Sanctions-hit Russian firms ask government for $1.6 bln in liquidity

Date Apr 23 2018 12:58:01 Source:Reuters

MOSCOW, April 20 (Reuters) - Russian companies hit by U.S. sanctions, including aluminium giant Rusal, have asked for 100 billion roubles ($1.6 billion) in liquidity support from the government, Finance Minister Anton Siluanov was quoted by Interfax news agency as saying on Friday.

The United States on April 6 imposed sanctions against several Russian entities and individuals, including Rusal and its major shareholder Oleg Deripaska, to punish Moscow for its suspected meddling in the 2016 U.S. election and other alleged "malign activity."

Rusal, the world's second-biggest aluminium producer, has been particularly hard hitas the sanctions have caused concern among some customers, suppliers and creditors that they could be blacklisted too through association with the company.

A "temporary nationalisation" is an option for some sanctions-hit companies, but notRusal, Siluanov was quoted as saying. He did not name the companies he was referringto.

A Kremlin spokesman had said on Thursday that temporary nationalisation was one of the options for helping Rusal.

According to another news agency, RIA, Rusal has only requested government support with liquidity and with demand for aluminium so far, Siluanov said.

RIA quoted the minister as saying the government was not considering state purchaseof aluminium for now.

    ($1 = 61.2796 roubles)



Sanctions fever grips nickel as market rethinks Russia risk

Date Apr 23 2018 12:02:10 Source:Reuters

LONDON, April 20 (Reuters) - Sanctions fever has spread to nickel.

 With Russian aluminium producer Rusal imploding in the wake of U.S. sanctions against its oligarch owner Oleg Deripaska, attention is now turning to the status of another Russian industrial powerhouse, Norilsk Nickel.

Deripaska is a 27.8 percent shareholder in Norilsk, while the oligarch behind the world's number two nickel producer, Vladimir Potanin, is himself on a U.S. Treasury Department list of Russians deemed to be close to the Kremlin.

Fears that Norilsk might follow Rusal down the U.S. sanctions path have sent London nickel prices on an extraordinary rollercoaster ride.

But this was a market primed for an explosive breakout, with all sorts of technical drivers kicking in once it started rallying.

Right now there is no imminent danger of Norilsk being pulled into the Rusal sanctions and the speculative froth is already blowing off an overheated market.

But nickel's shake, rattle and roll is a sign of changing times.

Industrial metal markets have spent the past decade tracking the shifting policies of just one country, China.

The eruption of U.S. policy risk and global geopolitical risk injects something completely new and different into market calculations.

As nickel shows, pricing this changed landscape is still very much a chaotic work in progress.



There is no compelling evidence that the U.S. sanctions on Deripaska and his aluminium empire are going to affect Norilsk.

Deripaska's stake is below the 50 percent threshold over which sanctions can leap from targeted entity to secondary entity.

It is also worth remembering that Deripaska's relations with Potanin are distinctly frosty. The two oligarchs have been locked in an acrimonious stand-off ever since Deripaska scooped up his holding in Norilsk during the global financial crisis.

And while Potanin does appear on the Treasury's "Putin List", released in January this year, so do 209 other Russians.

    Only seven were designated in the April 6 sanctions and the U.S. government has signalled it is not planning any imminent new sanctions. 

    Norilsk is also a different beast from Rusal. As well as looming large in global nickel production terms, it is also big supplier of copper and cobalt.

    Most importantly, however, it is the world's No.1 supplier of palladium to automotive manufacturers who use the metal in catalytic converters.

    That includes U.S. auto companies. North American and Latin American customers accounted for $807 million, or 34 percent, of Norilsk's palladium sales in 2016.

Hitting Norilsk with the sort of draconian sanctions unleashed on Rusal risks massive collateral damage. The United States has only one major palladium mine, Stillwater in Montana, which would be unable to full any sanctions-induced supply gap.

The Rusal sanctions, by contrast, dovetail with the U.S. administration's aluminium tariffs, aimed at encouraging the restart of idled production capacity.



Such details have been lost in the speculative heat of the past couple of days.

Fanning the flames further were rumours that the London Metal Exchange (LME) was delisting Norilsk brands.

However, unlike the emergency suspension of Rusal brands, this is old news, originally announced in August 2016.

The brands are being removed because Norilsk has decommissioned the plant that produced them. Most of the Russian metal in LME warehouses has long since set sail for China.

None of which seemed to matter as the LME nickel price exploded to a three-year high of $16,690 a tonne on Thursday, registering its widest intraday range since 2011 in the process.

This, though, was a market primed for a bull breakout. Sanctions fever just gave it the impetus to do so.

On the back of production cuts from Brazil's Vale, the world's largest producer, exchange stocks have been sliding and LME nickel this week started to nudge up against the February high of $14,420, a red-flag target for technical players.

 Unsurprisingly, when that level was breached on Wednesday, speculative buyers surged into the market, evidenced by massive volumes.

So too did Chinese speculators. Volumes on the Shanghai Future Exchange's (ShFE) nickel contract hit a record 2.693 million contracts on Thursday.

ShFE moved quickly to douse the fires with an increase to the intraday margin, a tried and tested way of dispersing the speculative crowds, Chinese style. 

Meanwhile, exacerbating the ferocity of the move on the London market was hedging against shorts in the options market.

The wild rally sent the nickel price crashing through layers of call option positions. These confer the right to buy, which is nice for the buyer in such a fast-moving rally but a major hedging headache for the seller.

Some 50,000 tonnes of call option positions, spread across the front three months and concentrated on the $15,000 strike, were put into play in the space of 24 hours. Those short of the options were forced to buy the underlying nickel contract, adding to the frenzy.

And they were forced to sell it all back when the market went into sharp reverse yesterday afternoon.

Nickel has this morning touched a low of $14,530, close to where it started the week.

The speculative bubble has burst as the market realises that Norilsk is in the clear for now.



The emphasis, howevber, is on those last two words.

While Norilsk's Potanin isn't facing imminent sanctions, it is no longer inconceivable that he won't at some stage if U.S.-Russian relations deteriorate further.

This is the true psychological shock of the sanctions against Rusal.

No one saw them coming because no one could conceive of such a large international supplier of aluminium being locked out of the U.S. dollar system.

And now we all can, as each day bring fresh news of Rusal's own collapsing supply chain. 

For at least a decade industrial metal markets have only bothered tracking one country's policy.

China has so dominated the landscape that the markets have increasingly focused almost exclusively on policymaking in Beijing with the prism set to pick up shifts in economic, industrial and, increasingly, environmental thinking.

U.S. sanctions on Russia require an expansion of risk horizons and, quite possibly, a repricing of Russian risk on certain specific commodities. Such as nickel.

This week's wild gyrations suggest the process has only just started. 

London aluminium, nickel slide as sanctions rally fades

Date Apr 20 2018 16:38:01 Source:Reuters


BEIJING, April 20 (Reuters) - London aluminium and nickel prices fell for a second day on Friday as a rally driven by fears of supply disruptions caused by U.S. sanctions on Russia's United Company Rusal, the world's second-biggest aluminium producer, lost momentum.

Prices have started to retreat amid no signs of further sanctions yet, brokerage Sucden said in a note, adding that conditions remain "nervous and choppy amid the overhanging uncertainty." Short-term direction was "likely to be headline-driven," it added. 

Aluminium is on track for a weekly rise of 6.3 percent in London and is up 21 percent so far this month. It climbed 11.9 percent last week in the wake of the Rusal sanctions announced on April 6, its biggest weekly jump since 1988.



 * LME ALUMINIUM: Three-month aluminium on the London Metal Exchange was down 2.1 percent at $2,432.50 a tonne by 0439 GMT, after ending down 2.1 percent in the previous session. Earlier on Thursday, it rose to $2,718, the most since May 5, 2011.

 * SHFE ALUMINIUM: The most-traded June aluminium contract on the Shanghai Futures Exchange was also down 2.1 percent by the mid-session interval at 14,965 yuan ($2,380.88) a tonne.

 * NICKEL: LME nickel was down 3.4 percent, extending its 1.3 percent fall on Thursday, when it rose to as much as $16,690, the most since Dec. 12, 2014, on fears the sanctions could be broadened to Russian nickel producer Nornickel.

 * SHFE NICKEL: The most-traded July nickel contract on the ShFE was down 3.3 percent to 104,180 yuan a tonne, after rising to its highest since June 2015 on Thursday. The exchange hiked transaction fees for the July contract from Friday.

 * ALUMINIUM: Rusal is stockpiling large quantities of aluminium at one of its plants in Siberia because U.S. sanctions imposed this month have prevented it from selling the metal to customers, five sources close to the company said.

 * BANKS: Lenders to Rusal are exploring how to get rid of their exposure before a May deadline set by the United States, as the fallout from fresh sanctions pulls Russian loan pricing lower in Europe's secondary market. 

For the top stories in metals and other news, click TOP/MTL or MET/L     



 * Asian shares slipped on Friday as a warning on smartphone demand from the world's largest contract chipmaker slugged the tech sector, while high oil prices stirred inflation fears and undermined sovereign bonds.



Banks assess Rusal options as secondary prices fall


LONDON, April 19 (LPC) - Lenders to Rusal are exploring how to get rid of their exposure to Russian aluminium company before a May deadline set by the US, as the fallout from fresh sanctions pulls Russian loan pricing lower in Europe’s secondary market.  

In addition to a ban on lending to sanctioned entities, the US Treasury has given banks until May 7 to divest or transfer debt, equity, or other holdings in Rusal, energy firm EN+, and vehicle maker GAZ.

The sanctions are more severe than those imposed in 2014 after Russia’s annexation of the Crimea, as the first forced disposal of now illiquid Russian debt will bring losses for lenders.

"How much worse can it be? If you're a forced seller you've lost already and will take a big hit. If people know that your risk is looking for a new home, that has a significant and severe price tag," a loan syndicate head said. 


Banks' main exposure is to Rusal, as EN+ and GAZ do not have any international syndicated loans. Rusal raised a US$1.7bn five-year pre-export finance term loan which was signed last May and pays 300bp over three-month Libor.

Rusal warned that new sanctions could result in technical defaults in a stock exchange filing on April 9. It is one of the world's biggest aluminium producers and the price of aluminium and alumina has soared after its inclusion.

The company's loan was last quoted at 98% of face value on April 11, according to Thomson Reuters LPC data, and has not been quoted since.

"All lenders to Rusal have been calling external cousel for advice - no-one is actually trying to sell the paper yet," a banker said.

Banks including lead arrangers Bank of China, Commerzbank, Credit Agricole Corporate & Investment Bank, ING Bank, Natixis, Nordea Bank, Societe Generale, UniCredit and VTB Bank have transferred Rusal's loan into their bad loans or restructuring units, bankers said.

Banks face write downs or writing off Rusal debt if buyers cannot be found. Lenders are also exploring options including freezing Rusal's loans and putting them in an escrow account if they are unable to sell.

Even if buyers are found, funds from a sale could still be placed into escrow as it is unlikely that institutions will be willing or able to settle US dollar trades linked to Rusal, bankers said.

“If we sell in US dollars no one will clear the settlement. One way around might be to settle in a different currency if possible,” a second banker said.

Chinese banks have been named as possible buyers of Russian loans, but most Chinese banks will be unwilling to jeopardize their US operations, which could leave them unable to buy the debt. 

The Russian government and the country's state-owned banks are the most obvious buyers of Rusal paper, but most of these banks, including VTB and Sberbank, are also sanctioned.

Unsanctioned Promsvayzbank could take on Rusal's debt with a guarantee from the Russian government, bankers said. A temporary nationalisation of Rusal is another option, a Kremlin spokesman said on Thursday.



The secondary pricing of some of Russia's top unsanctioned companies has also been pulled lower to around 98% of face value in Europe's secondary loan market since sanctions were announced on April 6.

The loans are effectively illiquid, however, as banks monitor their exposure and whether or not they will be forced to divest more Russian assets. 

A US$2bn tranche of metal and mining company Norilsk Nickel’s US$2.5bn, five-year term loan was 1.25% lower at 98% on April 18, the data shows.

Norilsk, which is also known as Nornickel, is the world's second biggest nickel producer and is part-owned by Rusal and sanctioned oligarch Oleg Deripaska. Deripaska is the owner of EN+, which is the co-owner of Rusal and Norilsk Nickel.

The price of nickel surged to its highest level since late 2014 on Thursday, on fears that US sanctions on Rusal could be broadened and hit the company. 

Several loans for the potash group Uralkali have fallen including a US$850m 2017 revolving credit facility which was 1% lower at 98%.

Uralkali’s US$1.2bn term loan maturing in April 2021 has fallen 0.5% to 99% and a US$530m term loan which matures in April 2019 has fallen 0.12% to 99.625%.

Fertiliser producer Eurochem’s US$800m, five-year term loan was 0.5% lower at 98.5%. Oil producer Gazpromneft’s US$2.15bn five year loan which matures in November is 0.5% lower at 99%.

Metals miner Polymetal’s US$350m four year pre-export finance facility maturing in September 2019 has fallen 0.7% to 99% of face value and a US$125m loan due in August 2023 for shipping company Sovcomflot has fallen 1% to 96% of face value.

Unsold aluminium piling up at sanctions-hit Rusal factory

Date Apr 20 2018 16:25:29 Source:Reuters

   SAYANOGORSK, Russia, April 19 (Reuters) - Russian aluminium giant Rusal  0486.HK  is stockpiling large quantities of aluminium at one of its plants in Siberia because U.S. sanctions imposed this month have prevented it from selling the metal to customers, five sources close to the company said.


With the firm's own storage space filling up with unsold aluminium, Rusal executives in Sayanogorsk, in southern Siberia, have had to rent out additional space to accommodate the surplus stock, one of the sources told Reuters.


"Aluminium sales have broken down. And now the surplus aluminium is being warehoused in production areas of the factory itself," said someone who works on the grounds of one of Rusal's two plants in Sayanogorsk.


Several people connected to Rusal said that Oleg Deripaska, the company's main shareholder who along with the company was included on a U.S. sanctions blacklist, visited Sayanogorsk this week for a closed-door meeting with staff.


Asked if the firm was stockpiling aluminium in Sayanogorsk, a Rusal spokeswoman declined to comment.


Rusal and Deripaska were included on a U.S. sanctions blacklist this month, scaring off many of its customers, suppliers and creditors who fear they too could be hit by sanctions through association with the company.


A number of traders and customers of Rusal's aluminium have stopped buying the firm's products, citing the sanctions risk, and Rusal has stopped shipping some of its products for export, according to a logistics firm and a railway operator that used to carry much of its aluminium.


While shipments have stalled, Rusal cannot readily reduce its production of aluminium because the electrolysis pots that are at the heart of the manufacturing process can be irreparably damaged if they are shut down.


At Rusal's two plants in Sayanogorsk - which together accounted last year for about a quarter of the firm's production - aluminium is now stacking up in ad hoc stockpiles dotted around the factory grounds, the sources said.


An employee with a Rusal subsidiary described how the unsold aluminium ingots were being stored in garages in the plant. He said his company had just agreed to rent out space to Rusal so it could store more of the ingots.


A contractor at the Sayanogorsk plants said the stockpiled ingots, stacked on pallets, were building up fast. He said two days' worth of production would fill up a five-car train, but already a week had gone by with aluminium piling up.


"Can you imagine a week?" he said. "There's a hell of a lot there, a hell of a lot. It's being stockpiled, it's not being shipped."


An electrician working for Rusal said the ingots were being squeezed into all available space.


"The storage is not quite full," said the electrician, who spoke on condition of anonymity to discuss internal company affairs. "Something is still being loaded all the same, some stuff is being shipped."


Deripaska, who started his metals industry career in Sayanogorsk in the 1990s, visited the town this week and held a closed-door meeting with staff, according to several people with links to Rusal.


Deripaska himself was included on the U.S. sanctions blacklist, along with Rusal and other businesses where he has a controlling stake.


Washington said it took the measure against Deripaska and others because, it said, they were profiting from a Russian state engaged in "malign activities" around the world.


Since the sanctions were imposed on April 6, Rusal's share price has slumped, the value of its bonds has plummeted and partners around the world have distanced themselves from Deripaska and his business empire.


U.S. customers cannot do business with Rusal any more under the sanctions, while major Japanese trading houses asked Rusal to stop shipping refined aluminium and other products and are scrambling to secure metal elsewhere, industry sources said.


Rusal is encountering problems at the other end of its production cycle too, with the sanctions affecting the overseas operations that supply it with the raw materials it uses to produce metal.


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


Further besieging Rusal, creditors and bond-holders are trying to offload the firm's liabilities because many financial market players believe that to handle Rusal debt could leave them too susceptible to U.S. sanctions.


DeBeers rolls out app to clean up Sierra Leone diamond supply chain

Date Apr 20 2018 15:46:52 Source:Reuters

JOHANNESBURG, April 19 (Reuters) - Global diamond giant De Beers is rolling out an app to help small-scale, artisanal diamond miners in Sierra Leone certify that gems they pry from the soil are legal, the Anglo American  AAL.L  unit said on Thursday.

The initiative is the latest attempt by the industry to clean up its image and expunge the scourge of "blood diamonds" blamed for financing conflict, chaos and criminality in poor African countries, such as Sierra Leone and Liberia.

More widely, small-scale mining is often tainted by alleged links to insurgents or child labour, casting a cloud over supply chains for commodities such as cobalt, which is produced mainly in the conflict-prone Democratic Republic of Congo, and gold.  


Called Gemfair, the De Beers' pilot app project is a partnership with Diamond Development Initiative (DDI), an NGO, and will target several small-scale mine sites in Sierra Leone in a meeting of high technology and pre-industrial mining methods.

Miners enrolled in the project must be licensed, adhere to certain environmental standards, work sites that are free of violence and meet other requirements.

The app is on a tablet and has a software application that shows the GPS location where the diamonds have been extracted,allowing for a record of the production process. The software can work online or offline in remote areas.

The miners are also provided with digital scales to weigh their diamonds and a tamper-proof bag where they can be deposited and then passed safely through the supply chain.

"The app we developed to address some of the key challenges in logging and validating, to allow artisanal production to be traced from the mine site all the way through to export," Feriel Zerouki, DeBeers' vice-president for ethical initiatives, told Reuters in an interview.

According to DDI, up to 20 percent of global gem-quality diamond supplies are produced by artisanal miners, who typically wash gravel by hand in conditions that are often unhygienic and dangerous.

Illicit diamonds were linked to funding civil wars and insurgencies in Sierra Leone, Liberia and Angola and the issue was popularised by the 2006 movie "Blood Diamond" starring Leonardo DiCaprio.

The main initiative to keep such gems from reaching the market is a regulatory programme called the Kimberley Process but its focus is on conflict diamonds and does not directly address issues of poverty and exploitation.