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Plans by Russia to impose taxes on exports of aluminum, a vital material for transport and packaging, have fuelled a surge in spot market costs for consumers in Europe and the United States.
Moscow is proposing a 15% export tax on aluminum exports or a minimum of $254 a tonne between August and December. The tax will apply to Rusal, which accounted for 6% of global supplies estimated at 65 million tonnes last year.
Consumers purchasing aluminum on the physical market pay the benchmark aluminum price on the London Metal Exchange (LME) plus a premium, which covers transport and handling costs and taxes.
Premiums were already ramping up due to supply shortages.
Since Russia’s announcement on June 28, US and European premiums have jumped above the highs seen after the United States imposed sanctions on Rusal in 2018, to a record $640 a tonne and $317 a tonne, respectively.
“Given the still bullish predisposition of the market, the tax may push LME prices toward $2,600 a tonne and perhaps toward new highs,” said Jorge Vazquez, founder of Harbor Aluminum.
Vazquez said duty-paid premiums could rise to $650-$900 a tonne in Europe and to $1,030-$1,300 a tonne in the United States.
Aluminum prices hit a three-year high of $2,603 a tonne in May.
Rising premiums suggest Rusal will be able to recoup the tax on spot sales, but for longer-term contracts the picture is different.
Its contracts to sell value-added aluminum products in Europe, Asia and the United States are mainly quarterly and annual. These customers are unlikely to allow renegotiations to take account of Russia’s export tax.
One exception may be billet sales to European customers, contracts for which are nearly all agreed ahead of the quarter to which they apply.
“On long-term contracts, Rusal will probably have to bear the cost, but there will be a question mark over billet contracts for the fourth quarter in Europe,” said CRU analyst Eoin Dinsmore.
Rusal also has an agreement to sell up to 6.9 million tonnes of primary aluminum to Glencore between 2020 and 2024.
Rusal declined to comment.
(By Pratima Desai and Anastasia Lyrchikova; Editing by Kim Coghill)
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