A worker inspects bound stacks of aluminium ingots as they pass along a conveyor belt in the foundry at the Khakas aluminium smelter, operated by United Co Rusal, in Sayanogorsk, Russia, on Wednesday, 26 May 2021. 
The Biden administration is considering options including sanctions on Russia’s top producer of the metal as the White House looks to punish Moscow for its military escalations in Ukraine, according to people familiar with the deliberations. The measures would add to a tumultuous year of price swings, supply shifts and demand turmoil in the wake of Russia’s February invasion.
“In a scenario of sanctions against Russian aluminium, the western aluminium market would be exposed to extreme tightening,” Goldman Sachs Group wrote in an emailed note. Prices would rise much higher and China would export more semi-processed aluminium, the bank’s analysts including Nicholas Snowdon wrote.
Sanctions on United Rusal International PJSC would be the most consequential of the options under consideration, which also include a US import ban, or punitive tariffs on Russian supplies. Russia is the world’s second-biggest supplier of aluminium after China.
Aluminium prices surged to a record in March in the immediate aftermath of Russia’s attack, but have receded as Russian metal has largely kept flowing to global markets. Europe’s energy crisis has also pummelled demand and shuttered smelters there, while the London Metal Exchange has separately opened discussions about banning new Russian metal from its warehouses.
Worst scenario
“The worst scenario is Europe and the US will block Russian aluminium,” Shanghai-based Chaos Ternary Research Institute wrote in an emailed note. “Stranded Russian aluminium will most likely flow to China, India and elsewhere, followed by China’s exports of aluminium products into Europe and the US to fill the gap.”
China is by far both the world’s biggest producer and consumer of aluminium. Under a reconfiguration of trade flows, metal from Russia could potentially be used by its domestic industries, with China then boosting overseas sales of its own metal along its well-established export routes.
There is precedent for the curbs on Rusal. In 2018, the US placed sanctions on the firm as relations with Russia soured, triggering so much turmoil in the market that the measures were rolled back in early 2019. At the time, there was also much speculation about whether Russian aluminium could flow to China, and Rusal’s billionaire founder Oleg Deripaska even visited Beijing to discuss cooperation.
“Eventually, China will ship in discounted primary aluminium from Russia then export out aluminium products to the West,” Wei Lai, an analyst with TF Futures, said by phone from Shanghai. China’s aluminium exports have already hit record levels in May this year, amid a domestic slowdown in demand.
Aluminium fell 1% to $2,282 a ton on the LME on Thursday, after posting one of its biggest spikes on record following the report about the White House’s discussions. Rusal’s shares in Hong Kong dropped as much as 8.1%. BM/DM