Sanctions on Rusal Are Coming to an End, Here's What It Means

(Bloomberg) -- United Co. Rusal is now close to being freed from sanctions that crippled the world’s second-largest aluminum producer and threatened to throw the global metals market into turmoil.

The Treasury Department is expected to soon lift sanctions on Rusal after the Senate failed to pass a resolution that would have kept financial restrictions on companies owned by Russian billionaire Oleg Deripaska.

Sanctions on Rusal Are Coming to an End, Here's What It Means

Within Rusal, there’s a sense of relief that the deal has cleared the Senate hurdle. The shares rallied as much as 8.6 percent in Hong Kong. Aluminum prices slid 0.8 percent to $1,844.50 a ton, near a two-year low.

Here are some of the key issues now:

When will the sanctions be lifted?

It could be as soon as tomorrow. On Dec. 19, the Treasury said it intended to remove the sanctions in 30 days.

What happens to Rusal’s business?

Under the sanctions, Rusal was limited to working with its existing customers and blocked from signing new long-term contracts. It’ll now try to sign new supply contracts and likely switch to producing more specialized aluminum (known in the industry as value-added products) and less commodity-grade metal. Rusal still counts Glencore among its biggest clients, according to people familiar with the matter, who asked not to be identified.

What does it mean for aluminum stockpiles and spreads?

A huge volume of metal is poised to return to the market. Citigroup Inc. estimates there could be more than 300,000 tons of Rusal metal in Europe alone.

If sellers rush to offload that stock quickly, it could put pressure on spot prices and push the market further into contango, a situation where near-dated prices are cheaper than futures. There are signs that’s already starting to happen.

Sanctions on Rusal Are Coming to an End, Here's What It Means

How could it affect premiums?

In European and Asian markets, the premiums paid by consumers to cover the costs of metal to local ports have been falling since the Treasury signaled it wanted a deal to lift sanctions. Delivery costs may remain under pressure as Rusal metal comes back, according to Oliver Nugent, a metals strategist at Citigroup.

In the U.S., consumers may feel less of an impact. That’s because import tariffs have made metal premiums higher compared with the rest of the world.

Sanctions on Rusal Are Coming to an End, Here's What It Means

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