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Aluminum falls after Rusal sanctions lifted, but impact seen as largely priced in

London — The US government's widely expected decision late Sunday to lift sanctions on Russia's UC Rusal, one of the world's biggest primary aluminum producers, led to a noticeable fall in the LME primary aluminum price in Monday mid-afternoon trading, while the impact on market premiums, which have been slightly boosted, was considered largely to be priced in.

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The lifting of sanctions by the US Office of Foreign Assets Control (OFAC), expected for several days, was understood to have been slightly delayed by the US government shutdown, which was partially suspended late Friday.

OFAC on December 19 had sent a notice advising Congress of its intent to terminate the nine-month old sanctions against Rusal and two other companies previously owned by sanctioned individual Oleg Deripaska, within 30 days.

The LME three-month aluminum price traded at $1,875/mt mid-afternoon Monday, down $45 on the Friday close. Some traders however pointed to the possibility of bigger falls in future, as it is unclear how quickly material stockpiled at Rusal -- understood to be mainly billets and alloy products -- is likely to come back onto the market.

"I feel regarding the Rusal sanction lift, most has been priced in already in premium terms and flat price terms, we are trading a bit lower than Friday but I wouldn't say the big drop has happened yet," one trading source told S&P Global Platts.

The lifting of sanctions was greeted favourably by the European Union Aluminum Federation.

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"We are relieved that the US Department of the Treasury's Office of Foreign Assets Control (OFAC) responded to the European aluminium industry's concerns that permanent sanctions on Rusal would disrupt the entire value chain, impacting the viability of our industry, employment, and the end-users of our permanent material," according to Gerd Gotz, European Aluminium's director general.

"The lifting of the sanctions is a positive first step in stabilising aluminium trade flows, but the volatility caused by the unsustainable increase of Chinese overcapacity and the US aluminium tariffs, which are a bilateral response to this global challenge, still needs to be addressed," Gotz said.

The LME issued a note Monday saying that following the removal of sanctions, its "members may freely enter into contracts with Rusal and its affiliates."

The exchange noted that "the temporary conditional suspension on placing Rusal metal on warrant is lifted ... this means that all Rusal metal can be placed on warrant, including metal produced: a) prior to 6 April 2018; b) between 6 April 2018 and the date of this notice; and c) after the date of this notice."

BMO analyst Colin Hamilton said that, while the lifting of sanctions "does not affect our supply demand balance, there is some potential for stocks which were previously held off-exchange (as the LME/CME would not accept their delivery) now becoming visible to the market. This may cause some near-term pressure on aluminium; however, we remain of the view that, with the market in heavy deficit and demand set to improve, the skew of price risk into mid-year is to the upside."

Commerzbank noted in its daily commodities reports that the sanctions, which had been in force since last April, "had long kept the market on tenterhooks -- with repeated concerns about supply bottlenecks."

Analysts at the bank noted that the Russian producer accounts for nearly 6.5% of the world's aluminum production, meaning that "more material is likely to be available to the market again -- probably even in the near future because the company has in recent months been transporting material from its smelters in Siberia to the country's ports so that it can be shipped quickly once the sanctions are lifted."

"There are no longer any restrictions on trading of Russian aluminium, and contracts can be backed with it because the LME has likewise lifted its restrictions on the producer this morning. In our opinion this will preclude any lastingly higher aluminium prices," the analysts said.

-- Diana Kinch, Bola Olalemi, Annalisa Villa, Andy Blamey and Ben Kilbey, newsdesk@spglobal.com

-- Edited by James Leech, newsdesk@spglobal.com