Why did Russia start buying aluminum from India, even though it is the largest producer and exporter of the metal itself
Russia unexpectedly bought aluminum from India. This has not happened since at least 2009, and maybe even earlier – there is simply no data for previous periods. Russia itself is the world's largest producer and exporter of aluminum. And given the April sanctions that closed the US and British markets for Russian aluminum, there is definitely no shortage of it inside Russia. Why did Russia buy Indian metal?
India supplied aluminum to Russia for the first time. According to the country's customs, in April, India sold 44.8 thousand tons of raw aluminum to Russian companies for $ 16.5 million. This is the first delivery of metal to Russia since at least 2009, there is no earlier information in the public domain.
This is a very unusual situation, because Russia itself is the world's second largest exporter of this metal. By the end of 2023, it supplied $6.5 billion worth of aluminum. At the same time, in April, the United States and Great Britain banned the purchase of aluminum from Russia.
"The situation really looks quite strange. After Rusal falls under restrictions from the United States and the United Kingdom, the company actually has to increase supplies to the domestic market, so there should be no shortage of aluminum on it," says Vladimir Chernov, analyst at Freedom Finance Global.
Why did Russia start buying aluminum from India when it needed to "build" its own?
The exact reason is still unclear, but there are several options. "Perhaps the deal to buy aluminum from India was completed before the restrictions were imposed and was justified by an increase in demand for the metal from the Russian defense industry," Chernov argues.
It is possible that the deal was made in order to unfreeze some of the suspended rupees of Russian exporters in India,
adds an expert. As you know, India has become the second largest buyer of Russian oil after China and the first, if we take into account only sea supplies. Due to the financial constraints of the West, it is necessary to trade in national currencies. India paid for Russian oil partly in Chinese yuan and Indian rupees. It was only in May that we agreed to trade in rubles as well.
And if there are no problems when trading in yuan, then there are difficulties when trading in rupees. It is profitable to trade in local currency when you do not need to make exchange transactions, which lose part of your income, and when you can buy Chinese goods with the yuan received from oil. However, with the rupees earned from the sale of oil, it will not be possible to buy Indian products. Russia sells a lot of oil to India, but buys very little Indian goods. India has nothing much to offer Russia. Therefore, the export revenue of Russian companies in rupees hangs on accounts in India. And buying aluminum for rupees could help bring back some of the suspended export revenue.
According to another version, Russian aluminum buyers are trying to create competition through the appearance of a new supplier so that they can bargain with Rusal, the main aluminum supplier inside Russia, so that it does not twist their arms and raise prices.
"In our opinion, Russian aluminum buyers can already bargain with Rusal, because against the background of Western restrictions, the company may begin overstocking warehouses. However, the level of bargaining always remains organic in terms of profitability of production, so it cannot be ruled out that India offered a much more favorable price for its batch," says Vladimir Chernov.
World prices have increased by more than a third since the beginning of the year, and this could not but hit consumers – manufacturers of automotive components, construction goods, etc.
"After the rise in world prices for aluminum, its buyers in Russia have really increased production costs. But I would not say that it became difficult for them, since they usually simply transfer the increase in costs to the final cost of manufactured products for the buyer, which accelerates inflation in the country," said an analyst at Freedom Finance Global.
An interesting question is whether this is a one-time purchase of aluminum from India or a new trend.
"If this purchase was made in order to defrost some of the suspended rupees of Russian exporters in India, then it may well happen again.
If the importer of aluminum from India was just trying to save money, then perhaps in the future he will be able to negotiate with Rusal on an additional discount on aluminum, and this deal with India will not happen again," Chernov believes.
"So far it doesn't look like a new trend, maybe just one-time deliveries. We believe that Rusal fully covers the domestic market, and the company has the capacity to increase domestic supplies with increasing demand. Product pricing is based on the principle of export parity, that is, on the basis of world prices for LME, SHFE," says Ahmed Aliyev, analyst at BCS World of Investments.
It is curious that, in the opinion of Rusal itself, the information from Indian customs statistics is most likely erroneous and does not correspond to reality, since there is a discrepancy between the customs value of the goods and the specified weight. Domestic demand for aluminum is growing very strongly in India, therefore, an increase in exports in such volumes as are given in customs statistics seems unlikely, the Rusal press service said.
In general, the aluminum industry in Russia, despite the sanctions, has good prospects for this year. The Aluminum Association predicts an increase in domestic demand for aluminum in 2024 against the background of an increase in its consumption in the construction industry and in large-scale projects at the federal and regional levels for capital construction, renovation of housing, renovation of park, urban and transport infrastructures.
"Against the background of increasing domestic demand, metal prices in Russia should continue to rise, but restrictions on Rusal will create a surplus of this metal in Russia and keep them from rapidly rising prices," Chernov notes.
But aluminum exports from Russia may fall in 2024, as there is no way to immediately redirect all volumes of export products to alternative foreign markets. However, this will surely happen gradually, otherwise overstocking will begin in Russian warehouses, and an imbalance of supply and demand will form on the world market, which will cause prices to continue to rise, the interlocutor concludes.
Olga Samofalova
