We’re just at the very beginning … of trying to determine what is the outcome here.
That’s from Alcoa CEO Roy Harvey, and he’s of course referencing the mad scramble to figure out what to do now that the U.S. has turned the screws on Oleg Deripaska and Rusal.
As Harvey alludes to above, this is an ongoing drama. Companies have until May 7 to exit any operations with Rusal and until June 5 to be done with any pre-existing contracts.
“What is notable is that the Treasury Department has not only prohibited US citizens from dealing with these Russian entities, but it has also put non-US persons on notice that they too could face secondary sanctions for ‘knowingly facilitating significant transactions’ with the blocked individuals/companies,” Goldman wrote in a note out last week, stating the obvious before noting that “Russian metal will be avoided by buyers in the US and in other countries (e.g. EU members) where there would be concern of running afoul of US sanctions.”
Rusal America President – whose name is Scott States, because you can’t make this shit up – told Reuters that he simply doesn’t have enough “clarity” to comment in any kind of detail. He did say this last week, though:
The world is upside down. It’s not just the U.S., it’s all over the world – Rusal is the second largest producer in the world.
Aluminum prices have of course soared and that’s spilling over into the entire metals complex, especially nickel:
The Bloomberg commodities index is sitting near its highest levels since late 2015:
Apparently, Rusal is now looking to Beijing to bail it out. That’s according to the ubiquitous “people familiar with the matter”. The problem with that is glaringly obvious. Here’s Bloomberg to explain in three easy-to-digest sentences:
China may not be the savior Rusal is seeking. The world’s biggest producer has been cutting excess capacity, it’s exporting huge volumes of aluminum products it doesn’t need domestically and exchange warehouses are brimming with record stockpiles. What’s more, its own aluminum industry is being targeted by U.S. trade tariffs.
Rusal’s Hong Kong-listed shares jumped some 26% on Thursday, but needless to say, that’s small comfort considering the egregious hit they’ve taken since the sanctions came down:
According to a separate Reuters story, Rusal has now been forced to rent out additional space for its unsold aluminum stock, which is obviously hilarious.
“Aluminum sales have broken down. And now the surplus aluminum is being warehoused in production areas of the factory itself,” a worker who works at one of Rusal’s two plants in Sayanogorsk told Reuters, which adds that Deripaska has been holding closed-door meetings with staff.
Again, the situation is fluid.