Oleg Deripaska. Picture: REUTERS/RUBEN SPRICH
Oleg Deripaska. Picture: REUTERS/RUBEN SPRICH

New York — The US softened its position on sanctions against Russian metals giant United Rusal, sparking a record plunge in aluminium prices.

For the first time, the US Treasury discussed a path for lifting the sanctions on Rusal, saying it would provide relief if Oleg Deripaska relinquished control. It also extended the deadline for companies to wind down dealings with the Russian aluminium producer by almost five months.

Rusal petitioned to be removed from the sanctions list and Treasury granted the extension while it considers the appeal, according to a statement from Treasury Secretary Steven Mnuchin.

"Rusal has felt the impact of US sanctions because of its entanglement with Oleg Deripaska, but the US government is not targeting the hardworking people who depend on Rusal and its subsidiaries," Mnuchin said.

Aluminium plunged in response as traders speculated that supply disruptions could ease. Prices fell as much as 9.4%, the most ever. US metal producers also dropped, with Alcoa sliding 12%.

Washington’s clarification follows two weeks of chaos in global metal markets. Aluminium shot to multiyear highs as manufacturers raced to secure supply. A German lobbying group said European plants may be forced to close and car makers could face supply shortages.

Rusal’s wind-down operations can include debt payments in US dollars through October 23, a Treasury spokesman said in response to questions.

The US statement also adds pressure on Deripaska as he tries to save the company without surrendering control. He owns 48% of Rusal and controls it through a shareholder agreement with others including Glencore and Viktor Vekselberg, who is also under sanctions.

"If there were previously doubts if Rusal will remain sanctioned if Deripaska sells out, now we have a clear answer," Oleg Petropavlovskiy, analyst at BCS Global Markets, said by phone. "Changing ownership structure would be a solution for the company."

Deripaska was targeted as part of a sanctions-package that hit dozens of Russian tycoons, companies and key allies of President Vladimir Putin.

While analysts have suggested that nationalisation may be the only solution, Russian Finance Minister Anton Siluanov told reporters on Friday that Rusal was not on the list to be nationalized.

Rusal declined to comment. Deripaska’s spokeswoman was not immediately available.

Rusal produces about 6% of the world’s aluminium and operates mines, smelters and refineries across the world from Guinea to Ireland, Russia to Jamaica.

Lots of pressure

"It should calm things down," said Daniel Briesemann, an analyst at Commerzbank. "It looks as if there was a lot of pressure from the US aluminium downstream industry."

At Russia’s request, Mnuchin met with Russian Finance Minister Siluanov during International Monetary Fund meetings in Washington last week. The Russians were seeking "clarification" on US sanctions, Mnuchin said to reporters on Saturday, without elaborating.

"Mnuchin’s statement about the de-listing signals that this is more than just getting an extra few months to stop business with Rusal," said Brian O’Toole, a senior fellow at the Atlantic Council who previously worked in Treasury’s sanctions unit. "It shows that Rusal is trying get off the list."

The selloff in aluminium after the Treasury announcement spread through other commodity markets on optimism the US is not likely to impose further sanctions on Russia’s metals and energy companies.

Palladium plunged by as much as 5.4% and nickel as much 6.7%. They had both jumped over the past two weeks because of concern that Vladimir Potanin, the billionaire who controls Russia’s biggest miner MMC Norilsk Nickel PJSC, could be targeted.