$3B of aluminum inventoried at LME warehouses is in limbo

Recent sanctions the U.S. has placed on aluminum from Russia’s United Co. (Rusal) puts into question stockpiled metal produced by the company that is in London Metal Exchange (LME) warehouses. According to an article from Bloomberg, Rusal’s aluminum accounts for more than one-third of the aluminum in warehouses monitored by the LME, creating uncertainty for the banks and trading companies that own it.

“I don’t think there’s any doubt that it’s less valuable than other material,” Oliver Nugent, a commodities strategist at ING Bank NV, told Bloomberg. “Consumers are concerned. Even taking old stuff that is presanctions, they’re nervous.”

While buying metal produced and sold by Rusal before the sanctions, which were announced April 6, 2018, is not restricted, the products have become less desirable in the U.S. and Europe, Bloomberg reports. The LME has banned metal produced by Rusal after April 6 from being delivered to settle futures contracts.

However, some aluminum buyers have told their suppliers they won’t accept delivery of any Rusal metal, regardless of when it was produced, Bloomberg reports, citing executives at trading companies and metal users who asked not to be identified.

The sanctions also leave banks wondering what to do, with most telling Bloomberg they are willing to finance deals involving Rusal aluminum produced prior to the sanctions. However, they add that they are likely to scrutinize previous transactions on the products to see if there’s a risk of a violation.

“Aluminum from Eastern Europe – likely produced by Rusal – accounted for 450,000 metric tons, or 36 percent, of global stockpiles tracked by the LME, according to exchange data as of April 6,” Bloomberg reports.

The news agency also reports that CRU Group’s Eoin Dinsmore estimates that a quarter, or just under 1 million tons, of global aluminum inventories outside China and the LME likely are Rusal-produced metal. When combined with the LME inventories, Bloomberg reports that more than $3 billion in aluminum from Russia is being warehoused.

“In practice, the most straightforward way for traders to deal with their stocks of old Rusal metal may be to deliver it to the LME,” according to the Bloomberg article.

The LME received its second largest aluminum delivery in four years Thursday, April 12, the news service reports. “The bulk of the inflow came from Rotterdam and Vlissingen, two locations where traders historically held large volumes of Russian metal.”

Traders can deliver Rusal aluminum to the LME until April 17, after which they must have evidence to show it was produced before April 6, Bloomberg reports.  

“For stuff on the ground in the U.S., it’s hard to see another option,” Dinsmore told Bloomberg. “You’re not going to sell it.” However, he added, “What’s sitting out there in the rest of the world isn’t completely untouchable, people will find the buyers for it. It’s needed to alleviate some of the tightness.”