Russian aluminium giant Rusal pivots towards China，Russian aluminium now dominates China's imports

beijingwalker · Nov 18, 2023

Russian aluminium giant Rusal pivots towards China

By Andy Home
October 27, 20237:00 AM GMT+8

A worker stores aluminium ingots at the foundry shop of the Rusal Krasnoyarsk aluminium smelter in Krasnoyarsk, Russia October 3, 2018. REUTERS/Ilya Naymushin Acquire Licensing Rights

LONDON, Oct 26 (Reuters) - Russian producer Rusal's decision to buy into a Chinese raw materials supplier is a significant marker in the reconfiguration of the global aluminium map.

The purchase of a 30% stake in Hebei Wenfeng New Materials (HWNM) is intended to lock in supplies of alumina after Rusal lost access both to its Ukrainian refinery and its share of off-take from the Queensland joint venture plant in Australia.

The deal cements Rusal's growing dependence on China for the intermediate product that sits between bauxite and primary metal in the aluminium production process.
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China, meanwhile, is emerging as an increasingly important market for Rusal's finished products as Western appetite for Russian metal shrinks.

The realignment of aluminium trade is part of the broader shift in Russian commodity trading patterns in the wake of last year's invasion of Ukraine.

But the fracturing of what was once a global aluminium supply chain is still evolving and this week's Sino-Russian deal may not be the last.
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China's exports of alumina to Russia

CLOSING THE ALUMINA GAP

Rusal lost access to around 2.5 million metric tons of alumina in the weeks following the invasion of Ukraine in February 2022.

The company's ties with the Nikolaev refinery in Ukraine were immediately severed by the hostilities, while the Australian government's decision in March 2022 to ban exports of raw materials to Russia led to the suspension of Rusal's 20% off-take from the Queensland joint venture refinery.

Rusal's attributable alumina output fell by 28.3% year-on-year to 5,953,000 metric tons in 2022 and it was down another 24% in the first six months of 2023.
The company has been making up the shortfall with purchases of third-party material, first and foremost from China.

China did not export much alumina at all in 2021. Total shipments amounted to 117,000 metric tons, of which just 1,750 were destined for Russia.

That changed in March last year, when exports to Russia started mushrooming. China shipped over a million metric tons of alumina in 2022, of which 843,000 metric tons went to Russia.

The pattern has extended into 2023, exports to Russia rising by 22% year-on-year to 805,000 metric tons in the January-September period. They accounted for 86% of total outbound shipments.

Rusal's tie-in with HWNM places the trade on a more solid footing by reducing reliance on spot market purchases. The 30% stake will give it a similar share of the Chinese refiner's 4.8 million metric tons of annual capacity.

China's imports of primary aluminium vs Russian-brand metal

CHINA IMPORTS MORE RUSSIAN METAL

While Chinese alumina has been flowing to Russia, increasing quantities of Russian aluminium have also been entering China.

Imports of Russian-brand metal totaled 806,000 metric tons over the first nine months of this year, up from 276,000 in the same period of 2022 and accounting for 84% of China's total primary aluminium imports.
Some of this metal may be flowing down third-party channels as traders look to move surplus Russian metal into what has become the market of first resort.

Russian aluminium has evaded formal sanctions but the U.S. imposed penal import duties of 200% in February this year, essentially closing off the U.S. market. Many European buyers, meanwhile, are steadily reducing their exposure by self-sanctioning.

The collective impact is evident in the high percentage of Russian-brand aluminium sitting in London Metal Exchange warehouses. It accounted for 76% of available tonnage at the end of August.

Some of this Russian surplus is being redirected to the Chinese market, which appears to be short of primary metal in ingot form.

However, Rusal has stepped up direct bilateral trade as well. It announced earlier this month that Chinese foil manufacturer Mingtai Aluminium is doing trial runs of Rusal's low-carbon "ALLOW INERTIA" brand.
It is also shipping more alloy to China. China's imports of Russian alloy rose by 71% to 57,000 metric tons last year and they have remained robust so far this year.

Asia accounted for 33% of Rusal's sales revenue in the first half of 2023, up from 23% in the same period of 2022. The share of U.S. sales fell from 7% to 2% over the same period and the share of European revenues slid from 40% to 31%.

FURTHER ALIGNMENT

Sino-Russian ties are becoming ever stronger in the aluminium market.

This is first and foremost a politically-driven development as China and Russia find themselves on the same side of an increasingly polarised metals market.

However, it is also a reflection both of Rusal's internal cost considerations and China's domestic market dynamics.

Western and Eastern aluminium producers alike are facing margin pressure due to low outright pricing and sliding physical premiums.

Rusal reported a 17% year-on-year decline in revenue in the first half of this year with adjusted net profit down by 54%.

The company is unsurprisingly looking at its smelter cost structure, according to Russian news agency Interfax, quoting unnamed creditor sources.

The three highest-cost smelters are Kandalaksha, Volgograd and Novokuznetsk, the first two of which are located in the west of the country. The lowest-cost plants, including the new Taishet smelter, are sited in Siberia, which is a lot closer to Asian markets, particularly China.

If smelter capacity is going to be trimmed, it's not hard to guess where the cuts will take place.

In years gone by China wouldn't have needed any more primary aluminium. But the world's largest producer is now operating close to a government-mandated capacity cap of 45 million metric tons.

As domestic demand keeps growing, near-shoring extra capacity in Russia may be an attractive option.

Even more attractive is the low carbon footprint of Russia's hydro-powered Siberian smelters. While Chinese producers have rushed into hydro-rich provinces such as Yunnan to produce "green" aluminium, much of the country's production still comes from coal-powered smelters.

From each country's perspective ever closer aluminium ties are starting to look like a win-win scenario.