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Sanctions batter Rusal's overseas supply chain, restructuring seen

From Reuters - April 17, 2018

LONDON/MOSCOW (Reuters) - Russias Rusal may be forced to divest most of its portfolio of overseas operations if the aluminum giant cannot restructure them to evade U.S. sanctions and ensure a flow of raw materials.

U.S. sanctions imposed against key allies of Russian President Putin have already started to cripple United Company Rusals extensive string of international operations from Sweden to Guinea to Australia.

Rusal, the worlds second biggest aluminum producer behind China Hongqiao Group Ltd, is heavily dependent on its international network of mines and refineries. These last year accounted for 53 percent of its output of raw material ore bauxite and 64 percent of production of semi-processed sister alumina.

How does Rusal continue to fund its operations and produce metal if its raw material supply chain is broken?, said Robin Bhar, head of metals research at Societe Generale.

One key will be finding shipping and logistics firms willing to take the risk to transport those supplies, industry sources said.

Shipping giants Maersk Line and Mediterranean Shipping Company (MSC) both said they were halting any new trade with Russian entities targeted by U.S. sanctions.

Like everywhere, its greed and fear. At some point greed wins, said a industry source who declined to be named because he was not allowed to speak to the media.

The bigger the company the more reluctant it will be, but smaller companies that can go under the radar may think the risks are worth it if they can get a really good price.

FORCE MAJEURE

Rio Tinto, which supplies bauxite to some of Rusals refineries and buys refined alumina, said it will declare force majeure on some contracts, showing the immediate impact on Rusals supply chain.

Rio also said on Friday it was reviewing Rusals 20 percent stake in the Queensland Alumina refinery.

Illustrating knock-on effects, French aluminum smelters in Dunkirk and St. Jean de Maurienne are scrambling to find alternative alumina supplies after being cut off from material from Rusals Irish refinery, said Johan Vlietinck, CGT union official at the Dunkirk smelter.

Rio is selling the Dunkirk smelter to Britains Liberty House while the other smelter is owned by Germanys Trimet.

Another crucial issue is funding since the U.S. sanctions prohibit Rusal from doing transactions in dollars.

GUINEA SUPPORTIVE

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