Rusal Back in U.S.’s Good Books, But Oligarch Oleg Deripaska Stays Out in the Cold

Well, that was something and nothing, wasn’t it?
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The non-event of the month was the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) announcement this week of its intention to end sanctions on En+ Group plc, UC Rusal plc, and JSC EuroSibEnergo, all vehicles associated with Russian oligarch Oleg Deripaska.
Deripaska remains on the sanctions list. However, following his nominal separation from the firms, OFAC decided to end sanctions.
Deripaska is reported to have put plans in place to reduce his shareholding in holding company En+, which is currently 70% to fall to 44.95%, while a Russian bank will take title to a portion of Deripaska’s shares, according to Aluminium Insider.
The article states Deripaska will also be required under the agreement to hand over shares in En+ to charitable foundations and assign voting rights above a 35% threshold to a voting trust. Other shareholders deemed to have a familial or professional relationship will be compelled to do the same.
Once the entire plan has been executed, En+ will retain ownership of 56.88% of Rusal, with Deripaska’s stake reduced to 0.01%.
That’s good news, aluminum buyers may retort, and yes, it is in terms of finally settling a source of some disquiet that has been underlying the market since May.
But the fact that the aluminum price barely moved underlines the reality that the market had long expected this outcome — and barely reacted, accordingly.
What happens next year remains to be seen.
The whole metals complex has been at best trading sideways during the second half this year, buoyed by decent demand but depressed by worries about global growth and trade wars.
The lifting of sanctions frees up some 200,000 tons of Rusal primary metal sitting on the LME for consumption, and potentially 10 times as much sitting in off-warrant or off-market stock and finance trade storage.
The LME metal is unlikely to go anywhere fast. Currently, the LME supports rollover of maturing stock and finance trade contracts with two-year forwards at a sufficient premium to one-month forward to facilitate extension.
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As such, the market is not going to be flooded with Rusal metal that would cause a further weakening of prices. That clearly is the market’s assessment, too, otherwise prices would have fallen significantly after the announcement.