Date: September 18, 2018
U.S. Takes Grenade Off the Table’ With Tweak to Rusal Sanctions
The U.S. has laid the groundwork to avoid a brewing crisis in the global aluminum market. By making a technical tweak to sanctions on United Co. Rusal on Friday, the U.S. Treasury handed a potential lifeline to buyers of aluminum whose annual contracts with the Russian company are soon due to expire. That makes it less likely there will be a repeat of the chaos that gripped the aluminum market in April when the curbs were first imposed. Crucially, the U.S. said that Rusal’s existing customers could negotiate some new contracts, but stopped short of lifting the aggressive sanctions off Oleg Deripaska, the Russian billionaire who has been accused by the U.S. of links to organized crime and bribery. “Particularly in alumina where you could have had a major crisis, this takes the grenade off the table,” said Eoin Dinsmore, an aluminum specialist at consultancy CRU Group. While the tweak shows the Treasury is responding to the aluminum industry’s concerns, it will still require further action by the U.S. to avert turmoil: without an extension of the Oct. 23 deadline, companies will have to stop all dealings with Rusal by that date. The situation is especially important now because it’s the time of year when aluminum makers are signing annual contracts. When the European aluminum industry met in Berlin last week, Rusal was largely frozen out of the contract negotiations. The move may also help reassure buyers of alumina, used to make aluminum, that Rusal’s crucial refinery in Ireland will be able to keep operating. The move is “a proxy of an almost-full removal of sanctions,” industry researcher Harbor Intelligence said in a note to clients. Rusal shares climbed as much as 7.7 percent on Tuesday, after surging 15 percent to a three-month high in Moscow on Monday. The Treasury’s clarification only goes some way to removing the risks hanging over the aluminum industry. Banks are still likely to be cautious about financing deals with Rusal, meaning that it may take time to sign new contracts, according to two people familiar with the discussions. “This update just gives Rusal’s clients the opportunity to sign deals with the company before any decision on sanctions is taken,” Andrey Panov, senior associate at law firm Norton Rose Fulbright in Moscow, said by phone. What’s more, the Treasury warned Rusal customers off stockpiling the Russian company’s metal, saying that would only be authorized if it was “consistent with past practice.”
Russia Drops Bond Sale for Third Week in Bid to Stabilize Market
Russia’s finance ministry said it will cancel this week’s regular sale of ruble bonds even as the currency steadies after a rout last month sent it to the weakest level in more two years. No auction will be held on Sept. 19 in order to help “bring stability to the debt market,” the finance ministry said in a statement posted in its website. The move chimes with the wary stance taken by Russia’s central bank late last week, when it unexpectedly chose to raise interest rates to limit potential future inflationary risks. Russian policy makers are opting for caution in the face of new sanctions being discussed in Washington. In their harshest form, the penalties could block sales of new sovereign debt and shut the nation’s biggest banks out of the global financial system. With high oil prices boosting revenue from oil exports, the finance ministry can easily afford not to push ahead with sales. “I don’t see anything bad about this decision,” said Andres Vallejo, head of trading at National Asset Management in Moscow. “There won’t be any threat to the budget even if they keep skipping auctions until the end of the year.” A “miserly” 1 billion rubles ($15 million) of bonds remains to be redeemed by the end of the year, Konstantin Vyshkovsky, head of the Finance Ministry’s debt department, said earlier this month. Yields on OFZs maturing in 10 years dropped 11 basis points on Tuesday to a two-week low of 8.84 percent. The ruble was the best-performing currency in emerging markets, advancing 0.6 percent and heading for its strongest close this month. South Africa proved in its weekly auction on Tuesday that appetite is returning for emerging-market nations prepared to sell at higher prices. Demand was the highest in four weeks, and more than double the average since March.
China Vows to Retaliate After Trump Levies Fresh Tariff Round
China vowed to retaliate after the U.S. said it will impose a 10 percent tariff on about $200 billion in Chinese goods next week and more than double the rate in 2019. The statement from the Ministry of Commerce didn’t note specific actions, though China has previously said it would respond with levies on $60 billion worth of U.S. goods. Such a move risks deepening the standoff even further, with President Donald Trump saying in a statement on Monday the U.S. will immediately pursue additional tariffs on about $267 billion of Chinese imports if Beijing hits back. “The U.S. side insisted on imposing tariffs, which has brought new uncertainty to the bilateral negotiations,” the commerce ministry statement said. “We hope that the U.S. side will recognize the negative consequences of such acts and take convincing measures to correct them in a timely manner.” U.S.-China trade war is intensifying, based on imposed and threatened tariffs. The foreign ministry said in a separate briefing that it would announce countermeasures at an appropriate time without elaborating. In a sign of how Chinese business are girding for a protracted dispute, Jack Ma, executive chairman of Internet giant Alibaba Group Holding Ltd., said the trade war could last for 20 years. It is “easy to launch a war but difficult to stop a war,” he said at the company’s annual investor day in Hangzhou. Global markets reacted to the latest trade war escalation with relative calm. Chinese stocks gained amid expectations the government will take steps to offset the negative effect of tariffs.