Praveen Menon, Eileen Soreng

(Reuters). Russia could look to China to take over Australian alumina supply cuts. But industry analysts warn that Chinese aluminium smelters are dependent on all available feedstock and might be wary of secondary West sanctions.

As a response to Moscow’s invasion, Australia placed an urgent ban on Russian imports of alumina, aluminium ores and bauxite to Russia.

Rusal Aluminium, Russia’s second largest producer of aluminum outside China is being squeezed by the move. About 19% of the company’s alumina comes from Queensland Aluminium (QAL), where it owns a 20% share.

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

Although there are no evidence to support Russia’s desire for Chinese alumina, analysts believe that China has close connections, is near and large enough, making it an attractive option.

Uday Patel, senior Wood Mackenzie manager, stated that China is the most important global producer of aluminium and will likely absorb Australian alumina exports previously going to Russia. This could allow for reselling supplies.

Patel stated to Reuters that Chinese companies could purchase alumina from QAL then sell it back again to Rusal.

China may also be able to sell some domestic production. But, it is important to note that China’s alumina market is growing this year. This is due in part because the Chinese smelters are increasing their output in light of all the 2021 power shortage issues.

Rio Tinto, an Anglo-Australian mining company that owns 80% of QAL, and Rio Tinto (NYSE) did not reply to inquiries about their plans for the exports of alumina to Russia. They also declined to comment on Chinese requests.

Rusal couldn’t be reached for comment. However, Rusal stated previously that it was still evaluating the Australian move.

Soni Kumari, an analyst at ANZ, agreed that China’s domestic demands would limit what Russia can achieve.

She said that Russia could look to China but it does not have sufficient export surplus to meet their need to supply domestic smelters. Due to secondary sanctions, Chinese exporters might be more cautious.

Washington warned China not to take advantage of the business opportunities provided by sanctions. It also advised Moscow against helping it evade export control or make its prohibited financial transactions.

Kumari suggested that Kazakhstan might step in to offset Russian shortages. Other suppliers include Brazil, Jamaica, and Guinea.

‘PARIAH STATE’

China refused to call Russia’s actions in Ukraine an invasion or condemn them. Beijing also opposes economic sanctions against Russia that it claims are unilateral and not authorized by the U.N Security Council.

Patel stated that Russia is China’s key ally, but China does not want to be seen as a pariah for its assistance to Russia.

He stated that there is talk of tonnages in Russia of alumina scheduled to be shipped through eastern Russian ports to China.

Reuters was unable to independently confirm any planned or additional shipments of alumina from China.

China exported 7967 tonnes alumina to China in the first 2 months of 2011, of which 698.6 tons went to Russia according to Chinese customs records.

Its alumina exports topped 119,891 tonnes last year. Russia received 1,822 tonnes.

Rusal supplies approximately 6% of the global aluminum market and is concerned about losing Australian supply.

The conflict has forced Rusal to close the Nikolaev refinery, Ukraine, which produces 1.75m tonnes per year.

WoodMac also stated that supply chain issues exist at Rusal’s two million-tonne annual Aughinish alumina refining plant in Ireland.

The United States and European countries have put heavy sanctions on Russia after Moscow’s February 24th invasion of Ukraine, which it describes as a “special military operations”, has sent troops there.

Both the sanctions and continuing conflict as well as supply limitations caused by pandemics have put pressure on commodities markets, causing record prices. [MET/L]

Aluminum is considered a crucial metal because of its wide use, which includes in auto, aerospace, packaging and machinery, as well the construction sector, and even production of ammunition and military equipment.

Graphic: Aluminium prices: https://fingfx.thomsonreuters.com/gfx/ce/zgpomyblnpd/Pasted%20image%201648087056449.png