Aluminium Producers May Face More Pressure As Senate Paves Way To Lift Russia Sanctions

Aluminium producers are expected to face further pressure as the U.S. senate paved the way to lift sanctions on Russia’s Rusal, the biggest producer outside China, amid weak demand and a supply glut.

The U.S. senate blocked the bid to continue sanctions against Rusal. That means the U.S. Treasury Department will be able to move forward with its plan announced on Dec. 19 to lift sanctions against United Co. Rusal, En+ Group Plc and EuroSibEnergo JSC. The companies, controlled by oligarch Oleg Deripaska who’s known to be close to President Vladimir Putin, faced American action in response to Russia’s “malign activity around the globe”.

This will add to the swelling glut of aluminium at a time London Metal Exchange prices are at an 18-month low. Alcoa, the largest American producer, also expects global demand to grow only 3-4 percent this year. That, according to a Financial Times report, is the slowest pace in a decade. Alcoa’s weak guidance comes even as its fourth-quarter numbers met estimates.

The financials of aluminium producers are sensitive to fluctuations in LME prices, Macquarie said in a report. A 1 percent change in aluminium prices, the research firm said, would impact the earnings per share of National Aluminium Company Ltd., Hindalco Industries Ltd. and Vedanta Ltd. by nearly 3.8 percent, 2.1 percent and 1.3 percent, respectively.

Shares of Alcoa erased all gains after the senate’s decision, while Rusal gained the most in nearly 10 months in Hong Kong. At home, Hindalco pared opening gains and fell as much as 0.72 percent. Nalco and Vedanta, however, gained 0.6 percent and 0.82 percent, respectively. That compares with a 0.31 percent rise in the NSE Nifty Metal Index. A consensus of Bloomberg analysts expects Nalco, Hindalco and Vedanta to gain more than 35-40 percent this year.