Metal market participants said Monday they were building new case scenarios after the US extended the wind-down period for sanctions against some Russian companies, including Rusal, eyeing the possibility of the US lifting the sanctions.
On Friday, the US Office of Foreign Assets Control said the expiration date for the wind-down period of US sanctions to Russian companies Rusal, GAZ Group and EN+, which owns a stake in Rusal, were extended by 14 days to January 21, 2019. The sanctions came into effect April 6, but a wind-down period, allowing companies to maintain existing businesses with the Russian companies, was introduced. The wind-down period was initially set to expire in June, but was then extended to October, later to November, and recently to January 7 from December 12.
OFAC was expected to extend the January 7 wind-down deadline again anyway, metal market participants said, adding that some sanctioned Russian companies have already been approaching prospective customers with 2019 term contract proposals.
As the OFAC decision was within market expectations, it is having almost no immediate impact on the spot market, but some market participants said they were building up a case scenario of the US easing or lifting the sanctions, resulting in an increased supply, notably in Europe.
"Downside could be limited as the extension has been widely forecast," said one international trader. Other market sources pointed out that spot aluminum trades in Asia have been stagnant because market participants were seeing more possibilities of increased availability of Russian metal as a result of sanctions easing."
Another source noted that the US extension of the wind-down period has become shorter. The Friday extension was for 14 days and the previous one for 26 days.
"EN+, Rusal, and GAZ are proposing substantial corporate governance changes that could potentially result in significant changes in control of these sanctioned entities. In recognition that the review of these complex proposals is ongoing, OFAC is extending the expiration date of related general licenses until January 21," OFAC said.
Some market participants, however, added they were not ruling out the possibility of further restrictions applied to the Russian companies, which may take the market by surprise.
"The only [foreseeable] impact is when further restrictions are applied to Russia's export of aluminum, which will put upward momentum on prices," the international trader added.
"I wonder if prospective buyers [of Russian material] are okay if sudden force majeures are announced," said one South Korean ferromoly producer.
US sanctions have not been fully applied on the Russian companies for months, but nevertheless their presence in the market has weakened, as there are fewer companies doing business with them on a long term basis, sources added.
Some market participants mentioned the possibility of more trade frictions if Russian companies export more volumes, and at lower price levels in the event of the Russian ruble weakening against the dollar.
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