IRALCO Prospects Brighten After US Sanctions on Russian Producer Rusal

Carnage was unleashed on April 6 by the imposition of United States’ sanctions on Oleg Deripaska and his Rusal aluminum empire. Other producers, including even small-scale ones in Iran, were subsequently the target of investors’ attention.

At a stroke, the sanctions effectively cut off some 3 million tons of aluminum, or roughly 6% of global supply from the markets.

US sanctions targeted Deripaska under a law that ordered the administration of US President Donald Trump to punish Russia for its alleged meddling in the 2016 election, according to Financial Tribune. 

Deripaska was identified in a January Treasury report as a Russian oligarch close to the country’s president, Vladimir Putin, Bloomberg reported.

Rusal Plc’s shares consequently plunged as much as 41.8% on April 9, as investors bailed on the stock.

After about a weeklong lag, investors at Tehran Stock Exchange turned to the previously unattractive shares of Iran Aluminum Company, which was tanking just days before. They grew 26.9% from 1,159 rials per share on April 16 to 1,471 rials on May 1’s close.

The company itself, however, was rather low-key about the sudden fluctuation in its written explanation to Securities and Exchange Organization, saying that “nothing noticeable” has happened regarding its financial situation and this was all due to “market supply and demand dynamics”.  

IRALCO’s performance report for the three quarters of last fiscal year (March 21-Dec. 21, 2017) shows that it racked up 2.04 trillion rials ($48.76 million) of retained losses, which means any fresh cash coming its way would be very welcome. 

According to Iranian Mines and Mining Industries Development and Renovation Organization, IRALCO produced a total of 170,292 tons of aluminum in the last fiscal year (March 21, 2017-18), showing a 7% drop year-on-year.

The unprecedented turbulence in aluminum prices also had a lot to do with the turn toward alternative stocks, such as IRALCO. The raw material supply chain has teetered on the edge of collapse worldwide and the tremors have raced down the value chain through major carmakers as far as original equipment suppliers.

London Metal Exchange aluminum price jumped 32% in April 6-19 to $2,597.5 per ton. Time-spreads went haywire and volumes surged to fresh daily records.

Shocked by how its precision strike on Deripaska has ruptured the global aluminum market in the space of just two weeks, the US administration has rapidly rowed back. 

By extending the sanctions deadline to October 23, 2018, the Treasury Department has given Rusal and the aluminum market some breathing space. Prices, therefore, have slightly relaxed by now.

Latest LME data put aluminum at $2,257.5 per ton on May 1–a 13% drop compared to April 19. It’s still 14.8% higher than when sanctions were first introduced.

The Iranian aluminum industry may be able to cash on in the opening beyond its recent entropy. According to Amir Sabbagh, IMDIRO’s head of planning and investment, the country is set to become a net exporter of aluminum as of 2019.

A new aluminum smelter is set to come on stream early next year to boost Iran’s output by 70% and help realize that goal by making it self-sufficient. Construction of the South Aluminum Corp (Salco) smelter is underway, which will produce 300,000 tons per year in its first phase, according to Mehdi Karbasian, chairman of IMIDRO.

“While Iran currently produces about 400,000 tons per year of aluminum, consumption is around 600,000 to 700,000 tons,” said Amir Mirchi, managing director of Canadian consultancy Auryce, which is advising Salco.

The main limitation, however, is the lack of sufficient alumina production to meet the new plant’s demands. Iran’s plans to import bauxite from a purchase mine in Guinea Conakry are still lagging and local reserves are running out.