Operators in China reach unusual agreement with Russian Rusal

(Bloomberg) — United Co. Rusal International PJSC, the huge aluminum producer fighting the consequences of Russia's war in Ukraine, is receiving help from operators in China to keep its smelters running.

About 30,000 tons of alumina, used to make aluminum metal, was loaded onto two ships heading to Siberia after leaving China in recent weeks, according to operators familiar with the matter. The relatively small amount is to test whether shipments face logistical problems or problems with sanctions and, if all goes well, there are more boats prepared, operators said, who asked not to be identified because the matter is private.

Sales come at a time of intense global scrutiny over China's role in responding to Russia's growing economic isolation.

But the shipments were organized by operators who seized a business opportunity, Rusal's supply gap, and were not influenced by any Chinese government directives, operators said. In normal years, China rarely exports alumina because it tends to be more profitable to sell at home.

Unusual deliveries from China could help ease increasing pressure on the Russian aluminum giant's supply chain. Rusal's alumina supplies from its key Ukrainian refinery have been “drastically cut” due to the war. Then, Australia, a major supplier of the raw material for the Moscow-based company, said it banned shipments to Russia. That already threatens 40% of Rusal's alumina shipments. The company is also facing an uncertain future in its Irish alumina refinery, another important source of supply.

Without enough alumina, the company would have to start reducing production. Rusal declined to comment.

Commodity crisis

Aluminum has added to the commodities turmoil following Russia's attack on Ukraine, although neither Rusal nor Russian metal is directly sanctioned. Prices have risen 28% this year, and any cut in production by Rusal would deepen the shortage of widely used metal, adding fuel to global inflation.

China's initial shipments are pilot shipments to test whether trade will be sustainable in terms of logistical, financial and legal implications. The material mainly comes from Chinese alumina producers, but is being managed by operators and their affiliates that have limited international exposure, a common practice for mitigating secondary sanctions, operators said.

Another 30,000 tons are ready to go, according to operators.

China is widely the world's largest producer of alumina and aluminum and, apart from 2018, rarely exports the intermediate material.

But the Rusal alumina crisis coincides with a period of relatively low prices in China. A rapid increase in Chinese low-cost alumina production has begun to weigh in the domestic market, while spot prices fell by 30% in the last five months. That is enough to support exports given strong global price increases.

Original Note:

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

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