(Bloomberg) -- Chinese buyers are temporarily shunning Russian aluminum, as commercial realities intrude on the push to deepen bilateral trade ties.

Sanctions imposed on Russian base metals last month by the top UK and US exchanges are expected to drive more aluminum sales to China, the world’s biggest consumer of the metal and Moscow’s strategic ally. But a surge in international prices has made imports too costly for now, traders said.

Buyers are reluctant to pay up, and sellers are unwilling to offer big discounts on shipments while demand elsewhere in Asia remains relatively firm, they said. In addition, Russian rail bottlenecks are a potential obstacle to increased shipments to China.

Russia’s leader Vladimir Putin visits China this week at the invitation of President Xi Jinping as the two countries look to reinforce their “no-limits” partnership. Confirmation of Putin’s trip helped lift shares of Russia’s top aluminum producer, United Co. Rusal International PJSC, by as much as 6.4% in Hong Kong on Tuesday, signaling optimism that stronger ties will further benefit Russian producers. Rusal declined to comment.  

China has emerged as Moscow’s commodities buyer of last resort as Russian companies become increasingly isolated from western markets in the wake of the invasion of Ukraine. That’s allowed Chinese importers to win discounts on key raw materials, often paying in yuan to bypass the dollar, the currency in which trades are usually settled.

Among metals, the trade in aluminum in particular has boomed. Rusal generated 23% of its revenue from China last year, compared with just 8% in 2022. Russia’s exports to its eastern neighbor in the first quarter more than doubled to 393,000 tons, according to Chinese customs data. But the so-called arbitrage window has since closed because world prices have become more expensive compared to the Chinese market, largely because of western sanctions.

Imports Decline 

Although metal on long-term contracts is still flowing, total imports from Russia in April and May are likely to decline, according to Li Jiahui, an analyst with Shanghai Metals Market. 

“There have been very few Russian aluminum trades reported on the spot market,” said Li. “It has to do with import losses.”

Russian producers would need to offer bigger discounts to attract Chinese buyers, although they may be hesitant to do so given solid demand from other markets in Southeast Asia, Japan and South Korea, according to traders.

China’s slowing economy, meanwhile, has been a drag on metals demand. But the situation could turn around in coming months as the peak season for aluminum consumption begins, which is likely to narrow the gap between local prices and the international market.

On the Wire

President Joe Biden unveiled sweeping tariff hikes on a range of Chinese imports, in an election-year bid to bolster domestic manufacturing in critical industries.

  • Biden’s China Tariffs Leave Space For Key Solar Machinery
  • US Tariffs on Minerals Leave Out Markets That China Dominates
  • Soy Oil Plunges as Chinese Feedstocks Elude US Tariff Hikes
  • China Vows ‘Resolute Measures’ After Biden’s New Tariffs
  • Chinese Clean Tech Is Not the Enemy on Net Zero: David Fickling

China’s consumer and climate change-affected stocks will offer better returns than the likes of baijiu distillers given relative valuations and the weak economy, according to AllianceBernstein.

China’s CMOC Group Ltd. is being accused by a top US official of using “predatory” tactics to depress prices of a key battery metal by flooding the market with cobalt from Democratic Republic of Congo mines.

Overcapacity in China’s battery industry looks unlikely to deter producers of the raw ingredients that are powering the energy transition.

This Week’s Diary

Wednesday, May 15:

  • China sets monthly medium-term lending rate, 09:20
  • CCTD’s weekly online briefing on Chinese coal, 15:00
  • Antaike copper conference in Jiangxi, day 1
  • HOLIDAY: Hong Kong

Thursday, May 16:

  • Russian President Vladimir Putin visits China
  • Antaike copper conference in Jiangxi, day 2

Friday, May 17:

  • Russian President Vladimir Putin visits China
  • China new home prices for April, 09:30
  • China industrial output for April, including steel & aluminum; coal, gas & power generation; and crude oil & refining. 10:00
    • Retail sales, fixed assets investment, property investment, residential property sales, jobless rate
  • China weekly iron ore port stockpiles
  • Shanghai exchange weekly commodities inventory, ~15:30
  • Antaike copper conference in Jiangxi, day 3

Saturday, May 18

  • China’s 2nd batch of April trade data, including agricultural imports; LNG & pipeline gas imports; oil products trade breakdown; alumina, copper and rare-earth product exports; bauxite, steel & aluminum product imports

--With assistance from Yuliya Fedorinova.

©2024 Bloomberg L.P.