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Analysis: Sanctions batter Rusal's overseas supply chain, restructuring seen

Reuters  |  LONDON/MOSCOW 

By Eric and Devitt

LONDON/MOSCOW (Reuters) - Russia's may be forced to divest most of its portfolio of overseas operations if the aluminium giant cannot restructure them to evade U.S. sanctions and ensure a flow of raw materials.

U.S. sanctions imposed against key allies of Russian have already started to cripple United Company Rusal's extensive string of international operations from to to

Rusal, the world's second biggest behind China Hongqiao Group Ltd, is heavily dependent on its international network of mines and refineries. These last year accounted for 53 percent of its output of raw material ore bauxite and 64 percent of production of semi-processed sister alumina.

"How does continue to fund its operations and produce if its raw material is broken?," said Robin Bhar, at

One key will be finding shipping and logistics firms willing to take the risk to transport those supplies, industry sources said.

Shipping giants and (MSC) both said they were halting any new trade with Russian entities targeted by U.S. sanctions.

"Like everywhere, it's greed and fear. At some point greed wins," said a industry source who declined to be named because he was not allowed to speak to the media.

"The bigger the company the more reluctant it will be, but smaller companies that can go under the radar may think the risks are worth it if they can get a really good price."

FORCE MAJEURE

Rio Tinto, which supplies bauxite to some of Rusal's refineries and buys refined alumina, said it will declare force majeure on some contracts, showing the immediate impact on Rusal's

Rio also said on Friday it was reviewing Rusal's 20 percent stake in the

Illustrating knock-on effects, French aluminium smelters in and St. Jean de Maurienne are scrambling to find alternative alumina supplies after being cut off from material from Rusal's Irish refinery, said Johan Vlietinck, CGT union official at the smelter.

Rio is selling the smelter to Britain's while the other smelter is owned by Germany's Trimet.

Another crucial issue is funding since the U.S. sanctions prohibit from doing transactions in dollars.

The has pledged to provide with short-term liquidity and offer other assistance, but that help will mainly assist the domestic assets and may do scant good overseas.

"When it comes to Rusal's Russian operations, they should continue to operate without restriction... but the same is not true for the remainder of the portfolio, each one of which has its own set of unique problems," said at consultancy CRU.

Many governments are working behind the scenes to keep operations running in their countries to safeguard jobs, but the easiest way to ensure this may be to transfer ownership, said

"Rusal's international facilities are...under potential restructuring. The alumina and bauxite facilities...could therefore change hands," the said in a research report.

Restructuring asset ownership into non-sanctioned entities has precedents in going back to in 2014, it added.

SUPPORTIVE

The authorities are supportive in Guinea, which accounts for more than a quarter of Rusal's bauxite output, and the mines are continuing to operate, according to industry sources in the country.

The main issue will be logistics and finding middlemen who do not have any links with the United States, an industry source said.

The Dian-Dian project, the world's largest bauxite deposit, was still on track to launch production by the end of April, a with the project told

With expected output of 3 million tonnes a year, it would nearly double Rusal's bauxite output in the country.

In Ireland, Rusal's biggest alumina refinery, Aughinish, is under threat because Rio Tinto, which provided bauxite for the plant, has declared force majeure.

The plant has enough bauxite to last to the end of June, said. The plant did not reply to emails seeking comment.

The Swedish Kubal aluminium smelter, the only producing operation outside of Russia, was still producing but had halted deliveries, a said.

(Additional reporting by in Paris, Daniel Dickson in Stockholm, Samb Saliou in Conakry, Graham Fahy in Dublin, Jonathan Saul in London; Editing by and Keith Weir)

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

First Published: Tue, April 17 2018. 20:44 IST
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