By Pratima Desai
LONDON (Reuters) - Aluminium users around the world will pay less for their material after the United States lifted sanctions on major producer Rusal, but U.S. tariffs on imports of the metal mean limited gains for the country's consumers.
The U.S. Treasury on Sunday lifted sanctions on the core empire of Russian tycoon Oleg Deripaska, including aluminium giant Rusal and its parent En+, despite a Democrat-led push to maintain them.
That pushed aluminium prices on the London Metal Exchange down 2 percent on Monday to near $1,880 a tonne.
(Graphic: Aluminium prices link: https://tmsnrt.rs/2TpTnaA).
Prices of the metal used widely in transport and packaging have dropped 30 percent since hitting a seven-year high of $2,718 a tonne in April, after the imposition of sanctions.
"Since the first time the deadline was extended, the market started to price in the idea that sanctions would be lifted eventually," Julius Baer analyst Carsten Menke said.
The United States extended several times its deadline for U.S. consumers to wind down business with Rusal.
"U.S. tariffs on aluminium imports mean U.S. manufacturers will pay more than consumers in Europe," Menke said. "But from a global supply perspective, U.S. tariffs don't matter so long as the motivation to ship exists."
(Graphic: Costs of aluminium for U.S. and European consumers link: https://tmsnrt.rs/2B9WOv9).
Tariffs mean producers need a strong incentive to sell to U.S. consumers and this can be seen in the physical market premiums that are paid above LME aluminium prices.
The premium for shipping to the United States stands at around $0.19 a lb or $420 a tonne, double the $200 a tonne seen at the start of 2018 and about 20 percent above the levels at the time tariffs were announced in early March 2018.
(Graphic: US aluminium premiums link: https://tmsnrt.rs/2Ba6B4n).
U.S. premium contracts show a decline to $350 a tonne by July 2020, a level producers say is needed to attract aluminium to the United States.
(Graphic: Future U.S. aluminium premium link: https://tmsnrt.rs/2Sb38vX).
The United States is a major consumer of aluminium. It is expected to account for 5 million to 6 million tonnes of demand this year in a market estimated at 68 million tonnes.
Rusal supplied only around 10 percent of the U.S. aluminium market in 2017. Canada, with a share of more than 50 percent, is the largest supplier.
If, as some expect, tariffs are lifted or Canada is exempted or gets quotas, premiums could fall much further.
"Any deal with Canada would allow 2.5 million tonnes of primary aluminium to enter the U.S. duty-free and significantly dilute the proportion of U.S. imports from duty-paid countries," Wood Mackenzie analysts said in a note.
For European consumers, premiums at $69 a tonne, down nearly 60 percent since early May, are expected to slide due to high stocks of aluminium held by traders in the region.
(Graphic: European aluminium premiums link: https://tmsnrt.rs/2Sbx6jA).
"Rusal will also have aluminium it couldn't sell that will start making its way to Europe," an aluminium producer said.
"We will probably also see a lot of aluminium in Europe heading for LME warrant."
The LME on Monday lifted a temporary suspension on storing metal produced by Rusal in LME-approved warehouses with immediate effect, after the United States formally lifted sanctions against the Russian firm.
(Graphic: Aluminium stocks link: https://tmsnrt.rs/2TeEGHj).
(Reporting by Pratima Desai; Editing by Veronica Brown and Dale Hudson)