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Aluminum gets Iran-style crisis when Rusal closes market

The aluminum market is having its own oil moment in Iran.

Similar to how US and European sanctions in 2012 reduced Iran's oil sales to the world, US sanctions last week at United Co. Rusal appear to freeze the Russian company's aluminum out of the markets Western The reaction has already been severe: prices have risen more than 10 percent and the world's largest stock exchange will stop accepting new supplies from Rusal.

The market has been affected because Rusal represents 6 percent of the world's metal production. that Iran's participation in the oil market. Users outside of China are particularly dependent on Rusal. It is estimated that the metal supplied by the firm of billionaire Oleg Deripaska represents one third of the inventories on the London Metal Exchange.

Stacking

This is how the total production of Rusal compared to other supplies in 2017


"We can not without Rusal," said Colin Hamilton, metals director of BMO Capital Markets Ltd. "We need material from Rusal "

Glencore Plc stated force majeure at approximately 50,000 metric tons of contracts specifying the metal should be of Russian origin, according to people familiar with the matter they requested not be identified because the matter is confidential.

There is still uncertainty about what will happen to Rusal and his metal, and it is said that the Russian government is working on a plan to support the company. That could help their supplies reach western markets if the smelters are transferred to an unsanctioned company, although Finance Minister Anton Siluanov said on Wednesday that there were no plans for the government to buy a stake in Rusal.

USA UU Sanctions

Since the United States placed Rusal on the black list on April 6, the largest metal producer outside of China has lost more than half its value in Hong Kong. The international commercial houses stopped buying from the company and the LME on Tuesday said that aluminum manufactured by Rusal after April 6 can not be used to liquidate futures contracts in the market. Comex of CME Group Inc. also said it will not allow deliveries of Rusal material.

"The suspension of LME from the production of Rusal Fresco certainly makes it much less attractive even for non-US entities to buy," said Oliver Nugent, commodity strategist at ING Bank NV. "It definitely adds to the theory that this is a real loss of supply for the global market."

That will further narrow the market outside of China, which already had a deficit, Nugent said, adding that prices will need to rise. at a level that encourages China's aluminum exports.

Read: Vedanta sees more aluminum profits in Rusal's sanctions & # 39; sweet spot & # 39;

When the sanctions against Iran were extended in 2011 and 2012, the country's oil exports fell sharply. countries continued to buy oil from Tehran, and some Chinese and Indian companies increased their purchases, Iran's total exports fell 46 percent between 2011 and 2014, according to the US Department of Energy.

Some traders see that Rusal has to redirect his metal to Asian markets.

"Where has Rusal now its potential customer base to sell material? More doors are closed," said Nugent of ING. "Rusal's latest customer base is rapidly becoming China." [19659002] Rusal has asked some customers if they can pay in euros instead of dollars, according to an Asian buyer. Even so, international traders say that their banks and lawyers have advised them that they can no longer deal with the company in any currency.

"Avoiding financial sanctions is possible, of course, and in fact there is already an international experience of this," said veteran Russian banker and former senior central bank official Oleg Vyugin. "Iran did," although the scope is limited and transaction costs are high, he said.

Echoes of Iran

Sanctions had a significant impact on Iran's oil exports

Source: Bloomberg, CGES [19659028] There will be no permanent brake on Russian flows to Western markets.

Russian government officials, Rusal executives and state bankers are struggling to devise rescue plans for the company, which employs nearly 60,000 people and accounts for about 16 percent of the country's export earnings.

The efforts are still in the early stages and the plans have not yet been finalized, said two people involved in the talks. The options can range from debt restructuring to the transfer of Rusal's smelters and other assets to a new company, possibly state-owned, if not subject to sanctions. Rusal is also analyzing whether he can obtain special licenses from the US Treasury. UU To continue some limited export operations.

Read: Russian aluminum seen ending in the world market & # 39; somehow & # 39;

– With the help of Mark Burton, Olga Tanas, Yuliya Fedorinova, Martin Ritchie, Irina Reznik, Masumi Suga and Evgenia Pismennaya

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