Glencore to back out from the $16 billion aluminium contract with Rusal

Glencore Plc is prepared to back out of a $16 billion agreement to purchase aluminium from Rusal, Russia's top producer, to separate itself from one of its main competitors. As per Gary Nagle, CEO of Glencore, the firm won't extend a contract with Rusal International when it expires next year following its stance of refraining from conducting any new business with Russia. A month after Russia's invasion of Ukraine, the trading business instituted such a policy while upholding previous contracts.

Suppose Glencore's main competitors are comfortable dealing with Russian metal that many customers are unwilling to purchase. In that case, the contract's expiration will present a once-in-a-lifetime chance for them to increase their influence in the global aluminium market.

Suppose Rusal is unable to reach a new agreement of a similar magnitude. In that case, this might result in larger deliveries of Russian aluminium into the warehouses of the London Metal Exchange, which could put additional pressure on world prices during a time of poor demand.

Nagle's remarks came just after a report stated that Trafigura Group, one of its major trading rivals, is discussing getting its own metal supply from Rusal. Trafigura said that it would abide by the sanctions. Western sanctions on Rusal do not exist.

Glencore's connection with Rusal has long supported its position as the world's largest aluminium dealer, so abandoning it would be a significant shift. Glencore needed the arrangement because it has its own production assets, unlike many other commodities, including copper and coal. Rusal announced the $16 billion agreement in 2020, giving Glencore around one-third of its production. According to the Russian corporation at the time, the agreement would last through 2024, possibly extending it until 2025.

Nagle said that because energy drove record trading earnings of $6.4 billion last year, Glencore did not need to sign new agreements with Russia to satisfy its clients or shareholders. Glencore continues to own a 10.6% share in EN+ Group International PJSC, the parent company of Rusal. It has been said that there is "no feasible means to depart" from the current situation.