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US curbs on RUSAL could be good news for local aluminium producers

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ET Intelligence Group: Sanctions imposed by the Trump government on Russia’s largest and world’s second-largest aluminium producer RUSAL will take away over 6 per cent of global supply, and 14 per cent outside China.

Since this announcement, LME prices have gained 7 per cent to $2,140 a tonne.

Indian aluminium companies such as Hindalco, Nalco and Vedanta will benefit from the higher prices due to the supply disruption if the sanctions last. The US has barred its companies from dealing with RUSAL and said that other countries transacting with it would also be punished.

RUSAL’s biggest export markets are the US and the EU, which are also the biggest aluminium deficit markets with a reported deficit of 4.7 and 3.8 million tonnes, respectively. India imported around 1.5 million tonnes of aluminium in 2017, mainly from China.

Given the sanctions on RUSAL, China may find it more lucrative to target the Western markets for exports thereby reducing its exports to India, giving a boost to domestic producers. The sanctions may also impact RUSAL’s expansion plans at a time when new projects are hard to come by.

Of the four major project ramp-ups globally, two are to be commissioned by RUSAL which now face uncertainty.

China, which accounts for half of the world’s production and consumption, is going slow on capacity addition due to environmental issues and will not have any new capacity after 2020. Also, the global aluminium inventory is lowest in the past seven years.

These factors together are expected to keep prices firm.

This augurs well for the Indian aluminium producers.

What will benefit Hindalco and Nalco more is that they are backward integrated, that is they can procure alumna, a major raw material, from their own mines.

This makes them among the lowest-cost producers in the world.

Prices of alumina have risen 22 per cent in the past month after a partial shutdown of Brazil’s Alunorte, the world’s largest alumina refinery, contributing 5 per cent to global output.

Vedanta is not fully backward integrated.

On Tuesday, Hindalco, NALCO and Vedanta shares gained 4 per cent, 3 per cent and 1 per cent, respectively.




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