US extruders have largely cut Russian primary aluminum smelter Rusal out of 2019 billet contract talks as months of mixed signals from the Trump administration have made it hard to know when or if sanctions on the company will be lifted.
US buyers are concerned sanctions will remain in place well into next year, even following four extensions of the so-called wind-down period during which US companies can still do business with sanctioned entities.
The most recent extension came last week, allowing Rusal's US customers to continue carrying out long-term business until 7 January 2019.
The US Treasury Department mentioned certain "substantial corporate governance changes that could potentially result in significant changes in control of these sanctioned entities" in its language justifying the extensions, but gestures such as former Rusal head Oleg Deripaska resigning from the company's board in May have not resulted in removal of the sanctions.
A minority of US market participants have drawn up conditional contracts for billet, which will be valid only if the sanctions are lifted by an agreed upon date. One extruder in Appalachia booked material that will be delivered starting in February 2019 should the restrictions be removed by late December.
Still, most US consumers have looked elsewhere as the status of Rusal's future was hazy in September when mating season began.
Domestic primary smelters, in addition to Indian and Middle Eastern competitors, have attempted to capture more market share in the gap left by Rusal, which is one the largest single suppliers of billet to the North American market.
US imports of crude aluminum and alloy from Russia, a category that includes extrusion billet, dropped by 59pc in the first nine months of 2018 compared to the same period a year earlier.
Alcoa and Rio Tinto's jointly-owned ABI smelter in Quebec is another producer able to meet the shortfall if labor negotiations allow the plant to ramp back up to its full capacity.
Secondary smelters producing scrap-based billet also provide an alternative source of raw materials for extruders not requiring the mechanical tolerances of primary billet.
Even still, the tightening of supply has caused US spot premium for 6063 billet to surge, especially as US demand for extruded products remains strong. Argus assessed the premium at 14-16¢/lb in its most recent assessment, up by 58pc from 9-10¢/lb during the same week a year earlier.
Rusal out of contract talks in Europe
The latest US sanctions notice has also taken Rusal out of the European billet market for first quarter and annual contracts.
Mid-November is the latest date extruders thought feasible for booking quarterly contracts and a number of extruders are aiming to conclude first quarter volumes next week.
Some European extruders purchased billet for first quarter delivery at higher premiums in October to secure material and offer a fixed price to their own profile customers.
Other extruders had booked a portion of their billet quantities for first quarter delivery by last week, and were waiting to see the US lifted sanctions after the mid-term elections.
US and Middle Eastern billet will also replace Rusal volumes in Europe.
Spain and Italy consume the majority of billet from these regions. It is likely that Spanish billet imports will increase if Alcoa carries through its plan to close two of its three aluminum smelters in the country.
Rusal produces a combined total of 550,000 t/yr billet at its Russian smelters and its Kubal smelter in Sweden.
