Despite the import duty imposed by the US, the price of aluminium developed quite inconspicuously in the first quarter of 2018, with a slight shift seen only in price levels in the US.
However, this started to change suddenly at the start of April: The US administration slapped sanctions on Russian companies and oligarchs because of their role in the Russian power structure. Russia is accused here of having interfered in the 2016 US presidential election, among other things. Oleg Deripaska, En+ Group plc’s largest shareholder, was also included in the list. Given that En+ Group owns about half of the Russian aluminium giant Rusal, the implementation of the US sanctions could have significant implications for the global aluminium market. The Russian company is the world’s largest aluminium producer outside of China, supplying the US with around 700 thousand tonnes of aluminium. If the market were to be short of this material, the US producers would be unable to cover the shortfall in the near future. Rising imports from other countries would not be able to plug the “import gap” either. This meanwhile drove up the world market price for aluminium to more than USD 2,500/tonne (+28%). The US aluminium producers could also benefit significantly from this scenario, unlike their Russian counterparts.
President Trump intends to protect the domestic aluminium industry with his trade policy. At the same time, he is aware that too high a price for aluminium would be at the expense of companies operating in the US automotive and aviation sector in particular. It is therefore hardly surprising that the US administration has kept a small loophole open. The US government signalled early on that the sanctions could be eased if Deripaska significantly reduces his interest in En+ Group and therefore in Rusal. The Russian oligarch has meanwhile announced that he is willing in principle to reduce his stake (influence). Rusal also reported that Deripaska will reduce his interest in En+ and even relinquish his role as president of the company. In response, the price of aluminium fell sharply to currently USD 2,200/tonne (-14%).
As we see it, this once again demonstrates US president Donald Trump’s negotiating style, whereby he kicks off with maximum demands that can throw the market into turmoil, after which he eases off again (in his own interest, too) to facilitate a compromise (deal). Although it is not yet clear whether the steps taken by the oligarch will lead to an immediate easing of the sanctions, we believe a deal will soon be reached in the aluminium sector. Hence, we are leaving our aluminium forecast unchanged for now. In the short term, we find the light metal is fairly valued at USD 2,200/tonne and concede further upside potential of eight percent by the end of the year.