The aluminum market is facing much more uncertainty now than it was in February 2018 when Norsk Hydro agreed with Rio Tinto to buy the 205,000-ton-per-year capacity ISAL aluminum smelter, located in Hafnarjordur, Iceland.
According to the Financial Times, that deal included the balance 53.3% share in the Aluchemie anode plant in the Netherlands that Hydro does not own and a 50% share in the aluminum fluoride plant in Sweden, from Rio Tinto.
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The transaction to acquire Rio’s last remaining aluminum assets in Europe was initially expected to be finalized in the second quarter of 2018 following the surprise agreement by Rio to sell its aluminum Dunkerque smelter in France to Liberty House for U.S. $500 million in June.
The announcement of sanctions on Oleg Deripaska in April this year — and by extension En+ and Rusal, the largest aluminum producer outside of China — has cast some doubts on alumina supplies for European smelters, as Rio sources some of the alumina for its ISAL plant from the Russian company’s Aughinish refinery in Ireland.
But Rio seemed quite confident it could source alumna from elsewhere and Norsk Hydro certainly has enough alumina supply options around the world that raw material supply should not be a major issue.
No, the main reason the firm pulled out seems to be the initial feedback from the E.U. competitions authority, which was raising concerns about market domination reducing competition in Europe if the deal had gone through.
Norsk Hydro makes around 2.1 million tons of primary aluminum a year and ISAL would further consolidate its position as the largest primary supplier in the European market. However, competition authorities may still have had one eye on the Rusal situation.
If, as some are now beginning to question, the sanctions are not lifted in October when the current extension expires, primary metal supply will become very tight in Europe again.
Rusal produced some 3.7 million tons last year according to its annual accounts. While a proportion is consumed domestically, some 0.9 million tons, a significant percentage is exported to the European market, usually under annual supply agreements. If that tonnage is denied the European market due to sanctions, competitions authorities may worry the remaining suppliers will have too much influence to ensure an open and competitive marketplace.
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Fortunately, Rio is making good profits out of its aluminum business, the Financial Times reports — some U.S. $1.58 billion last year — so it is hardly desperate for a sale.
Still, investors were not heartened by the news. Rio’s share price dropped $0.14 on the news, down nearly 16% from its 2018 high of $86.75 in May of this year.