13 January 2014

"Rusal" against LME: are the new rules so good?

Since April 1 of the new year, the new rules established by the LME, the London Metal Exchange, regarding the storage of metals, come into force, which is not at all pleased with Rusal, one of the largest aluminum producers. Considering the fact that the innovations threaten with very significant reductions in premiums, RusAl filed a lawsuit against LME, seeking to challenge the coming changes.

Boris Krasnozhenov, who is an analyst at Renaissance Capital, says that thanks to premiums alone, a large number of aluminum producers could be kept afloat. New rules threaten to reduce premiums from 100 to 200 USD per ton. After the April changes, we can safely forecast the "cleansing" of the industry in connection with the closure of low-profit enterprises and companies, which, in turn, will balance the market demand and supply.

According to Airat Khalikov, senior analyst at Veles Capital, the cost of aluminum after the April changes may drop to 1600 USD per ton. The stock of aluminum in stock exchanges makes up about half of the total annual volume of metal consumed, but a reasonable level is a stock of 2x3 months. And this excess of stock does not allow a fairly rapid recovery in prices, as it does not allow and rely on the profitability of the industry. The cost of aluminum in the amount of 2000 USD per ton will be possible only by the end of 2014.

However, there is an "Indonesian ban", a factor that can have a very positive impact on the aluminum industry. In January 2014, the Indonesian government will make a decision to stop the export of mineral ores, which will increase their cost, while at the same time striking China, as its demand for bauxite is met by supplies from Indonesia.

Due to the increase in the price of bauxite, the price of aluminum will also increase, otherwise it is unlikely that positive dynamics can be expected, as B. Krasnozhenov firmly believes.

Airat Khalikov, however, says that the raw material from which aluminum is produced is quite a lot, and, thus, its quantity will not be able to sufficiently influence the price policy.

Be that as it may, all analysts agree on one thing: it is necessary to closely monitor the actions of China, since it is this country that is able to begin expanding spheres of influence in the aluminum market.

In any case, the bright prospects for the aluminum industry are being pushed into the future ...

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