Experts: US Sanctions on Rusal Will Hurt American Consumers

Despite their aim at punishing Russian individuals and organizations the United States accuses of manipulating global events, experts say that the sanctions levied against Rusal, En+ Group, and Oleg Deripaska, among others, late last week are likely to backfire and harm American aluminium consumers and industries instead. Thanks to several factors, some of which were already in play prior to the Treasury Department’s sanctions, the likelihood is significant that consumers will bear the brunt of higher prices on a wide range of items as diverse as they are common.

Though the full effect of sanctions remains to be seen, they emerged to witness a market whose ex-China production is already below global demand, and with no new aluminium capacity projects in the wings to bridge the chasm. The sanctions against Rusal make a producer that churned out 3.7 million metric tons of raw aluminium last year (7 percent of the total global aluminium output, and 80 percent of which was bound for overseas markets) inaccessible to American manufacturers.

In addition to finding the US market cut off, Rusal is also now excluded from trading at the London Metal Exchange, and Glencore plc is reassessing its business relationship with the firm. With dwindling outlets for the aluminium rolling off Rusal’s potlines, the likelihood of their product finding a home outside of Russia’s borders is uncertain. “Businesses just don’t want to deal with even a remote risk of getting on the wrong side of US authorities,” opined Global Counsel’s chief economist Gregor Irwin.

Further, due to the fact that the lion’s share of China’s primary aluminium production barely leaves its borders thanks to the heavy, 15% domestic export tariff, adding in the small amount of virgin aluminium that does enter the global market does not produce a significant difference.

Aluminium importers around the world are sure to feel the heat of these sanctions, but none more than the American market. At present the US market finds itself almost entirely reliant upon smelters from beyond its shores, which was the situation in which the market found itself last month when a virtual wall around the country was thrown up in the form of the Trump administration’s blanket 10-percent tariffs.

With all this in mind, many economists believe that the sanctions are likely to mete out a significant dose of punishment to the average American consumer.

“If the sanctions are sustained … I think it’s inevitable that we will see an increase in the cost of assembling cars and therefore, car prices,” said Aston University professor David Bailey.

All in all, the sanctions against Rusal have added more gasoline to the growing bonfire of doubt that continues to engulf the global aluminium industry, which inevitably sees aluminium prices rising. And, as Alcoa Corp’s Roy Harvey expressed to an audience earlier this week in Arizona, the question now is only where the other shoe is likely to drop.

“I don’t think any of us can predict what happens next, whether it’s in the U.S. or China or elsewhere,” he lamented.

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