companies have also decided to stop buying Russian aluminium from next year, Duncan Hobbs, an analyst for Concord Resources, told Reuters, without elaborating.

"We have hundreds of clients globally, representing one of the strongest and most diverse customer bases in the industry. Our business is not defined by those few who choose to buy their aluminium elsewhere," a Rusal representative told Reuters.

For some European consumers facing record high electricity prices, squeezed margins and regional shortages, a discount for Rusal's metal is attractive. There is currently a $100-$150 per tonne discount for Russian aluminium, a trader said.

Europe's aluminium output capacity is about 4.5 million tonnes. Of that, more than 1.1 million tonnes has been taken offline since 2021 and another 500,000 tonnes is under threat, Citi analysts say.

Companies with contracts for this year, agreed in 2021, have continued to buy aluminium from Rusal, the world's largest producer outside China, accounting for 6% of global supplies estimated at around 70 million tonnes this year.

"There is feeling that Russia wants to sell more aluminium than before," a European consumer told Reuters in Barcelona, adding that Rusal, fearing sanctions, could be seeking cash flow.

To buy or not to buy: Russian aluminium dilemma for Europe's buyers
 

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