Aluminum's rally has been thrown into reverse after a change in tack by the US, which said Monday that it would provide sanctions relief if Oleg Deripaska relinquishes control of Rusal and extended the window for traders to stop dealings with the company.
Rio had been facing increasing pressure on its aluminium and alumina business because of close ties to Rusal, the big Russian-owned aluminium and alumina group.
Aluminium in London dropped for a fifth day, its worst run in nearly a year, as concerns eased over supply disruptions after the USA softened sanctions against United Co Rusal, the biggest producer outside China.
The stockpiles of aluminum will now be easier to sell because the Treasury said it will give USA customers of Rusal until October 23 instead of June 5 to wind down their business wih Rusal.
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But the US unwillingness to inflict damage on its "partners and allies", whose interests Treasury Secretary Steven Mnuchin mentioned as the reason for his retreat on Rusal, sends an unmistakable message to Russian companies and the Russian state: spreading operations internationally is an effective way to discourage sanctions. "Given the impact on our partners and allies, we are issuing a general license extending the maintenance and wind-down period while we consider Rusal's petition", he said.
In other metals, zinc prices paced losses in London, with copper, lead, and tin also falling.
To recap, on April 6, the US Treasury introduced new sanctions against 26 Russian oligarchs and officials, including Oleg Deripaska, Igor Rotenberg, Kirill Shamalov, Viktor Vekselberg, Suleyman Kerimov, Vladimir Bogdanov and Andrei Skoch.
The impact of this announcement was immediate and profound. The US authorities stated that by October 23, 2018 all contacts with Russian companies in the latest list of sanctions had to be discontinued. Aluminium rallied to its highest since mid-2011 last week on fears that the global market could face shortages because of the sanctions on Rusal, a company that previous year accounted for more than 6 percent of global aluminium output.
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Prices of aluminum have soared by more than 30 percent since the USA sanctions announcement.
Daniel Briesemann, an analyst at German lender Commerzbank, said the Treasury's announcement should calm things down.
"It's very hard for mining companies to react to the tweetstorm", said Gallagher, referring to short-lived moves in spot prices based on fears about U.S. trade policies, amid U.S. President Donald Trump's pronouncements on social media.
Representatives for Rusal and Deripaska did not immediately respond to requests for comment.
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