A softening of the U.S. government's stance on Russian sanctions is bringing Alcoa Corp.'s best rally in years to a screeching halt.
Shares in the largest U.S. aluminum producer had the biggest slump in nine years Monday as prices of the refined metal tumbled after the U.S. opened the door to relief from sanctions on United Co. Rusal, easing supply concerns. Century Aluminum Co. and Kaiser Aluminum Corp. also declined.
For the first time, the U.S. Treasury Department discussed a path for lifting the sanctions on Rusal, saying it would provide relief if billionaire Oleg Deripaska relinquished control of the Russian aluminum producer. It also extended the deadline for companies to wind down dealings with Rusal by almost five months.
Rusal petitioned to be removed from the sanctions list, and the Treasury Department granted the extension while it considers the appeal, according to a statement Monday from Treasury Secretary Steven Mnuchin.
Last week, aluminum climbed to the highest level in almost seven years as the curbs on Rusal, the top supplier outside China, set off a rush for alternative supplies. Concerns are now fading after the Treasury Department statement.
"If that is the case, all the supply issues that people were worried about over the last week just disappear," Ryan McKay, a commodity strategist at TD Securities in Toronto, said in a telephone interview. "Without the sanctions, it's a pretty well-supplied market."
Alcoa shares tumbled 13.5 percent to $51.90, the biggest loss since March 2009. The Pittsburgh-based company's stock touched $62.35 on Thursday, the highest level since 2008. Chicago-based Century slipped 5.3 percent to $16.72, while Kaiser, based in Foothill Ranch, Calif., slipped 3.3 percent to $102.10.
"Rusal has felt the impact of U.S. sanctions because of its entanglement with Oleg Deripaska, but the U.S. government is not targeting the hardworking people who depend on Rusal and its subsidiaries," Mnuchin said.
Washington's clarification follows two weeks of chaos in global metal markets. Aluminum shot to multiyear highs as manufacturers raced to secure supply. A German lobbying group said European plants may be forced to close and carmakers could face supply shortages.
Rusal's wind-down operations can include debt payments in U.S. dollars through Oct. 23, a Treasury spokesman said in response to questions.
The U.S. statement also adds pressure on Deripaska as he tries to save the company without surrendering control. He owns 48 percent of Rusal and controls it through a shareholder agreement with others including Glencore PLC and Viktor Vekselberg, who is also under sanctions.
"If there were previously doubts if Rusal will remain sanctioned if Deripaska sells out, now we have a clear answer," Oleg Petropavlovskiy, an analyst at BCS Global Markets, said by phone. "Changing ownership structure would be a solution for the company."
Deripaska was targeted as part of a sanctions package that hit dozens of Russian tycoons, companies and key allies of President Vladimir Putin.
While analysts have suggested that nationalization may be the only solution, Russian Finance Minister Anton Siluanov told reporters Friday that Rusal was not on the list to be nationalized.
Rusal declined to comment. Deripaska's spokesman wasn't immediately available.
Rusal produces about 6 percent of the world's aluminum and operates mines, smelters and refineries across the world from Guinea to Ireland, Russia to Jamaica.
"It should calm things down," said Daniel Briesemann, an analyst at Commerzbank AG. "It looks as if there was a lot of pressure from the U.S. aluminum downstream industry."
At Russia's request, Mnuchin met with Siluanov during International Monetary Fund meetings in Washington last week. The Russians were seeking "clarification" on U.S. sanctions, Mnuchin said to reporters Saturday, without elaborating.
"Mnuchin's statement about the de-listing signals that this is more than just getting an extra few months to stop business with Rusal," said Brian O'Toole, a senior fellow at the Atlantic Council who previously worked in the Treasury Department's sanctions unit. "It shows that Rusal is trying get off the list."
The sell-off in aluminum after the Treasury Department announcement spread through other commodity markets on optimism the U.S. isn't likely to impose further sanctions on Russia's metals and energy companies.
Information for this article was contributed by Luzi Ann Javierm and Joe Deaux of Bloomberg News.
Business on 04/24/2018
Print Headline: U.S. move deals blow to Alcoa stock