EU contemplates banning Russian aluminium in the 13th sanctions package; industry warns economic distress

The European Union is contemplating restricting Russian aluminium as part of the 13th sanctions package. In a way to ban Russian aluminium imports, sanctions will be automatically applied against the energy sector given that the latter is a crucial input for the aluminium smelting process.

A diplomat told Politico that sanctioning aluminium indirectly targets Russian energy, which makes up 40 per cent of the expenses in aluminium smelting.

Discussions over the new prohibitions have been underway since the European Union decided to release a new sanctions package for the second anniversary of Russia’s invasion of Ukraine on February 24. A senior EU diplomat has stated that for the new sanctions package, the attention has shifted to less obvious areas like aluminium.

In the 12th sanctions package declared in December 2023, the European Union banned aluminium wires, foils, and extruded products. The new package may expand to aluminium semi-finished products and some or all primary aluminium products.

Caution! Possible impacts on prices and economy

However, in line with this news report suggesting the possibility of further sanctions on Russian aluminium by the EU, the global aluminium benchmark price rose over 3 per cent on January 23.

“There are speculations of a potential complete ban on aluminium imports in the upcoming Russian sanctions package scheduled to be released next month,” ING said in a note. “Russian metals had broadly escaped sanctions until last month, when the UK prohibited British individuals and entities from trading physical Russian metals, including aluminium, nickel and copper. UK is the only country in Europe to have adopted such measures.”

The fear is that this ban may affect the aluminium prices, causing them to soar. Earlier in 2018, when the Office of Foreign Assets Control (OFAC) banned Westerners from doing business with Rusal, Russia’s biggest aluminium maker, the metal price spiked 40 per cent overnight on the London Metal Exchange. That made OFAC defer the sanctions and eventually overturn them when found that the ban could incur some 15 cents to the cost of each Coke can in the United States.

This concern may lead the London Metal Exchange to reopen a debate over whether the Russian aluminium should be banned or not. At the end of December 2023, over 90 per cent of the aluminium stock in LME-approved warehouses was of Russian origin.

Harbor Aluminium, a sector consultant, has also warned that expanding the ban to other aluminium products may have severe economic consequences. “The ban would inflict material damage to the European aluminium supply chain, given its irreplaceable need for Russian aluminium products (especially slab and PFA) at a time when European primary aluminium production has declined by 1mn tonnes since 2021, while Middle Eastern and Indian primary aluminium units are being impacted by the Middle East conflict and Red Sea disruption,” said Harbor.

Rusal's comment

Upon reaching Rusal to get their comments on this issue, an officer replied by saying, "RUSAL  produces and supplies over 4.3Mio tonnes of primary aluminium, alloys and downstream aluminum products that is twice the amount as any other ex-China producers.  RUSAL is the largest and most reliable supplier of low carbon aluminium, serving the global market."

She added, "Low carbon Russian origin metal has been a longstanding supporter of both market liquidity, global price formation, and provider of best in class products and services to the global supply chain. Due to the Red Sea crisis, Rusal now is a global supplier with a wide and unique logistic optionality to serve customers all over the world without disruptions in logistics. Supply of Russian metal has been key to reducing market volatility for the benefit of the global supply chain. RUSAL has accelerated and intensified deliveries to Europe to those of its customers who now receive less metal due to the aggravation of the situation in the Red Sea."