SHANGHAI (BLOOMBERG) - Russian aluminium giant Rusal saw its share price nearly halved on Monday (April 9), while prices of the metal surged, after US sanctions on the company and its billionaire owner Oleg Deripaska prompted the producer to warn of potential debt defaults and "materially adverse" consequences.
The stock fell tumbled 49 per cent to HK$2.38 at around 0710 GMT, according to pricing from the Hong Kong Exchanges & Clearing website. Aluminum prices jumped as much as 3.3 per cent to US$2,110 a metric ton on the London Metal Exchange, extending a 1.6 per cent gain in the previous session, as investors bet on supply disruptions.
The US Treasury on Friday included Rusal and seven other Deripaska-linked firms in a list of 12 Russian companies hit with sanctions that it said were intended to punish the country for actions in Crimea, Ukraine and Syria, and attempting to subvert Western democracies. The company, also listed in Moscow, is the biggest aluminum maker outside China, and the measures could hurt access to financial markets and disrupt shipments to world buyers.
"This does warrant a little bit of panic buying by traders - the risk is large enough and real enough to buy on the back of insecurity of supply," said Daniel Hynes, senior commodities strategist at Australia & New Zealand Banking Group. "Rusal's export-driven revenue is substantial and you have to put some sort of doubt over that supply. It's raising the supply risk premium."
The sanctions may result in technical defaults on some credit obligations and be "materially adverse to the business and prospects of the group," Rusal said Monday, adding its annual report may also be delayed.
"The company's primary focus remains its business and, most importantly, all of its global customers, investors and partners. The company will continue to ensure it abides by all applicable laws and regulations."
Rusal accounts for about 17 per cent of supply outside of China, according to Harbor Intelligence.
The US actions target Russian oligarchs whose companies have wide-ranging involvement in international capital markets. Deripaska called the reasons "groundless, ridiculous and absurd."
The Foreign Ministry is working on a response, spokeswoman Maria Zakharova said on a state television channel, according to state news agency Tass. "We have a whole list of possible measures that are being studied," Tass cited Zakharova as saying.
The move also raises questions for Glencore Plc and its billionaire chief Ivan Glasenberg. The commodity giant is one of Rusal's top shareholders and the biggest buyer of its metal, while Glasenberg sits on the board.
Aluminum, used in everything from aircraft to beer cans, has lost about 7 per cent this year on concerns about rising shipments from China, the largest producer. Companies there stand to benefit from the supply gap left by Rusal.
"The question is whether other countries will respect the sanctions," Paul Adkins, managing director of AZ China Ltd., said from Dusseldorf where he's attending a conference. "Rusal sells around 250,000 tons to 300,000 tons to the US, but what if Japan or South Korea also say no? It could get very messy."