"We Are In A Panic Situation": Japan Asks Rusal To Stop Aluminum Shipments While Prices Soar

One week ago, when the Trump administration unveiled the most draconian Russian sanctions yet which among others targeted Putin-ally Oleg Deripaska and the Russian oligarch's aluminum giant, Rusal, we said that aluminum prices are going higher, much higher, for one reason: excluding China's zombie producers, Rusal is the world's largest producer of aluminum.

Well, prices have since surged, largely as expected, and one week later we also learned just how "radioactive' Rusal's products have become as a result of the US sanctions: overnight Reuters reported that major Japanese trading houses asked the Russian aluminum producer to stop shipping refined aluminum and other products in light of U.S. sanctions on the world's No.2 producer and are scrambling to secure metal elsewhere, according to industry sources.

"We have requested Rusal stop shipments of aluminum for our term contracts as we can't make payment in U.S. dollars and we don't want to take the risk of becoming a secondary sanction target by the United States," said a source at a trading house, who declined to be named due to the sensitivity of the issue.

Rusal's biggest Japanese clients include trading house such as Mitsubishi, Marubeni, Sumitomo and Mitsui. "We are holding internal discussions on what actions are needed to take," a Sumitomo spokesman said. The trading  house is also talking with customers about alternative supplies, he said. Other Japanese buyers, including fabricators, are also still considering how best to deal with the sanctions on Rusal.

As a result of the US sanctions, Japanese buyers were left with concerns about tightening availability, which has nearly doubled domestic spot premiums for aluminum and lifting global prices by a fifth, a surge which continues  today. London Metal Exchange aluminum topped $2,400 a tonne on Monday for the first time in more than six years and is holding near there on Tuesday. The contract has gained about 20% this month.


It is unclear how and where Japan can find alternative sources of aluminum: Japan buys about 300,000 tonnes of refined aluminum from Russia, about 16% of the nation's total import, according to the Japan Aluminium Association.

"Everyone has been on a search for substitutes and that pushed local spot premiums to around $200-$250 per tonne by last Friday," he said.

That's sharply higher than Japan term premiums for April-June quarter shipments at $129 per tonne.

"The sanction came as a total surprise and we are in an almost panic situation," a source at a second trading company said. Analysts however have said Japanese buyers would be able to find replacements for refined metal from Australia, the Middle East, Malaysia and India, although securing alternatives for specialized value-added products would be harder.

The trading halt will not come as a surprise to Rusal, however, which last week first proactively reached out to clients telling them to stop payments: "Rusal asked us to halt payments soon after the U.S. sanctions were announced as they can't access U.S. dollar accounts," a source at a Japanese fabricator said.

For now, the Russian smelter is still trying to find a way to continue business with customers in Japan by finding an alternative means of settlement, according to Reuters, although this is expected to be complicated as most of its Japanese customers use local banks, which are wary of any business involving companies on a U.S. sanctions list, the source said.

Adding insult to injury, Russia has excluded any possibility of a bailout.

Russia won’t inject sovereign bonds into Rusal’s capital as the country doesn’t use local-currency sovereign bonds and any public debt to support companies under sanctions, according to the Finance Ministry.

Predictably, Rual's loss is its competitors' gain and shares in rival suppliers rose again, including China Hongqiao Group which added as much as 3.4% in Hong Kong, while in Australia Alumina, a partner with Alcoa Corp. in the world’s largest bauxite and alumina producer, advanced as much as 4.1%.

Japan is not the only market that has vetoed Rusal products: the sanctions have thrown an estimated $3 billion of aluminum produced by Rusal into limbo as metal produced by the company accounts for more than a third of holdings in warehouses monitored by LME. The exchange has banned, with effect from April 17, deliveries of Rusal-branded metal into its sheds.

* * *

And while Rusal may be headed for insolvency, a new question is just how acute the inflationary impact will be as a result of the soaring aluminum price, especially since some analysts warn the recent breakout is just the beginning.

“The market is looking at $2,800, $3,000,” Jackie Wang, an analyst at CRU Group, told Bloomberg. There are concerns about possible production cuts by Rusal, either because its sales are blocked or the raw material supply chain is affected, according to Wang. LME prices last topped $3,000 in 2008.

But wait, there's more, because if the US decides to extend the scope of Russian sanctions to nickel, it could have an even more dramatic impact on prices as Russia contributes 10% of supply, compared to 6% for aluminum. Russian copper production could also be included eventually, although it would have a smaller impact as Russia accounts for 4% of world production.

But the biggest irony in Trump's mini war with Russia - which as a reminder is all for show and meant to "prove" to Robert Mueller just how hard core the president is when it comes to Putin - is that the biggest winner is China: while Russian aluminum supplies are getting shunned, China continues to churn out the metal. According to the latest industrial production data released overnight, China's primary aluminum output rose 4% to 2.78 million tons in March.

Comments

Davy Crockett FireBrander Tue, 04/17/2018 - 20:23 Permalink

Why exactly are we sanctioning Russia?  Because of the fake London chemical attack, or the fake Douma chemical attack?  I get confused.

If they fake apologized, would we lift the sanctions?  Or do they need to send fake money and agree to fake inspections first?

In reply to by FireBrander

hedgeless_horseman spag Tue, 04/17/2018 - 20:56 Permalink

 

Why exactly are we [really] sanctioning Russia?  

The best I can tell, we are sanctioning Russia for three reasons. 

First, because the USA initiated a coup d'état in Ukraine, then had an unexpected outcome of the Crimean people voting to return to Russia. 

Second, because Russia won't enable an Arab-Israeli gas pipeline through Syria. 

Third, because Russia is circumventing the petrol dollar.

But what the fuck do I know?  

In reply to by spag

ldd Bitchface-KILLAH Wed, 04/18/2018 - 01:12 Permalink

russia is integral to high tech metals. the reason there was a flood of metals and f. gehry built balboa using titanium (which used to be ridiculously expensive) was because of the flood of the stuff with the fall of the USSR. and this is also why titanium and titanium bikes are now somewhat affordable.

if i didn't know any better i would think we are witnessing the 'if I go down so will everybody else'.

In reply to by Bitchface-KILLAH

earleflorida HopefulCynical Tue, 04/17/2018 - 20:49 Permalink

and the Rothschild's own 'rio tinto', with deep connections to 'rusal'

http://www.truedemocracy.net/hj35/04.html

just as they owned/ own 'Dupont' munitions etal,.. war profiteering

ps. 'the unknown authors' makes for good reading,...[but] sadly me thinks he 'hyper`inflates the 'Rothschild's Syndicate' worth.

[myself]... i say that the entire family and networking syndicate using 'Rothschild's

'trademark name', are perhaps worth $5-$10 Trillion? at the most and it is 'Citibank' not JP Morgan.

*** although, he (the unknown author) is correct in saying GS is their public face

In reply to by HopefulCynical

earleflorida 1 Alabama Tue, 04/17/2018 - 21:20 Permalink

when the old phrase of a adversary, 'was spent'... it meant just that---

it still means that (bankrupt) they are broke, [and] must sue for peace...

it's never changed since day one.

the war['s] stop[? period],... thus it is what's to be negotiated (land grabbed) now whomever has squatted there.

only wwi changed the scenario or modus (mo) operanda, but since then, (this one anomaly) most wars were just to keep the 'balance of power' in check!

period!!! 

In reply to by 1 Alabama

earleflorida 1 Alabama Wed, 04/18/2018 - 12:31 Permalink

indeed...

the unknowns go back a long (let's say the 16th century to present) tyme in history where immigration via annexation has changed the political complexion of many a sovereigns landscape.

it is natural for (wanna-bee's?) empires to coagulate... clabber, and amalgamate in tymes of chaos? particularly when trying to understand their place in a broken`geographic puzzle as in western Europe. [which], btw... since the 16th century is still trying to preserve their 'nationality' via the 'French Revolution of 1800'.

lastly--- tis not long past when the entire globe was a feudal system of duchy's and princes, all ruled under despotic monarchs where Christianity ruled the roost until Martin (Protestant) Luther appeared on the scene.

have tymes changed?

no!

unknowns have always been about keeping the grand-chessboard in play--- as in balancing the powers that be in being a player or a pawn. there has always been [only]one superpower until....?

In reply to by 1 Alabama

Scipio Africanuz Davy Crockett Wed, 04/18/2018 - 05:19 Permalink

If you wanted to start global, war, this is the template. When you brazenly attack a rival's economy on flimsy evidence of wrongdoing, and the rival fires back, soon you have victims on your side advocating hard lines, and same on your rival's side. Eventually, someone gets so pissed off, and off to the kinetic races we go.

I wonder where Trump got the idiots advising him, these guys and gals don't know what war, and I mean WAR, feels or looks like. They've not seen it up close and personal yet but they're begging for it, taking a piss, strutting like peacocks until a very very hungry bear takes a good look at them, for ravenous consumption.

To be forewarned, is to be fore-cautioned, word enough for the wise...

In reply to by Davy Crockett

philipat FireBrander Tue, 04/17/2018 - 20:35 Permalink

I thought these were US sanctions? Japan could pay in Au, RUB or CNY? All this should provide fresh impetus for moves to establish an alternative non-USD trading regimen led by Russia and China. It might take time but it WILL happen. Unless the US neocons decide that the Wolfowitz doctrine must be enforced even at the cost of nuclear war. In which case none of this matters.

And those US supplies of titanium (Boeing et al) are looking very doubtful?

In reply to by FireBrander

kaboomnomic RawPawg Wed, 04/18/2018 - 00:42 Permalink

http://www.worldstopexports.com/russias-top-10-exports/

 

Aluminum export? 6.7 B$. Contributing 2.6% of Russia Total Export (250+ B$).

https://www.worldatlas.com/articles/which-are-the-top-export-products-o…

 

And the Al price goes to the sky roof? Nice.

Russia sells to China (at a discount of course). China sells to Japan.

In Russia, factory paid in ruble. income came in foreign currency. With ruble devaluate recently? For the same amount of foreign currency? They get paid more in Ruble.

 

Nice strategy your potus have there. MAGA eh..???

In reply to by RawPawg

FireBrander CHoward Tue, 04/17/2018 - 20:26 Permalink

The price of your dinner will triple because the aluminum tray was the most expensive part...the "structured food product" in the tray was made with recycled food...what did you think they did with that stuff in those "organic" recycle bins?

PS》Look up "structured food product"...it's how they "manufacture" the McRib sandwich. 

In reply to by CHoward

Latina Lover Tue, 04/17/2018 - 20:21 Permalink

Too back we can't sanction USSA criminality. Just ask the Syrians who got killed because of the illegal missile strikes. It is ok to starve, shoot and blow up people, but chemical weapons are a no no.