Column: United States targets Russian aluminium and other metals

LONDON, Feb 28 (Reuters) - The United States has extended its punitive economic measures against Russia into the metals and mining sector.

Aluminium will be hardest hit with penal tariffs of 200% on imports of Russian metal, effective March 10, and imports of any third-country product containing Russian metal, effective April 10.

Import tariffs on other metals such as copper and lead will double to 70% and nickel will be subject to a 35% duty.

The full package of sanctions and trade measures, announced on the anniversary of Russian's invasion of Ukraine, covers over 100 metals, minerals and chemicals.

The immediate market reaction has been muted. The duties on aluminium were widely expected and these are unilateral U.S. trade measures not formal sanctions such as were briefly imposed on Russian producer Rusal in 2018 with chaotic impact.

But they have forced The London Metal Exchange (LME) to suspend all Russian metal deliveries to its U.S. warehouses, signalling a further fracturing in the global market-place.

The LME has come under pressure to suspend all deliveries of Russian aluminium across its global warehouse network but rejected the idea in November.

"The LME does not believe that the recent U.S. announcement changes this position, given that many U.S. consumers had already 'self-sanctioned' in respect of Russian metal," the exchange said in a Feb. 28 notice.

Rather, it will follow the precedent set when it suspended deliveries of Russian nickel to British warehouses after the British government unilaterally hiked import duties in August last year.

Fortunately for the LME, the only Russian-brand metal sitting in its U.S. warehouses is 400 tonnes of aluminium alloy. Warrants for this metal are invalidated for settlement against the NASAAC contract.

There will be no market impact. The contract barely trades and the LME noted there is no open interest against this metal.

The LME three-month aluminium price has largely shrugged off the news, currently trading around $2,350 per tonne towards the lower end of its year-to-date range of $2,250-2,680 per tonne.

But time-spreads have widened.

Cash metal saw a flurry of selling in the hours after the Feb. 24 announcement in what looked like a mass dump of Russian brands by stocks financiers.

The result was a blow-out in the cash-to-three-months contango to $50.50 per tonne at the weekly close, the widest since 2013, when there were over five million tonnes of LME aluminium stocks in need of financing. The gap narrowed marginally on Monday, the time-spread closing the day valued at $46.75 per tonne.

This sort of "super contango" is the market's cry for financiers to pick up spare metal, particularly Russian metal.

LME warehouses held 93,750 tonnes of Rusal aluminium at the end of January, accounting for 41% of total on-warrant stocks of 231,125 tonnes.

On-warrant stocks have since grown to 443,675 tonnes after heavy warranting activity at Malaysia's Port Klang (121,150 tonnes) and the South Korean port of Gwangyang (107,900 tonnes).

The Gwangyang deliveries are reported to be Russian aluminium being delivered by Glencore (GLEN.L), which has a long-term off-take deal with Rusal.

More may be coming.

The LME announced on Feb. 22 the listing of three more registered warehouses in the port, all to be operated by ISTIM UK Ltd.

Trade tariffs are not sanctions and there is no reason this metal will not find financing but Friday's cash price crash suggests the pool of liquidity may have shrunk.

The cash-to-threes time-spread will be a litmus test of financing appetite for Russian aluminium over the coming period.

The United States said it has calibrated its import tariffs "to impose costs on Russia while minimising costs to U.S. consumers".

U.S. imports of Russian unwrought aluminium dropped sharply after the country imposed sanctions on Rusal in 2018, even though they were reversed the following year.

Flows of Russian metal totalled 744,000 tonnes in 2017. Last year they were just 209,000 tonnes and Russia had dropped to being the fifth largest supplier, according to the Aluminum Association.

That tonnage will have to be replaced from other supplier nations, underpinning the premium for physical metal in the U.S. market.

Midwest buyers are paying almost $650 per tonne over and above the LME cash price for their metal. The Midwest premium moved sharply higher at the start of the year in apparent anticipation of the tariffs and has held that level since.

Asian buyers, by contrast, can pick up spot metal at a premium of $72 per tonne right now or at $85-86 per tonne if they have a quarterly delivery contract.

Aluminium pricing is fracturing both along regional fault-lines and, in the case of the United States, between basis price and premium, which currently accounts for a fifth of the "all-in" price for a physical buyer.

There could be a double-hit on U.S. consumers as the duties are extended in April to any aluminium product that includes Russian metal wherever it has been manufactured.

The United States imports a wide range of semi-manufactured products, including foil, tube, wire, plate, sheet, bars and rods.

The list of supplier countries is much longer than that for unwrought metal. It is uncertain how much or how little Russian metal has been entering the country with origin disguised by first-stage transformation into product.

But it's worth bearing in mind that Rusal produces almost four million tonnes of aluminium each year, most of which is exported. Only a fraction of that tonnage is directly imported as unwrought metal to the United States.

The only get-out for supplier nations is if they too impose minimum 200% tariffs on their own Russian aluminium imports.

Aluminium, it seems, is now part of the broader geopolitical rift opening up across the critical minerals spectrum as the West tries to cut its dependence on China and Russia.

The opinions expressed here are those of the author, a columnist for Reuters.

Our Standards: The Thomson Reuters Trust Principles.

Thomson Reuters

Senior metals columnist who previously covered industrial metals markets for Metals Week and was EMEA commodities editor at Knight-Ridder (subsequently Bridge). Started up Metals Insider in 2003 and sold it to Thomson Reuters in 2008, he is author of ‘Siberian Dreams’ (2006) about the Russian Arctic.