A recent post from the Russian news agency Interfax paints a predictably conciliatory line on the impact of Russia’s export tariffs on RUSAL.
The post faithfully reports RUSAL’S complaints that the introduction of export duties will make some of the group’s export supplies unprofitable. It add that it may force the company to mothball a number of lower-margin assets, quoting Roman Andryushin, the company’s deputy general director of sales.
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RUSAL and Russia’s export tax
According to Andryushin, RUSAL produces about 4 million tons of primary aluminum and alloys a year. Of that total, it exports 2.8 million tons. He added that the imposition of a 15% export tax will result in losses running into hundreds of millions of dollars.
As a result, RUSAL is suggesting the impact will be a slowdown in capital expenditure to modernize its Siberian plants. Furthermore, it says it will lead to the delay in the launch of the Taishet aluminum smelter, the first stage of which was due to start deliveries this year.
Whether the impact of the export tariff on RUSAL’s profitability will be quite as dire as the company suggests is debatable.
Tight market, rising premiums
Globally, the aluminum market is extremely tight. While RUSAL may need to absorb some of the cost, the market’s reaction to the threat of the tariff has already raised physical delivery premiums, which would partially compensate the mill on contracts where such premiums were not already hedged.
While much of RUSAL’s argument is aimed at domestic politicians in an attempt to get the export tax rescinded or reduced, there is little doubt that the threat of a 15% export tariffs on the world’s second-largest producer has already had a significant impact on consumers outside Russia.
Reuters reported the impact on the Midwest premium, which has shot up to $0.30 per pound or $670 per metric ton in recent weeks. The post goes on to caution that not all of the rise in the physical delivery premium is a result of the Russian export tax.
The premium was already showing signs of stress due to the yearlong chaos in the global logistics market. Said chaos resulted in a quadrupling of ocean freight rates and delayed supplies.
Last weekend’s strike action at the Kitimat smelter operated by Rio Tinto in Canada is likely to result in a 35% reduction in output at the 432,000-ton plant. In turn, it will add to ingot shortages and further support physical delivery premiums.
China’s aluminum demand has ripple effects
Reuters also observes a little-reported change to the global supply demand balance that China has switched from being traditionally neutral import/export position on unwrought aluminum to being a net importer this year. China is not just sucking in much-needed primary metal from the rest of the world. In addition, China’s demand has encouraged the repositioning of available LME stocks to adjacent Asian warehouses from traditional hubs in Rotterdam and Detroit.
The U.S. has, therefore, found itself competing globally for metal in an increasingly constrained market. This suggests the elevated Midwest premium may be a feature of the U.S. pricing landscape for the foreseeable future. The premium is supported by multiple supply challenges and no obvious solutions.
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