Rusal Hobbled by Sanctions as Some Workers Go Without Full Pay

(Bloomberg) -- It’s been a month since the U.S. softened the impact of sanctions on United Co. Rusal, and the Russian aluminum giant is still facing deep problems.

The company hasn’t fully resumed aluminum shipments and is unable to pay full salary to some workers outside of Russia. Difficulties with logistics and settlements have almost stopped supplies of value-added aluminum products, according to two people familiar with the situation. While European plants have avoided disruption, in Jamaica, some employees received as little as half their normal pay.

“We’re hoping Mr. Trump and Mr. Putin can sit down and find some common ground on this issue,” said Vincent Morrison, president of a union representing clerical and supervisory workers at Rusal’s Windalco smelter. “Here in Jamaica, we’re caught in the middle.”

Despite Treasury Secretary Steven Mnuchin’s assurances that the U.S. isn’t trying to put Rusal out of business, there is still strife across the aluminum industry and in places not targeted by sanctions, like Jamaica. Rusal risks losing more customers the longer the Treasury negotiations drag on, and there’s a fear that the market chaos will return if the U.S. sanctions aren’t lifted by October.

For Rusal, the main issue is that some banks and shippers are refusing to deal with the company while it’s under sanctions, said the people, who asked not to be identified because the information isn’t public. That’s causing bottlenecks and shortages for the company, which operates plants around the world and employs more than 60,000 people.

Other areas of the business are running smoothly, and companies such as Rio Tinto Group have restarted shipments to and from Ireland’s Aughinish plant.

In Sweden, Rusal’s plant is operating normally and there haven’t been payroll problems, according to Stefan Hultman, the local IF Metall union head. He added there have been some payment delays to suppliers due to banking issues.

There are bigger challenges elsewhere. Glencore Plc, Rusal’s top customer, isn’t receiving aluminum, people said last week. Rusal shipped scant volumes from its Russian plants in May, Interfax reported, citing Petr Baskakov, the head of shipping firm TransContainer.

In Jamaica, some workers aren’t receiving their full salary because the company is having trouble transferring funds from Moscow, said Morrison, the union president. Despite the financial issues, other operations have been close to normal.

The company plans to make up the missing pay later in the month, and the union is trying to find alternatives, Morrison said. The top salary is only about 20,000 Jamaican dollars ($160) a month.

Vital Jobs

“I think people have just forgotten that the sanctions were announced because there doesn’t seem to be urgency,” Morrison said. The sanctions have caused “tremendous uncertainty in Jamaica. These are vital jobs.”

There’s already evidence that Rusal’s customers may be turning elsewhere. Japan’s UACJ Corp. and Kobe Steel Ltd. plan to find alternative suppliers, and Novelis Inc. aims to bring in more recycled material.

Rusal has largely stopped shipments of value-added aluminum -- a kind of semi-finished material often used for specialized products like airplane parts, the people say. It’s a key part of Rusal’s business and almost half of the aluminum sold last year was in the form of value-added metal.

Shortages of the material have caused premiums -- the surcharge paid over London exchange prices -- to surge. The premium for aluminum billet trading in the European spot market has risen to $510 a metric ton, up from $350 prior to the introduction of sanctions on April 6, according to Metal Bulletin.

Further delays to Rusal shipments could send premiums higher because rival suppliers have little capacity to boost output at short notice and tend not to sell on the spot market.

It’s critical for policymakers to find a solution to keep metal flowing to companies that need it, according to Rob Van Gils, chief executive officer of Hammerer Aluminium Industries Holding Gmbh, an Austrian manufacturer. Rusal’s struggles have highlighted a major vulnerability of aluminum’s supply chain, which depends on a handful of key players, he said.

“They have to solve the situation somehow, because they’re looking at a lose-lose-lose situation,” Van Gils said.

©2018 Bloomberg L.P.

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