Oleg Deripaska predicts upturn in the aluminium sector

As chief executive of Rusal, the world’s biggest aluminium producer, he has a ringside view of what is going on in the commodity markets and the turmoils of his own sector.

Last month mining giant Rio Tinto waved goodbye to its chief executive Tom Albanese, as it wrote another $10bn (£6.4bn) to $11bn off its aluminium assets.

It was a reminder, not that it was needed, of the continuing pain afflicting the aluminium sector, blighted with overcapacity and rising energy costs – a particular headache for such an energy-intensive industry.

However, Mr Deripaska argues that the aluminium prices will climb higher than expected this year, contradicting those who take a more negative view.

“They are wrong,” he said during a interview with the Telegraph at Davos. “It’s the wrong sentiment. The market is very strong in terms of demand, with 7pc growth for the last five years.”

Prices, he had to acknowledge, have not kept up because of “too much capacity” among producers.

As they have turned out more of the metal, the latest figures from the International Aluminium Institute show that global production in December hit an all-time record of 45.55m tonnes, on an annualised basis.

Mr Deripaska said: “We had a time when the high prices in aluminium attracted so many players into the industry and that’s why they built a lot of capacity ... they had pressure from the banks to keep this going.”

In response to this excess of supply, he said, Rusal has completed an “investment programme, we restructured a lot of our capacity, we mothballed, we optimised output, we carried out very rational output planning for the next three years.”

Still, he would argue that the activity of financial players in the market masks a tighter supply of the metal. People who want to buy it in physical form have to pay a “ridiculous premium, which we have not seen in 20 years”, he noted.

Certainly, the complaints from users about the queues to get metal out of warehouses – often controlled by the banks active in the market – are legion.

Simply, there is money to be made for some from locking the metal up to collect dust in giant sheds. In a typical arrangement, a bank or commodity trader buys metal, sells it forward at a profit and strikes a warehouse deal to store it cheaply away from the market.

“If you write off the metal tied into different warehouse and financial deals, you will see there is no metal available,” Mr Deripaska said. “We have a very narrow [supply-demand] balance which in two years will turn into a deficit.

“This stock, which seems so high and creates this wrong analysis, is actually not available.

“This year the price will move much more higher than people predict. I don’t want to guess [where], I just try to indicate very clearly ... that the price mechanism is very artificial.”

Meanwhile, the actual consumers of the metal, he said, have become very cautious financially, avoiding hedging – entering into trades to protect their exposure – around their own activities.

“In reality they expose themselves to higher risk. In ’13, ’14, [the price] will be significantly higher,” he said. “This is something that we try to warn our customers: go to a long-term contract, try to define a hedging strategy. Don’t look at the current forward [price] curve which is highly affected by financial players.”

How far is this a fair analysis? After all, you would not expect a metals magnate to talk down his price.

Still, if not all agree with his forecast of a price climb, the rest of what he says is echoed across the market – which analysts at HSBC sum up as having “a moderate surplus, but significant excess capacity and excess inventory”.

Don’t underestimate the impact financial players can have in a commodity market, in other words. ER