Glencore took low volumes of Rusal aluminium, contract could go to 2025 (updated)

En+ MKPAO

18/09/2023 17:49

By Eric Onstad and Polina Devitt
       LONDON, Sept 18 (Reuters) - Glencore bought only a small
portion of a potential 6.9 million metric tons of aluminium it
could have bought in 2020 to 2022 under its contract with
Russia's Rusal, which could be extended to 2025, regulatory
filings show.
    Commodities group Glencore  GLEN.L , under pressure to stop
buying metal from Rusal  0486.HK  due to Moscow's invasion of
Ukraine, said last year it would agree no new contracts for
Russian material, but would meet existing obligations.
    An early end to the contract would potentially open up large
amounts of supply from Rusal, the world's largest aluminium
producer outside China, to Glencore's rivals such as trading
house Trafigura.
    Trafigura declined to comment. 
    Rusal's annual reports show Glencore bought $2.87 billion
worth of aluminium under the contract during 2020-2022, which
according to Reuters calculations would amount to around 1.1
million metric tons based on the average London Metal Exchange
cash price for each year. 
    The 1.1 million tons is an estimate because the price would
also include regional premiums, which were unable to be included
since the destinations were not given. 
    "There is definitely a backlog of (unfulfilled) metal under
the contract," said a source close to one of the parties. 
    Many participants at last week's aluminium conference in
Barcelona, in the process of hammering out supply contracts for
next year, were puzzled about the scope of the deal, with many
under the impression the contract would end next year. 
    Neither Glencore nor Rusal have said whether an option under
the contract would be exercised to extend purchases to end-2025
from its original time frame of September 2020 to end-2024.
    Glencore declined to comment and Rusal did not immediately
reply to a request to comment. 
    The contract gave Glencore the right to buy up to 6.9
million metric tons over the life of the contract, but the
volumes through last year have failed to come close to that
number, according to Rusal's annual reports.
    The purchases are in sharp contrast to the maximum allowed
tonnage during 2020-2022 of 3.61 million tons.
      
    
    LONG RELATIONSHIP    
    Many companies are refusing to buy Russia material due to
the Ukraine war even though there are no government sanctions on
Rusal or Russian aluminium.
    Glencore has a long relationship with Rusal, having been
part of a merger in 2007 that created the current group.
    The Swiss-based group also owns a 10.55% stake in Rusal's
parent company EN+ Group  ENPG.MM  and Glencore has said "there
is no realistic way to exit" the stake in the current
environment. 
    "Glencore is not going to end this relationship if they
don't have to," said a European trader who has worked with both
parties. 
    "They are trying to bide their time, hoping for an end to
the war (in Ukraine) so business can go back to normal."
    When asked by an analyst during a results call in February
when Glencore would end the contract, CEO Gary Nagle said "It’s
not only a term, it’s a volume contract," adding that the
contract may end in the second half of 2024.
    The contract allows Rusal postpone up to 10% of each yearly
tonnage to 2025, in which case the term will be extended to the
end of 2025.


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Rusal aluminium sales to Glencore fall short of contract caps   
https://tmsnrt.rs/3EKhgTU
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 (Reporting by Eric Onstad and Polina Devitt; editing by Pratima
Desai and Timothy Gardner)
 ((eric.onstad@thomsonreuters.com; +44 20 7542 7093; Twitter https://twitter.com/reutersEricO;
 Reuters Messaging: eric.onstad.thomsonreuters.com@reuters.net))