Putin Turns the Screws on Russian Steel, Coal and Aluminum Producers – Part 2

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Commodities, Global Trade

This is Part Two of a Two-Part series. You may find the first part here  

In a further twist to the tale now Rusal, the aluminum giant owned by Oleg Deripaska is under investigation for tax avoidance in a move that could net the Russian treasury $2bn in taxes. Rusal (along with many other Russian enterprises) operates a massive tolling operation supplying alumina to the smelters and taking back ingot. Profit on the operation is trapped offshore by the company when they sell the ingot. This is legal when the tolling operation is at arms length and you don’t own the smelter/converter. Apparently not so with Rusal who feed alumina to their own smelters under this arrangement and have done for much of this decade. What affect would a curtailment of this process have on the aluminum market? Probably not much in the short term, Rusal would still be profitable if all they suffered was the imposition of tax on their profits. But if the firm suffered major penalties or was taken over like Yukos production, it could push up the world price. Rusal is the second or third largest primary producer after Alcoa and Rio/Billiton and although world stocks are high, any significant disruption to the viability of Rusal would give the markets a short term panic attack. Watch this space.

–Stuart Burns

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