Rusal Makes Post-Sanctions Splash with Investment in U.S. Downstream Production

Call me cynical if you will but Russian aluminum firm Rusal’s announcement, reported in the Financial Times last week, that it intends to invest $200 million for a 40% stake in a new Kentucky aluminum rolling mill — in partnership with privately owned Braidy Industries — has the ring of payback to it.

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The announcement comes just months after the U.S. dropped sanctions on the Russian company. The move marks the largest project to secure backing since President Donald Trump announced plans to impose tariffs of 10% on aluminum imports. As such, you can’t help but wonder what kind of “understanding” was reached that not only should Russian oligarch Oleg Deripaska park his shares in controlling En+ Group out of his direct day-to-day control, but that the group should make a major investment in U.S. aluminum production – a step domestic American producers have largely failed to do, despite Trump’s promises the tariffs would result in a wave of investment from domestic aluminum (and steel) producers.

Not that the fundamentals of the move are unsound.

Aluminum use in automotive – the intended market for the new plant’s output – is on the rise and the domestic U.S. market is painfully tight.

According to the Financial Times, under the agreement Rusal will supply the new mill with 2 million tons a year of primary aluminum for the next decade, further tying the group into the U.S. supply chain and making a repeat of the sanctions fiasco nearly impossible.

The timing also plays well into a longer-running trend for the end-to-end aluminum supply chain to source sustainably from low-carbon sources (a trend we reported on last year).

Rusal produces nearly all of its aluminum from hydroelectric plants in Siberia granting its primary metal one of the lowest carbon footprints — not carbon-free, contrary to claims — of any in the industry.

By 2021, the group claims the last of its coal-fired power plants will have been closed and all metal will come from hydroelectric power supplied sources. For a product with horrible environmental credentials, aluminum is standing out for producers to play the sustainable card.

The field has so far been left largely for savvy Novelis to capitalize as part of its marketing story. The Indian-owned rolling group’s U.S. operations is based on scrap as raw material supply, granting the enterprise a substantially lower carbon footprint than mills rolling primary smelter cast slab.

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Cynicism aside, we can’t argue the new capacity isn’t needed. Even as ingot prices have drifted lower, sheet prices have remained firm and supply has been tight last year and this, aided by the shutout of Chinese material and the 10% hurdle facing imports from elsewhere.