A worker uses a fork-lift truck to move palettes of aluminum ingots in the foundry at an aluminium smelting plant (Photographer: Andrey Rudakov/Bloomberg)  

Russian Aluminum Seen Ending Up on World Market `by Some Means'

(Bloomberg) -- So where exactly is all this Russian metal going?

Aluminum prices have posted their biggest three-day gain since 2009, and much of it is down to expectations that sanctions-hit United Co. Rusal will struggle to export as banks, traders and customers in the U.S., and internationally, stop dealing with a company blacklisted by the U.S. Treasury. Some traders have already halted purchases of Rusal metal, while the London Metal Exchange and CME Group Inc.’s Comex won’t accept new deliveries.

That’s the fallout now. Longer term, sanctions will likely result in a reshaping of global trade flows rather than a collapse of Russian exports, according to Paul Gait, an analyst at Sanford C. Bernstein Ltd. in London.

Russian Aluminum Seen Ending Up on World Market `by Some Means'

“This is not an existential issue for Rusal -- the aluminum will get out to the rest of the world by some means,” Gait said by phone. “Do I believe that 3.7 million tons of aluminum capacity in Russia is going to be idled? Will the Kremlin let a 100,000 aluminum workers pack up and stay at home?”

What could happen is that traders in China or countries not allied with the U.S. might take the ingot -- the type traded on exchanges -- remelt and process it, and send it back to the world market, Gait said. Ingot is the first step in output and later iterations could be hard to trace back to a Russian smelter.

The sanctions are “going to disrupt and divert trade flows in the short term, and reallocate credit and financing, but do I think it’s going to materially affect the real world economy or stop Russian supply? No,” said Gait.

To contact Bloomberg News staff for this story: Martin Ritchie in Shanghai at mritchie14@bloomberg.net.

©2018 Bloomberg L.P.

With assistance from Martin Ritchie