Rusal increases profits amid falling aluminium prices

Oleg Deripaska’s Rusal on Tuesday reported a better than expected net profit of $52m, yet concerns remain about the company’s recovery following a sharp decline in aluminium prices.

Market prices for aluminium have fallen to as low as $1,800 a tonne in recent weeks, with the average price for the second quarter down 7.5 per cent compared with the first three months of the year.

While Rusal is working to combat the downturn by reducing capacity at lossmaking smelters in western Europe, the world’s number-one aluminium producer faces a market that is vastly oversupplied, with China thus far refusing to cut production.

In the first three months of the year, Rusal reduced its primary aluminium production by 3 per cent quarter on quarter, while the company is aiming to reduce output by a total of 7 per cent for the full year. At the same time, revenue rose 2 per cent to $2.7bn quarter on quarter, despite lower output.

The results came in ahead of analysts’ expectations, with adjusted net profit, plus the company’s effective share in miner Norilsk Nickel’s results, at $52m, or 10 per cent higher than the consensus forecast.

Rusal reduced its stake in Norilsk to 25 per cent in April following a deal that brought in tycoon Roman Abramovich as a third primary shareholder alongside Mr Deripaska and Vladimir Potanin, the company’s other oligarch owner.

On Tuesday, Rusal said it had used the $620m it received from the share sale to Mr Abramovich to repay debt to Russian bank Sberbank. In the first quarter, Rusal said it had repaid $483m to domestic and foreign creditors and that net debt had totalled $11bn at the end of March.

Russia’s Nomos Bank said it expected Rusal to receive $1.2bn in dividends from Norilsk in the second and third quarters, a key step to the company reducing its debt burden.

While Rusal’s shares rose in early trading on the back of the results, the stock closed down 1.5 per cent in Hong Kong at HK$3.86.

“Rusal posted good and stronger than expected results. But the market is not focusing on the first quarter now. It is focusing on the current environment,” said Oleg Petropavlovskiy, a metals and mining analyst at BCS brokerage in Moscow.

Mr Petropavlovskiy said he did not rule out Rusal cutting production at more plants in western Europe, which he said were lossmaking if the price of aluminium fell below $2,200 a tonne.

Yet he added that any real change for Rusal’s prospects would depend not on global consumption – which Rusal predicts will rise 6 per cent in 2013 – but on whether China decides to cut aluminium production, noting that four of the 10 biggest aluminium producers are now Chinese.

“It’s not a matter of supply-demand balance when we are talking about aluminium. It’s a matter of China output,” he said.