May 11, 2018 / 12:52 PM / 2 months ago

EXCLUSIVE-Glencore and Rusal ask LME to lift suspension on Rusal's aluminium

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By Pratima Desai, Clara Denina and Dasha Afanasieva

LONDON, May 11 (Reuters) - Glencore and United Company Rusal have asked the London Metal Exchange to temporarily lift its suspension on Rusal’s aluminium after an extension of the deadline for companies to wind down contracts with the Russian firm under U.S. sanctions, sources said.

No other detail about the request was available, but sources say the problem for the LME and its members is making sure that any metal delivered to the exchange is not under sanction.

The LME suspended Rusal’s aluminium from April 17 after the U.S. Treasury Department imposed sanctions on the Hong Kong-listed company and other Russian firms and oligarchs.

The Treasury has extended its deadline for U.S. consumers to wind down business with Rusal to Oct. 23 from June 5 previously and said it would consider lifting sanctions if Rusal’s major shareholder, Russian tycoon Oleg Deripaska, ceded control of the company.

The extension detailed in General Licence 14 (GL-14), issued late April, effectively means aluminium produced and sold by Rusal until Oct. 23 is free of U.S. sanctions, so long as the deal to buy was signed before they were imposed on April 6.

This is the case with Swiss-based mining giant Glencore , which has a seven-year deal to buy 14.5 million tonnes of aluminium from Rusal between 2012 to 2018.

A General Licence is an authorisation from the U.S. Treasury to engage in a transaction that otherwise would be prohibited.

“Glencore is a big player in the aluminium market, they want to be able to put Rusal’s metal on LME warrant until October,” one source said.

“The pressure to lift sanctions is coming from Switzerland, from Glencore and others who buy aluminium from Rusal, they want the LME to review the suspension, lift it and bring it into line with the extension.”

Both Glencore and Rusal declined to comment.

After the extension was announced the LME sent out a notice saying it would analyse the implications.

In response to a request for comment, a LME spokesperson said: “The LME understands there are concerns in the market about how it could be established that metal was GL-14 compliant.

“Unless or until a process could be implemented that would give sufficient comfort for the market as to GL-14 compliance — including that any post-designation metal was supplied under pre-designation contracts — the temporary conditional suspension will remain in effect.”

Sources say making sure that Rusal’s aluminium delivered to LME approved warehouses was produced and sold before April 6 is a simple process as the owner just needs to supply a certificate of analysis and confirmation.

But proving that metal is compliant with GL-14 would be a difficult, time-consuming and expensive process involving things such as checking the original contract and making sure the amounts involved are what was agreed.

A direct connection between the contract and the specific metal would also need to be proved and there needs to be a way to confirm the original agreement wasn’t changed after the sanctions were imposed.

“There would be a lot of work involved in making sure metal delivered to the LME isn’t under sanction,” a source at a commodity trader said.

“They (the LME) will be talking to lawyers, regulators, members and probably the (British) government. It would be dangerous for the LME to make a unilateral decision.”

For the exchange’s members, the issue is all the documentation needed to prove that any Rusal metal they buy on the LME to deliver to customers is not under U.S. sanction.

“This would take time and a lot of resources we don’t want to tie up,” a source at a metals broker said. (Reporting by Pratima Desai, Clara Denina and Dasha Afanasieva Additional reporting by Polina Ivanova Editing by Veronica Brown and Keith Weir)

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