By Eileen Soreng and Praveen Menon
(Reuters) – Russia might look to its giant neighbour to replace Australian alumina supplies cut off by sanctions, but Chinese aluminium smelters need all the feedstock they can get and may be worried about secondary sanctions from the West, industry analysts say.
Australia on Sunday imposed an immediate ban on exports to Russia of alumina and aluminium ores, including bauxite, in response to Moscow’s invasion of Ukraine.
The move squeezes Russian aluminium giant Rusal, the world’s No.2 producer outside China. It gets about 19% of its alumina from Australia’s Queensland Aluminium (QAL), in which it holds a 20% stake.
Graphic: Australia’s ban on alumina exports to Russia tightens the raw materials screw on Rusal: https://fingfx.thomsonreuters.com/gfx/ce/egvbkbnempq/Rusal%20Alumina%20Dependency.PNG
While there is no concrete evidence that Russia is seeking Chinese alumina supplies, analysts say close ties, proximity and the size of the Chinese market make it a logical option.
China, the top global aluminium producer, is likely to step in and absorb Australian alumina exports that had previously headed to Russia and could then potentially on-sell supplies, said Wood Mackenzie senior manager Uday Patel.
“Chinese firms could buy alumina from QAL and then sell back to Rusal,” Patel told Reuters.
“(China) could also sell some of its domestic production, but note that alumina demand in China is also increasing this year as Chinese smelters lift output after all the power constraint issues in 2021.”
QAL and Anglo-Australian mining giant Rio Tinto, which owns 80%, did not respond to requests for comment about what would happen to the alumina exports meant for Russia and if they were receiving requests from Chinese companies.
Rusal could not be reached for comment but said previously it was evaluating the effects of the Australian move.
ANZ analyst Soni Kumari agreed China’s domestic demand would constrain what it can do for Russia.
“Russia could turn to China, but the country does not have enough export surplus given their requirement to feed domestic smelters,” she said. “Further, Chinese exporters would be cautious too due to fear of secondary sanctions.”
Washington has warned China against taking advantage of business opportunities created by sanctions and helping Moscow evade export controls or process its banned financial transactions.
Kazakhstan could step up to help offset Russian shortages, Kumari said, while other suppliers could include Brazil, Jamaica and Guinea.
‘PARIAH STATE’
China has refused to condemn Russia’s action in Ukraine or call it an invasion. Beijing has also opposed economic sanctions on Russia, which it says are unilateral and are not authorised by the U.N. Security Council.
“Russia is its key ally but at the same time China doesn’t want the stigma of being seen as a pariah state for helping Russia,” said Patel.
He said there was talk in the market of some tonnages of alumina booked to be shipped from China to Russia via eastern Russian ports.
Reuters could not independently verify any additional alumina shipments or planned shipments to Russia from China.
China exported 7,967 tonnes of alumina in the first two months of this year of which 698.6 tonnes went to Russia, according to Chinese customs data.
Last year, its alumina exports were at 119,891 tonnes, with 1,822 tonnes going to Russia.
The loss of Australian supplies is not the only issue for Rusal, which supplies about 6% of global aluminium.
Among Rusal’s other major alumina suppliers, the Nikolaev refinery in Ukraine with a capacity of 1.75 million tonnes a year, is out of commission because of the conflict.
There are also supply chain issues at Rusal’s 2 million tonnes a year Aughinish alumina refinery in Ireland, WoodMac said.
European nations and the United States have imposed heavy sanctions on Russia since Moscow sent troops into Ukraine on Feb 24 in what it calls a “special military operation”.
The sanctions and ongoing conflict, along with supply constraints caused by the pandemic, have pressured commodities markets and triggered record price hikes. [MET/L]
Aluminium is a key metal due to its use across sectors from auto, aerospace, packaging, machinery and construction sectors to production of military equipment and ammunition.
Graphic: Aluminium prices: https://fingfx.thomsonreuters.com/gfx/ce/zgpomyblnpd/Pasted%20image%201648087056449.png
(Additional reporting by Shivani Singh, Min Zhang and Beijing newsroom; editing by Lincoln Feast.)
