By Michael Erman
NEW YORK, April 19 (Reuters) - U.S. customers of Rusal 0486.HK are scrambling to figure out how to replace supply from the Russian company after U.S. sanctions on the world's second-largest aluminum producer caused prices to spike to a seven-year high, the companies and metals analysts said.
Morgan Stanley (NYSE:MS) estimates Rusal supplied approximately 9 percent of U.S. aluminum imports in 2017. Corp AA.N said "considerable uncertainty remains in global supply chain" on Wednesday, partly due to the sanctions. The company will redirect bauxite sales away from Rusal to comply with sanctions, Alcoa (NYSE:AA) executives said on a conference call. just at the very beginning ... of trying to determine what is the outcome here," Alcoa Chief Executive Roy Harvey said.
U.S.-based rolled aluminum maker Novelis Corp NVLXC.UL said that it currently sources about 3 percent of its global supply from Rusal, for its Asian business.
"We will have to change the supply for our Asian business and are working with our suppliers to identify options to continue to ensure we have the appropriate inputs to meet our customer requirements," Novelis said.
Spokesman Michael Touhill noted Novelis is one of the largest scrap aluminum recyclers in the world and 55 percent of its supply is from scrap, giving it some flexibility.
The United States imposed major sanctions on April 6 against 24 Russians, striking at allies of President Vladimir Putin in one of Washington's most aggressive moves to punish Moscow for its alleged meddling in the 2016 U.S. election and other activity. Deripaska, estimated by Forbes magazine to have a net worth of $6.7 billion, is the main owner of the conglomerate EN+, which in turn is the co-owner of Rusal.
The sanctions took effect immediately but companies have until May 7 to exit or divest from associated operations and until June 5 to wind down pre-existing, long-term contracts with Rusal.
Arconic Inc ARNC.N declined to comment. Kaiser Aluminum Corp KALU.O did not respond to requests for comment.
Glencore Plc GLEN.L and Rio Tinto Plc RIO.L RIO.AX are both planning to call force majeures on some Rusal-linked shipments. GUIDANCE NEEDED
Companies are looking for more guidance on how the sanctions are going to be applied. Some lawyers expect additional details from the Treasury's Office of Foreign Assets Control (OFAC) as early as this week.
A Treasury spokesman did not respond to a request for comment.
Of particular interest is how subsidiaries that are 50 percent or more owned by sanctioned companies will be treated.
Some customers have applied to OFAC for special licenses to wind down investments in these businesses, lawyers said.
Meanwhile, a Russian industry source said some aluminium customers have also applied to OFAC for an exemption from the sanctions. He does not know the names of these customers. But American lawyers were skeptical that any exemptions would be granted.
The hope on the Russian side is that OFAC will consider easing sanctions once a critical number of applications is reached, the Russian industry source said.
Rusal America President Scott States said he did not yet have clarity to comment in detail, when contacted by Reuters.
"The world is upside down," States said last week, when asked how customers were dealing with the sanctions. "It's not just the U.S., it's all over the world - Rusal is the second largest producer in the world."
Aluminum prices on the London Metal Exchange CMAL3 have soared 25 percent since the sanctions were announced on April 6, hitting new seven-year highs on Wednesday. Rusal accounts for 14 percent of global aluminium supplies outside of top producer China, CRU analysts say. Rio to call force majeure on some Rusal-linked contracts
Glencore to declare force majeure on some aluminium supply -source
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