Australian export ban pushes up aluminium prices, may boost inflation

[LONDON] Australia's ban on alumina exports to Russia is heaping more pressure on aluminium giant United Co Rusal International PJSC, and pushing up prices of the most widely used base metal.

Aluminium jumped and Moscow-based Rusal's shares dropped after Australian Prime Minister Scott Morrison announced the immediate ban on Sunday. Australia supplies almost 20 per cent of Russia's alumina - the key ingredient for producing aluminium - and its exports of aluminium ores, including bauxite, to the country have also been prohibited.

While aluminium hasn't been targeted by sanctions, Rusal - which needs bauxite and alumina to feed its plants - faces disruption to its supply chains as Russia becomes isolated from the world economy. Supplies of the metal that is used in everything from cans to airplanes to window frames were already running low before the Ukraine war threw commodity markets into turmoil.

Morrison said that a ship due to dock to collect a load of alumina bound for Russia would not deliver its cargo. Russia is a key supplier of aluminium to markets including Turkey, China and Japan, and the ban threatens to add even more inflationary pressure to the global economy.

Aluminium jumped as much as 5.1 per cent to US$3,554 a ton and traded at US$3,504 just before 10 am on the London Metal Exchange. Prices hit a record earlier this month and are up 25 per cent this year. Rusal's shares dropped 5.4 per cent in Hong Kong.

Rusal said in a statement that it was evaluating the impact of the ban. It owns a 20 per cent stake in Queensland Alumina Ltd, which is operated by Rio Tinto Group, and is entitled to the same proportion of production. It is likely that Rio will continue supplying that metal to Rusal for now, unless the government directly prohibits it.

Rio said it would comply with all of Canberra's directions and reiterated 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, people familiar with the matter said earlier this month. Rusal has also slashed output from its Nikolaev alumina refinery in Ukraine due to logistical and transport challenges arising from the war.

Whether the company will cut aluminium output will depend on the volumes of its alumina inventories, Guotai Junan Futures Co said. Covid-19 outbreaks in China are also disrupting supplies of the metal, adding to upward pressure on global prices, it said. Australia said the ban would apply to "all relevant shipments" to Russia. It is common practice for alumina producers to swap cargoes with other suppliers in different locations to save on freight costs.

However, it is unclear if Rusal will be able to get around the prohibition by doing this with shipments from its Queensland plant. "The spirit of the sanctions announced would probably suggest that Rusal will not be allowed to profit financially from alumina sales at all, but this is unclear in the current wording," Gavin Wendt, a senior resources analyst at consultancy Mine Life Pty, said by e-mail.

Rusal was founded by Russian tycoon Oleg Deripaska, who retains an interest via his shareholding in Rusal's majority owner En+ Group International PJSC. The Australian government this month announced a new round of sanctions against oligarchs close to President Vladimir Putin, including Deripaska. EN+ Group said earlier this month it was considering a potential carve out of Rusal's international business, creating a new company to house its alumina, bauxite and aluminium assets across the globe which would no longer have any Russian ownership.

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