German Industry Sounds Alarm That Rusal Sanctions Pain Is Coming

(Bloomberg) -- Germany is raising the first signs of alarm that U.S. sanctions against a major aluminum producer will hurt manufacturers outside of Russia.

Politicians need to take quick action to avoid an economic crisis, according to a report from Germany’s WirtschaftsVereinigung Metalle, a lobbying group for 655 metals companies. Under the sanctions against United Co. Rusal, some European plants could be forced to close and carmakers may face supply shortages, the group said.

“Re-jigging all of those trade flows is really really tough,” said Michael Widmer, head of metals markets research at Bank of America Merrill Lynch in London. “You’ve cut off the U.S. and Europe from its traditional supplier.”

While the blacklisting of Rusal is sending shockwaves through the global metal markets, there’s been a limited response from leading politicians across Europe. Yet the situation is likely to hit home if Rusal’s plants in Ireland and Sweden are hurt by the sanctions.

Key to Europe’s problems is the Aughinish alumina refinery, a short drive from the Irish city of Limerick. The Rusal plant is a central part of a global supply chain. It buys bauxite shipped from Guinea and crushes the ore to make alumina, which is sold to smelters across Europe.

Indispensable Alumina

“Aughinish is indispensable for the alumina supply of the European market,” WVMetalle said, which argued for the plant to be exempted from sanctions.

Rio Tinto Group has plants in Dunkirk, France, and Iceland that use the Irish alumina, and Liberty House Group’s Scottish smelter also depends on the site. The Dunkirk plant is Europe’s largest aluminum smelter and supplies companies like BMW AG, Daimler AG and other manufacturers.

The sanctions are already creating trade difficulties. Two ships that are supposed to ferry alumina from Aughinish to Dunkirk are remain at port in Ireland.

Rio is evaluating what shipments of alumina it can reroute and assessing stockpiles, according to a person familiar. The company may have to mothball some plants if supplies can’t be found, said the person.

The Irish government said yesterday that it was “closely engaging” with Aughinish Alumina, but it will be some time before they’re able to fully access the impact.

“I haven’t heard anything up to now from the European Union or individual countries” said Casper Burgering, an economist at ABN Amro Bank NV. “They’re still watching and waiting.”

Read More About the Sanctions-Led Turmoil:
  • Sanctions Fallout Upends Metals as Aluminum, Nickel Burst Higher
  • Rusal Is Said to Discuss China Deals to Ease Sanctions Crunch
  • Norilsk Nickel Says Business Is Normal After Rusal Sanctions
  • Aluminum Chaos May Just Be Beginning as Alcoa Lifts Forecasts
  • Not Just Aluminum: Russia’s a Big Player in Potash to Palladium
  • Nickel Surges on Concern U.S. Sanctions to Spread Further: Chart

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