Rio Tinto reports drop in aluminium production in Q2 and H1 2018 on lock-out and power failure

Rio Tinto reported a slight drop in alumina and aluminium production in second quarter as well as in H1 2018 due to operational issues like lock-out and power outage.

Rio Tinto chief executive J-S Jacques said “Operational performance was solid across most commodities, rounding out a strong first half performance for the Group… Our sustained focus on cash generation, combined with disciplined capital allocation, will ensure we continue to deliver superior returns to our shareholders across the short, medium and long term.”

Quarterly aluminium production was three per cent lower than Q2 2017, mainly due to an ongoing lock-out at the Becancour smelter and power interruption at the Dunkerque smelter on 6 February 2018. Dunkerque has been progressively ramping up towards full production during the second quarter. Excluding these assets, aluminium production for Q2 2018 was one per cent higher than Q2 2017, reflecting continued productivity increase.

Average realised aluminium prices in the H1 2018 were US$2,547 per tonne compared to US$2,151 per tonne in H1 2017. This includes premiums for value-added products (VAP), which represented 58% of primary metal sold in H1 2018 and generated attractive product premiums averaging $222 per tonne of VAP sold on top of the physical market premiums. The mid-west premium increased from US$209 per tonne in the second half of 2017 to US$463 per tonne in the first half of 2018 after the announcement of a ten per cent tariff on aluminium imports into the U.S.

As expected, significant raw material cost headwinds have been experienced by the Aluminium business during the first half of 2018.  This is expected to continue into the second half of 2018. Additional costs have been incurred as a result of the Becancour lock-out, whilst higher than expected power costs have been experienced in Australia due to higher coal prices impacting power contracts.

Following the sanction announcement by the US on Rusal, Rio Tinto announced on 13 April 2018 that it had reviewed its trade arrangements and was in the process of declaring force majeure on certain contracts. However, no force majeure declarations have been made to date as the last date of sanction has been extended till October.

Binding offers for the sale of the Aluminium Dunkerque smelter in France for $500 million and the ISAL aluminium smelter in Iceland for $345 million were announced in Q1 2018. The sales are expected to complete in Q3 2018, subject to approval of key stakeholders and applicable regulatory bodies.

Rio Tinto’s expected guidance for aluminium stands at 3.5 to 3.7 million tonnes and will be adjusted following the sale of the Aluminium Dunkerque and ISAL smelters.