Rusal dominates the bauxite and alumina supply chain in addition to primary aluminium production

As the global economy is driving through a challenging situation, the aluminium sector witnessed’s price drop amidst the alleged dumping of Russian aluminium, weakening the demand for metal and propelling the cost of production.

Aluminium stocks in London Metals Exchange (LME) warehouses surged this week, raising concerns about the potential dumping of Russian-origin aluminium.

Currently, the Joe Biden administration is considering banning aluminium imports from Russia. However, that has been reported as irresponsible by the Chairman of the Russian aluminium giant, Rusal.

A significant portion of unsold metal ends up in the LME warehousing system. These are warehouses that are authorized to store metal that is registered with the exchange.

A highly recognised mining and metal analyst from Wolfe Research, Timna Tanners said, “It’s been very disappointing for the poor aluminium market to see kind of a double whammy from weakening global demand, in China in particular, but also Russia dumping aluminium on the global market. So definitely, this quarter reflected those challenges.”

As for the coming quarter, Tanners said it doesn't look good unless the alleged Russian-origin metal is stopped and Chinese demand is lifted - both in infrastructure development and property construction.

In light of President Xi Jinping's statement at the Communist party meeting in Beijing that China will continue to adhere to its Covid-zero policies, there is little indication that Chinese demand could improve quickly.

Tanners added that these problems are exacerbated by the weakening demand elsewhere as interest rates rise.

According to Tanners, aluminium producers, including Alcoa in the US and many in Europe, also face higher operating costs.

"Power is about 30% of the total costs for an aluminium smelter, so they've just been squeezed in some European operations."

CFRA Research analyst Matthew Miller was also surprised at Alcoa's recent third-quarter loss, which the company had attributed to lower aluminium prices and higher energy and critical raw materials costs.

"Things could get worse in quarter four before it gets better", Miller added.

Vivek Dhar, the Mining and energy commodities analyst at Commonwealth Bank stated, “Even though the LME does not reveal where stockpiles come from, an increase in global reserves is a bad sign since base metal prices are already under pressure due to recessionary concerns.”

“The influx of Russian aluminium into LME warehouses also poses a more complex problem.”

“The LME price could trade at a discount to fundamentals if the exchange becomes a dumping ground for Russian metal. Russia accounts for about 17% of the world’s aluminium production. The LME is acutely aware of the problem.”

On 19^th October 2022, Ewa Manthey, the ING economics commodities strategist said, “As a result, sanctions against Rusal may have ramifications for global aluminium supply chains. This was seen in 2018 when the U.S. Treasury sanctioned Rusal and Russian billionaire Oleg Deripaska.”

She added that Rusal is not only a significant aluminium producer but also involved in global supply chains for bauxite and alumina.

 “Sanctions against Rusal in 2018 affected operations in Guinea and Jamaica, while smelters in Europe had trouble securing raw materials,” she said.