Bound aluminum ingots sit in a warehouse beside waiting freight wagons. (Photographer: Andrey Rudakov/Bloomberg)

U.S. Softens Stance on Rusal Sanctions; Aluminum Prices Plunge

(Bloomberg) -- The U.S. softened its position on sanctions against Russia’s United Co. Rusal, sparking a plunge in aluminum prices.

The U.S. Treasury said it would provide sanctions relief to Rusal if Oleg Deripaska relinquished control, according to statement on Monday. It also extended the deadline for companies to wind down dealings with the Russian aluminum producer by almost five months.

Aluminum plunged as much as 8.3 percent after the news, the biggest intraday drop since 2005. Rusal produces about 6 percent of the world’s aluminum and operates mines, smelters and refineries across the world from Guinea to Ireland, Russia to Jamaica.

U.S. Softens Stance on Rusal Sanctions; Aluminum Prices Plunge

Washington’s softening of its stance follows two weeks of chaos on global metals markets, after the sanctions triggered a surge in aluminum prices to multi-year highs and fears of shutdowns at Rusal plants. A German lobbying group said last week that European plants may be forced to close and carmakers could face supply shortages.

“If it wasn’t previously clear if Rusal will still be sanctioned in case if Deripaska sells out, now we have a clear answer,” Oleg Petropavlovskiy, an analyst at BCS Global Markets, said by phone. “Changing the ownership structure would be a solution.”

In a separate statement, Treasury Secretary Steven Mnuchin said the U.S. is considering a petition from Rusal to remove it from the sanctions list.

‘Hardworking People’

“Rusal has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries,” he added.

The U.S. statement will add pressure on the aluminum magnate as he seeks a way to save his company without surrendering control. While analysts have suggested that nationalization may be the only solution, Finance Minister Anton Siluanov told reporters Friday that Rusal was not on the list to be nationalized.

The selloff in aluminum after the Treasury announcement spread through other commodity markets on optimism the U.S. isn’t likely to impose further sanctions on Russia’s metals and energy companies.

Palladium plunged by as much as 4.2 percent and nickel as much 5.7 percent. They had both jumped over the last two weeks because of concern that Vladimir Potanin, the billionaire who controls Russia’s biggest miner Norilsk Nickel PJSC, could be targeted.

Oil also dropped, losing as much as much as 1.3 percent to trade at $73.13 in London.

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