Traders in China Strike Rare Deal With Russia’s Rusal on Alumina

(Bloomberg) — United Co. Rusal International PJSC, the huge aluminum producer fighting blow-back from Russia’s war in Ukraine, is getting some help from traders in China to keep its smelters running.

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Some 30,000 tons of alumina — used to make aluminum metal — have been loaded onto two vessels headed for Siberia after leaving China in recent weeks, according to traders familiar with the matter. The relatively small amount is to test whether the cargoes face any logistics issues or problems with sanctions, with more ready to ship if all goes well, said the traders, who asked not to be named because the matter is private.

The trade comes at a time of intense global scrutiny of China’s role in responding to Russia’s growing economic isolation.

But the shipments were organized by traders exploiting a commercial opportunity — Rusal’s supply gap — and not influenced by any Chinese government directive, the traders said. In normal years, China rarely exports alumina because it tends to be more profitable to sell at home.

The unusual deliveries from China could help ease an intensifying squeeze on the giant Russian aluminum producer’s supply chain. Rusal’s alumina supplies from its key Ukrainian refinery have been “severely curtailed” because of the war. Then Australia, an important supplier of the raw material for the Moscow-based company, said it would ban shipments to Russia. That already threatens 40% of Rusal’s alumina shipments. The company also faces an uncertain future at its Irish alumina refinery, another major source of supply.

Without sufficient alumina, the company would have to start cutting production. Rusal declined to comment.

Commodity Crunch

Aluminum has joined the turmoil gripping commodities in the wake of Russia’s attack on Ukraine — even though neither Rusal nor Russian metal are directly sanctioned. Prices are up 28% this year, and any output cuts by Rusal would deepen shortages of the widely used metal, adding fuel to global inflation.

The initial cargoes from China are pilot shipments to probe whether the trade will be sustainable from the point of view of logistics, finance and legal implications. The material is mainly from Chinese alumina producers, but is being handled by traders and their affiliated entities that have limited international exposure — a common practice in mitigating against secondary sanctions, the traders said.

A further 30,000 tons are ready to leave, according to the traders.

Rusal was founded by Russian tycoon Oleg Deripaska, who retains an interest via his shareholding in Rusal’s majority owner En+ Group International PJSC. Russian oligarchs close to President Vladimir Putin, including Deripaska, are among major targets in sanctions by countries led by the U.S.

More than three quarters of Rusal’s sales by volume are outside Russia. About 45% goes to Europe, a quarter to Asia, and less than 10% to America. Transport, construction and packaging companies are among the major end users of aluminum, and Rusal’s customers include Glencore Plc, Toyota Motor Corp. and U.S.-based airplane component maker Howmet Aerospace Inc, according to Bloomberg data.

Déjà Vu

This isn’t the first time the company has looked to China for help to fight U.S. curbs. When the aluminum maker was directly sanctioned in 2018, senior Rusal officials went to China to explore the possibility of buying alumina and selling aluminum in the Asian nation.

That year, China’s exports of alumina spiked, with a substantial rise in supplies to Russia.

EN+ Group said earlier this month it was considering a potential carve-out of Rusal’s international operations, creating a new company that would house its alumina, bauxite and aluminum assets across the globe. The idea there would be to insulate those units from the global push to stop doing business with Russian entities.

China is by far the world’s biggest producer of alumina and aluminum, and — aside from 2018 — it rarely exports the intermediate material given a ready domestic market.

But Rusal’s alumina crunch coincides with a period of relatively weak prices in China. A rapid increase in low-cost Chinese alumina production has started to weigh on the domestic market, with spot prices down 30% in past five months. That’s enough to support exports given sharp price increases globally.

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