Q&A on Russian metal and alluminium markets

Recently a major specialised media sent a questionnaire to FACE. Below are the questions and our replies

1. Are there enough consumers still willing to buy Russian aluminium?

The LME itself has responded saying that all metal of Russian origin continue to be consumed by a broad section of the market.
In Europe, which consumes 12 million tons and imports around 7 million of primary metal, with a current striking more than 85 % deficit of primary aluminium, the decarbonisation agenda and Green Deal, the stability of supplies of Rusal’s low-carbon aluminium are vital. Russian metal maintains its critical importance in supporting  global supply chains and consumer requirements for carbon reduction targets. While a number of consumers have decided not to renew their contracts with Rusal, independent EU  aluminium transformers, who are SMEs and are craving for competitive and low carbon metal supplies, continue to consume it. Free flow of Russian origin metal is necessary to avoid adverse market volatility. Furthermore, LME stocks are at extremely low level, what itself creates a ground for a potential price distortion.

2. Is there a spot-market price differential between Russian and non-Russian aluminium? 

Global aluminium exchange stocks are currently at multi decade lows. From a peak of 5.49 million tonnes in 2014, inventories in registered London Metal Exchange warehouses have fallen to 0.52 million tonnes. LME stocks are at extremely low level, what itself creates a ground for a potential price distortion. Rusal, being the largest aluminium producer ex-China, is naturally accountable for largest part of liquidity in LME system. This makes attempts by some market players to call for restrictions on Russian metal even more appalling and destructive. The largest part of Rusal’s supply to European market is value added products. We did not hear about any special discount for such products.

3. Should we be worried that these stockpiles of Russian aluminum will begin to distort the market?

Rusal is one of those who are a basis of stability of LME trading and does not create any prerequisites to price distortion. Maintaining a stable market function and regular price order is a function of maintaining market liquidity. Free flow of Russian origin metal is necessary to avoid adverse market volatility. The LME is constantly monitoring the situation and consulting with the industry, and so far it has applied a prudent approach. However LME’s issues are exaggerated mainly because some big groups have their market capitalization excessively indexed on LME levels and are more concerned with their financial figures than with the long-term industrial general interest, and current media business is biased by those who would like to see an important price increase, as they are interested in higher profits and higher corporate market cap that follows the LME. Those actions have nothing to do with the interests of all the European aluminium consumers, and with the long-term industrial general interest.
The industrial reality is that aluminium is a highly cyclical industry, that the world situation is structurally in shortage while demand for aluminium will continue to grow because of climate policies and of societal trends. In that context, it would be a catastrophe for the European aluminium industry if one day, because of various kinds of restrictions, it would be deprived of the metal of Rusal while this metal would be redirected to China and other emerging economies, such as India, Turkey and other developing countries, further strengthening their competitive advantages against a very vulnerable and fragile EU industrial tissue.

4. What is your outlook for the global aluminum market? If demand goes up, will we see consumers buying more Russian aluminum? 

It is very difficult to predict consumer behaviour in such exceptional circumstances as a war in Europe ! Nobody knows how this tragedy will evolve and our continent may well remain in some form of conflict for years. Meantime, the EU has rightly chosen to deepen its green agenda on the grounds that power in the XXI century will be based on sustainability and innovation. Our main challenge is to maintain a solid industrial base and for that all policies must be coherent and deliver on green competitiveness. Stable access to abundant supplies of low carbon aluminium is critical for the success of the EU’s green deal and reindustrialization agenda,  and for its goal to become the first carbon neutral continent and the world’s first “sustainable power”.

This is our additional comment:

New primary aluminium capacity in Indonesia and India will be powered by coal, it is not low carbon metal, average above 15 tCO2 per ton of primary aluminium, compared to around 2,6 for Rusal’s metal. An objective assessment would consider that the EU cannot contradict its green agenda by restricting usage of unwrought aluminium with one of the lowest carbon footprint globally. Nor can it neglect its treaty-based responsibility to support SMEs by restricting their access to stable, abundant, competitive and high quality supplies. And in my view that would also violate chapter 16 of the EU’s Charter of Fundamental Rights that guarantees the freedom to conduct a business.

China, on the other hand, will use its low carbon raw aluminium to domestically manufacture products with which it will try again and again to wipe out European companies and increase its market share of our lucrative green aluminium products.

As a result of possible restrictions ( for example high tariffs ) or sanctions on the metal of Rusal, its primary product with a low CO2 content would inevitably be absorbed by China and other extra-EU competitors and this would give competitive advantage to these exporters, who will ship their products to Europe, creating additional threat for SMEs, which can be limited in the sourcing of low carbon aluminium. Downstream aluminium transformers constitute more than 90% of the EU aluminium industry workforce and more than 70% of its output. We are a low margin industry and the purchase of our raw material represents 60 to 80% of operational costs for downstream manufacturers. So, besides obvious supply shortage risks, any extra cost factor can put us out of business. And our clients want the lowest total carbon footprint : how could we maintain our positions if our ability to source low carbon primary aluminium is reduced or annihilated ?

The question is: with the US IRA, our current multi crisis, can we afford to do major and irreversible harm to our precarious SMEs tissue downstream, which is the only segment of the EU aluminium industry that has still a potential to grow ? And, considering the bright future of aluminium as an ideal material for the green economy, would it be consistent with the EU’s trade and industrial policy to offer this market on a silver plate to our international competitors by starving our SMEs of supplies and allowing for speculative price hikes?