Amid discussions in the EU about introducing sanctions on Russian aluminum, Rusal (MOEX: RUAL) is reducing supplies to the European market. Over the year, Europe's share of the company's revenue has fallen to a minimum in the last four years - 22%, while Asia's share has grown to 42%. The premium in Europe is higher than in Asia, but, according to Kommersant's sources, European consumers prefer not to take risks.

The share of the European market in Rusal's revenue has decreased over the year from 31% to 22%, according to the company's financial statements for the first six months of 2024. The company received $1.2 billion in Europe out of a total revenue of $5.6 billion. Asia's share of Rusal's revenue increased from 33% to 42%, which corresponds to $2.3 billion. The CIS countries accounted for 34% of sales, compared to 33% a year earlier, while the US share decreased from 2% to 1%. Rusal's sales volume on the European market was the lowest in the last four years, based on the company's available reporting.

Rusal and Russian aluminum are not banned in Europe. However, there are talks about banning Russian aluminum. As Reuters reported in March, the industrial group European Aluminum lobbied for the introduction of EU sanctions on aluminum from Russia, proposing to remove Rusal's raw materials assets in European countries producing bauxite and alumina from harm. As the association noted, the EU will be able to successfully replace Russian aluminum by purchasing from other countries, as well as thanks to a surplus caused by low consumption and growth in local production.

In April, the United States and Great Britain banned metal exchanges from accepting new aluminum, copper, and nickel from Russian production and closed imports of these metals to the United States and Great Britain.

The London Metal Exchange (LME) stopped supplying Russian aluminum on April 13.

"In the first half of 2024, uncertainty in the global economy and weak demand, worsening market conditions and new restrictions for Russian metal on global markets, especially premium ones, as well as weak global prices continued to put pressure on the company's operating and financial performance," Rusal said in its commentary to the report. "The 'self-sanctions' regime continues to work. Consumers in the EU prefer not to take risks and deal with compliance," a market source told Kommersant. Rusal declined to comment.

The European market remained premium. Rusal said in its report that regional premiums for aluminum began to grow in 2024 amid expectations of demand recovery, uncertainty with Russian metal supplies and high contango on LME forwards. By the end of June, the European Duty Unpaid premium had grown to $270 per ton, the Duty Paid premium to $337.5 per ton, and the Midwest premium in the US to $0.19 per pound ($428.7 per ton). "Considering the costs of replacing metals and growing demand, there is a possibility of further premium growth in the second half of 2024," Rusal writes.

Supplies to the European market are more marginal than to Asia, notes Maxim Khudalov, chief strategist at the investment company Vector X.

According to him, the premium for physical delivery on the Japanese market is currently at $172 per ton. Chinese premiums, the analyst says, should be at $140-150 per ton.

Rusal's total revenue for the first six months of 2024 decreased by 4.2% year-on-year. The company explained the dynamics by a 2.9% decrease in aluminum sales volumes to 1.87 million tons, a reduction in the output of high value-added products, a decrease in the average weighted premium to the LME price, and a decrease in the average selling price of aluminum by 2.2% to $2,440 per ton. Net profit year-on-year increased by 34.5% to $565 million, adjusted EBIDTA — by 2.7 times to $786 million. As stated in the Rusal report, the reduction in cost made it possible to compensate for the drop in revenue and achieve positive dynamics of profit indicators. Analysts at My Investments believe that Rusal could have partially reduced its alumina costs by acquiring a 30% stake in China's Hebei Wenfeng New Materials.