World's aluminium supply chain hit by new anti-Russian sanctions

World's aluminium supply chain hit by new anti-Russian sanctions Photo: UC Rusal Photo Gallery

The latest round of US sanctions against Russia caused a number of Russian companies and individuals significant losses. However, businesses all over the world were also hit indirectly, like the global aluminium market players that were dependent on Russian Rusal for a key intermediate step in their production process.

Many companies that should be benefiting from surging aluminium prices are actually facing challenges just to keep their operations running, says Bloomberg. Rusal, the Moscow-based major aluminium producer, which is now under American sanctions, played an important role in the global aluminium supply chain, as the company provided refining operations for many rival enterprises.

Australian-British Rio Tinto Group is dependent on Rusal for a key intermediate step in the process – the conversion of bauxite (aluminium ore) into alumina (a key ingredient for making aluminium). According to an industry source, Rio is now assessing its stockpiles and thinking of rerouting some shipments and supplies. The company may even have to halt production in some plants if it doesn't find a replacement, while for aluminium smelters, suspending operations is a worst-case scenario because restarting is very expensive. Rio has already warned some of its customers that it will no longer be able to fill some aluminium commitments.

''Rusal's international operations are of significant importance to the aluminium supply chain,'' commented Mark Hansen, chief executive of metals trader Concord Resources Ltd. ''With the alumina market already running tight, the situation has now become acute in the short term."

Rusal's Bogoslovsky aluminium plant. Photo: Kostya Wiki

Rusal's aluminium production facilities are mostly situated in Russia, but its alumina plants are more internationally spread and, thus, more vulnerable to the sanctions. The company refines almost two-thirds of its alumina outside of Russia and possesses big refineries in Ireland and Jamaica as well as operations in Ukraine and Australia. In Ireland, Aughinish refinery buys bauxite from Rio and then sells alumina to aluminium smelters across Europe. ''The market will remain very tight while long-term buyers of Aughinish look for potential solutions,'' considers Anthony Everiss, a senior consultant at CRU Group. ''It's a pretty nightmarish scenario for them. There's not that much on offer in the Atlantic to fill that gap.''

Alumina prices have increased by more than 50% since the announcement of the new sanctions. In addition to Rusal's declaring force majeure on some shipments of the commodity, the world's biggest Alunorte alumina refinery in Brazil is currently working at 50% due to a court order amid accusations that a rainstorm led to contamination of an Amazonian river. As for aluminium, it jumped to a six-year high last week but later fell after the US extended deadline for Rusal's customers and said it would consider lifting the sanctions if Oleg Deripaska ceded control of the company.

By Anna Litvina