The ban on alumina exports to Russia has added more pressure on aluminum giant United Co. Rusal International PJSC.
Moscow-based Rusal shares dropped after Australian Prime Minister Scott Morrison announced that the country is immediately banning exports. Australia supplies almost 20 percent of Russia's alumina, which is a key ingredient for producing aluminum. Its exports of aluminum ores, including bauxite, have also been prohibited.
Aluminum has not been targeted by sanction, but Rusal, which needs bauxite and alumina to feed its plants, faces disruptions to its supply chains as Russia becomes isolated from the world.
"It's a critical input into weaponry, including guns, ammunition and missiles. Our decision here should say very clearly that to all countries, all companies operating in Australia, we are watching these things very, very carefully," Morrison said in a press conference.
He also said the ban demonstrated Australia's "absolute commitment to holding the Putin regime to account."
Aluminum, which is used in everything from cans to airplanes to window frames, was already running low before the Ukraine invasion sent markets into a frenzy.
Morrison also said a ship that is due to dock and collect a load of alumina bound for Russia would not deliver its cargo. Russia remains to be a key supplier of aluminum to markets including Turkey, China and Japan, and the ban threatens to add more inflationary pressures to these economies.
In other parts of the globe, aluminum prices jumped as much as 5.7 percent to $3,574 per ton and closed at $3,521 on the London Metal Exchange. Prices also hit a record earlier in the month, and are already up 25 percent this year. Rusal's shares, meanwhile, dropped 5.4 percent in Hong Kong.
Rusal entitled to production
Rusal said in a statement that it was evaluating the impact of Australia's ban. However, it does own a 20 percent stake in Queensland Alumina Ltd., which is operated by Rio Tinto Group. This makes them entitled to the same proportion of production. (Related: Aluminum and nickel, other commodity prices rise following Russia's move on Ukraine.)
It does remain likely for Rio to continue supplying the metal to Rusal for now, but it will have to stop when the government directly prohibits it.
Meanwhile, Rio said that it would comply with all of Canberra's directions, reiterating that it was in the process of terminating its commercial relationships with Russian businesses. Rio plans to stop supplying bauxite to and buying alumina from Rusal's Aughinish plant in Ireland.
Rusal also cut its output from its Nikolaev alumina refinery in Ukraine due to logistical issues arising from the Russia-Ukraine conflict.
Whether or not the company will cut aluminum output will depend on the volumes of its inventories. Wuhan coronavirus (COVID-19) outbreaks in China are also disrupting supplies of the metal, adding even more pressure on global prices.
Australia's ban will apply to "all relevant shipments" to Russia. While it is common practice for alumina producers to swap cargoes with other suppliers in different locations to save on freight costs, it remains unclear whether or not Rusal will be able to get around the prohibition by doing this with shipments from its Queensland plant. (Related: Russia’s red line: Moscow not about to allow Ukraine to join NATO as World War III hangs in the balance.)
Gavin Wendt, a senior resources analyst at the consultancy Mine Life Pty., said in an email that the spirit of the sanctions suggests that Rusal will not be allowed to profit from alumina sales at all, although it remains unclear in the current wording.
Australia also made it clear where its allegiance lies: It said that it would provide additional support to help Ukraine's government to beat Russia and give support to those impacted by violence.
Morrison's administration also announced a $21 million support package of defensive military assistance for Ukraine and another $30 million in emergency humanitarian aid.
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