US Tariffs on Russian Aluminium Could Lead to Further Market Fragmentation

US: The gravity of the Aluminium market continues to deepen, as the United States considers imposing a staggering 200% tariff on imports from Russia. Despite the sanctions put in place after Russia's invasion of Ukraine, Russian producers of industrial metals such as Aluminium and nickel have managed to stay out of harm's way - until now.

The US sanctions on the Russian Aluminium giant Rusal and its owner Oleg Deripaska in 2018 caused a major disruption to global supply chains. Despite this, western policymakers were mindful of the situation and the sanctions were lifted in January 2019 after Deripaska relinquished control of the company.

Memories of recent market disruption have been instrumental in allowing Russian metal to keep providing Western markets with much-needed metals. However, it looks like the United States will soon be left out of this equation.

Tariffs are being imposed by the United States on Russian Aluminium, reducing their dependence on the material and accelerating the splintering of the global marketplace. This move comes after previous tariff increases that influenced domestic markets in 2018. Now, with US reliance on Russian Aluminium being lower than ever before, these tariffs can be imposed without any major market blow-back.

Imports of unwrought metal from Russia have seen highs and lows over the past few years. In 2016 and 2017, these imports peaked at over 700,000 tonnes and accounted for nearly 30% of all incoming shipments.

However, in 2018, due to sanctions fears, the Russian imports dropped significantly to 215,000 tonnes - just 12% of total imports in 2021.

Tensions have been running high between the United States and Russia, with last year’s stripping away of “most-favoured-nation" status leading to an additional 10% duty on imports. Now, it appears both countries are headed towards an effective ban on all Russian metal - a drastic move that would completely put a stop to any remaining trade in unwrought Aluminium and related products.

The news of potential U.S. tariffs on Russian metal has had little effect on the Aluminium market, as they believe that the reduced flows from Russia can simply be diverted to other areas. As a result of these tariffs, the country will need to source other suppliers such as those in the Middle East - however, this will come at increased transportation fees.

The surge in premiums in the United States has had a slight domino effect, felt across the pond in Europe. As a major importer, Europe is now, to an extent, competing with the US for gold units. On the other hand, customers in Asia are now able to enjoy lower buying prices due to this fluctuation.

The Aluminium market is beginning to display a stark regional divergence, with physical premiums pointing to an ever-widening gap. The West has already seen a supply deficit, and this may be further exacerbated should the US decide to block Russian metal imports. Meanwhile, in the East there is currently an abundance of Aluminium supply.

China's strong export of semi-manufactured items such as foil and plate has partly contributed to the displacement effect on primary metal demand in Asia, which has kept regional premiums lower than those in Europe and the United States since early 2019. Tariff barriers for these products are high in Western countries.

As Chinese imports to the Asian region become increasingly saturated, the market is now being supplied by excess Russian primary Aluminium. In response to self-sanctions from Western buyers, the demand for Russian metal has surged.