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Bloomberg
Glencore Plc, the world’s largest commodities trader, started to loosen ties with Russian aluminum tycoon Oleg Deripaska after the US imposed harsh sanctions against his business empire.
Glencore won’t proceed with a plan to swap its 8.75 percent stake in aluminum producer United Co. Rusal for shares in another one of Deripaska’s companies, London-listed En+ Group Plc. Chief Executive Officer Ivan Glasenberg has also resigned from Rusal’s board.
In an indication that the sanctions will continue to reverberate through the global commodity market, the Swiss-based commodities giant said in a statement on Tuesday that it’s evaluating other contracts with Rusal. The trader has a multi-year deal to buy Rusal’s metal, an arrangement that was worth $2.4 billion in 2017.
“Glencore is still evaluating the position under its contracts with Rusal, but notes that these contracts are not financially material to Glencore,†it said in the statement. Shares in Glencore fell because of concern that the fallout from Washington’s decision to target Deripaska would spill over into Glencore’s aluminum business.
Paul Gait, a mining analyst at Sanford C. Bernstein & Co. in London, said the worries were probably overdone. In a worst case scenario, forgoing the aluminum deal with Rusal would see Glencore lose less than 1 percent of the company’s likely 2018 earnings, he said in a note on Tuesday. Even if Glencore was forced to write down the value of the Rusal stake to zero, it accounts for 1.3 percent of the company’s market cap, he said.
“We think the market overreacted,†Gait said. Glencore’s shares rallied as much as 4.6 percent in London on Tuesday, before paring some of the gain. Still, the sanctions may deprive Glencore of a key ally in the important Russian commodities market and underline the risk of building business relationships with powerful but controversial partners.