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. Last Updated: 07/27/2016

Price Rises Spell an End to Cheap Aluminum

In the midst of a world trade battle over cheap Russian exports of aluminum, Russian aluminum producers have been forced to lift the price of their product to world levels to pay for sharply higher energy costs.

Russian aluminum producers said Wednesday that the price rises announced this week would reduce the cheap exports of Russian aluminum which European and U. S. producers have blamed for huge disruptions in world markets.

Earlier this week, in a move which has attracted official protests from the Russian government, the European Community imposed trade restrictions on Russian aluminum exports.

But the rise in Russian aluminum prices to world levels could undermine the whole basis for stopping Russian imports and end a trade war which is threatening the world aluminum industry.

According to Aluminy, the Russian aluminum producers association, most of Russia's aluminum factories announced the new prices this week, that range from 1. 1 to 1. 3 million rubles per ton ($1, 100 to $1, 300). This is in the same range as the world price of about $1, 200 per ton.

Ruben Petrosyan, chairman of Russia's main aluminum exporter, Raznoimport, said in an interview Wednesday, that the price rises were the result of the rise in energy prices, especially coal and electricity. He said that this month's price increase could lead to significant decline in exports.

The International Monetary Fund has urged Russia to raise its energy prices to world levels, saying that cheap energy prices amount to artificial subsidies to inefficient factories.

The Russian government has slowly responded. Coal prices were freed from July 1 by a presidential decree and the market price of coal jumped 2. 9 times last month.

A fall in Russian aluminum exports would end one of the most difficult trade issues between Russia and the West.

In the latest phase of the long-running dispute, the EC restricted Russian aluminum exports to 60, 000 tons till the end of November, a major reduction, claiming European workers needed protection from Russian exports.

But Paul O'Neill, the head of the world's biggest aluminum company, the Aluminum Company of America, opposed the EC decision, saying it would exacerbate the world-wide glut of aluminum as CIS exporters switched from Europe to the U. S. market.

According to Reuters, O'Neill said that U. S. producers might push the U. S. government to take actions to ban aluminum imports from all sources.

ALCOA was forced to cut its capacity by 25 percent earlier this year, blaming the move on cheap CIS imports.

In a protest statement, reported Wednesday by Itar-Tass, the Russian Foreign Trade Ministry described the EC's decision as "protectionist" and likely "to cause Russia serious economic damage".

"Restrictions on aluminum imports from Russia contradict numerous declarations of EC representative about support for Russian reforms and trade liberalization", the statement said.

The statement also said that the EC's decision contradicted an agreement on trade between the two governments and called for the immediate resumption of talks.

It said that before the EC's unilateral decision, the two sides were close to reaching an agreement on voluntary restrictions on imports and talks were scheduled for September.