United Co Rusal International PJSC is working on a plan to ship some aluminum directly to warehouses on the London Metal Exchange in Asia as the Russian company struggles to find buyers.
Rusal is not under Western sanctions, but it is still being hit by the refusal of some big consumers in Europe and the U.S. to continue buying its metal. Meanwhile, domestic demand is slipping as the Russian economy slips into recession.
What Russia’s aluminum industry will do with its excess production is one of the hottest topics of discussion among metals traders, with some fearing that large deliveries to exchanges could cause LME prices to diverge from global aluminum markets.
Rusal has discussed shipping some aluminum from the Russian Far East port of Vladivostok to LME warehouses in Asia, according to people familiar with the matter. The sources asked not to be named because the matter is not public.
Rusal is the largest producer of the lightweight metal, which is used in everything from soda cans to airplanes, outside of China, and is currently considering delivering only a small portion of its output as a pilot, some of the people familiar with the matter said, noting that a large inflow of LME inventory could depress prices.
Rusal did not immediately respond to a request for comment.
Producers like Rusal typically prefer to sell their products to processors and end users on long-term contracts and sell excess production to commodity traders. rusal’s largest customer is Glencore Plc, which buys its aluminum under a multi-year supply agreement that renews in 2020.
LME inventories generally rise when global economic growth slows, especially in the aluminum market, where smelter shutdowns are costly. However, it is not common for large smelters to deliver and sell metal directly to the exchange (known as “direct warrants”) because of the risk of depressing the LME price, which is used as a benchmark for all sales.
The LME does not have warehouses in major metal-producing countries, partly to discourage producers from dumping metal on the exchange.
A move by Russian aluminum companies to sell large quantities of the metal on the LME could create new trouble for the exchange, which has already come under fire from users for handling a massive short squeeze in nickel earlier this year. If the exchange becomes a dumping ground for metals that most real-world consumers won’t buy, the LME could deviate from prices in the physical market, reducing the exchange’s usefulness to users who use it as a global benchmark.
The LME says it will keep the situation under review as it prioritizes maintaining an orderly market. The exchange said it has not seen any evidence that LME warehouses are being used for “long-term offloading of metals.
LME aluminum stocks have increased in recent weeks due to deliveries from Singapore and Port Klang, Malaysia. According to people familiar with the matter, this is mainly due to the inflow of Indian metal rather than deliveries from Rusal.
Post time: Sep-21-2022