(Bloomberg) -- The U.S. Treasury softened the impact of sanctions on United Co. Rusal by allowing customers to negotiate some new contracts, just as the global aluminum industry was bracing for further turmoil ahead of an Oct. 23 deadline.
The sanctions against Rusal’s billionaire owner Oleg Deripaska have frozen the Russian aluminum giant -- the world’s top producer of the metal outside China -- out of annual contract negotiations taking place this month, threatening to disrupt supply chains for parts critical to the automotive and aerospace industries.
In a set of questions and answers published late Friday, the Treasury clarified what was permitted for companies under its exemptions authorizing “maintenance” of pre-existing contracts with Rusal and several other companies controlled by Deripaska until Oct. 23.
Crucially, the Treasury suggested that customers could sign some new contracts with Rusal -- as long as they were consistent with their dealings with the Russian company before the sanctions were imposed in April. That’s important because many aluminum consumers have quarterly or annual contracts with Rusal that are expiring.
"Transactions and activities that are not within the framework of a preexisting agreement may be considered ‘maintenance’ if such activity is consistent with the transaction history between the person and the blocked entity prior to April 6, 2018," the Treasury said.
It also said that buyers could enter into new contracts with Rusal for periods after Oct. 23, as long as they were contingent on further action by the Treasury.
The move by the Treasury is likely to alleviate many of the concerns of aluminum consumers in the U.S. and Europe -- particularly if it is followed by an extension of the Oct. 23 deadline.
Still, it falls short of lifting sanctions on Rusal entirely, as the aluminum company and its parent En+ Group Plc had hoped would happen after it put forward a plan to loosen Deripaska’s influence on the company.
Bloomberg earlier reported that Rusal had been preparing to cut output as a result of the sanctions uncertainty. The Russian aluminum company’s press service declined to comment.
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