October 1, 2019 / 12:52 PM / 17 days ago

Sanctions are over, Rusal's clients say, as aluminium "mating season" starts

ATHENS/MOSCOW, Oct 1 (Reuters) - Aluminium group Rusal is in talks with customers to agree 2020 supply contracts, six industry sources told Reuters, marking the first round of autumn negotiations since sanctions against the Russian company were lifted in January.

Rusal starts the aluminium industry’s so called “mating season” hoping to win back customers lost a year ago due to the sanctions which hit the company’s bottom line and roiled world aluminium markets.

Washington lifted the sanctions on Rusal in late January, after intense negotiations and a series of organisational changes within Rusal. The measures on its co-owner Oleg Deripaska remain in place.

“Sanctions are over. No one is talking about sanctions, nobody... There’s no threat of that,” said one of Rusal’s largest clients, when asked if they would take into account any associated risks when discussing next year’s contract.

Rusal and other aluminium producers are under pressure to cut prices for 2020 contacts because of weak market conditions, sources said.

Rusal declined to comment.

Rusal, the world’s largest aluminium producer outside China, cannot be certain of regaining customers lost a year ago, as the mating season has just started and very few contracts have been signed so far, sources said.

Potential customers are also trying to use Rusal’s sanctions experience “as leverage”, an aluminium trader said, but this is also a consequence of a well-supplied market, where the trader said it was hard to find anyone bullish.

“If the market was very strong there would not be the same pressure on producers, Rusal included, to concede to lower terms,” the trader added.

Benchmark aluminium prices on the London Metal Exchange at around $1,720, are at their lowest since January 2017.

Rusal has been willing to boost its share of value-added products (VAP) such as alloyed ingots and slabs, in its sales from 2020, but has said that it could prove tough due to weaker market conditions for the metal that caused a 38% slump in the company’s first-half net profit.

Last autumn, Rusal signed fewer sales contracts for 2019 for its value-added products due to sanctions. But this season Rusal is pushing VAPs and is also trying to focus on by-passing traders and going straight to end-users, another trader said.

The trader said his firm had not been offered a discount by Rusal to reflect any sanctions risk. Rusal’s offer was priced similarly to competitors, he said.

Rusal is offering an average price - in the same range as its competitors this season - a customer from the Middle East said.

“They assured us that there are no sanctions risks anymore,” he said. “Whether we buy this year just depends on the price.”

A lot of customers are not too concerned by the sanctions risk because those people who entered into contracts with Rusal before the sanctions were introduced were subsequently allowed to fulfil those contracts, a European industry player said.

He also said that Rusal could improve its market share in the Spanish market in the new season. (Reporting by Polina Ivanova; additional reporting by Polina Devitt; editing by Veronica Brown and Jane Merriman)

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