RUSAL to decide on cuts after Russia sets tariffs

UC RUSAL , the world's largest producer of aluminium, will decide on the scale of planned capacity cuts once Russia details tariff increases delayed by the country's elections, Chief Executive Oleg Deripaska said on Friday.

Aluminium producers have been badly hit by soaring power and other costs, forcing major producers including U.S.-based Alcoa Inc to slash capacity in an effort to counter a supply glut and weak prices. Deripaska said a quarter of global production was operating at a loss.

RUSAL said earlier this year it could cut its aluminium output by up to 6 percent, but has not yet detailed the cuts, pending increases in energy and other tariffs expected in July, after months of freezes as price increases were kept on hold while Russians voted.

"They have no other option but to create a clear policy by July 1, and based on that we will see. We have two risk zones, the northwest and the Urals, where the power tariff is too high for us to run," Deripaska said. "Based on that, we will finalise a plan of shutdowns, which will be between 300,000 and 600,000 tonnes, and it will be a permanent shutdown."

He said the cuts would be made over 18 months, given "social aspects", but said RUSAL had already made progress in talks with local government.

Aluminium prices are almost 40 percent below record highs hit in the summer of 2008 but Deripaska said he expected the strength of demand to act as a floor.

HIGH DEMAND

"We believe the high physical demand creates enough incentive for the price to move up, as soon as the worries come out of the markets - Spain, Europe in general, China," he said.

"We can't see the China slowdown. A hard landing? We just can't see it. Our people are in China every day and we just can't see it," he said, confirming RUSAL's view that the aluminium price would trade in a range between $2,200 and $2,400 a tonne. Three-month aluminium on the London Metal Exchange is trading at around $2,083 a tonne.

Deripaska, whose holding company En+ owns 47.4 percent of RUSAL, is at loggerheads with minority shareholders led by former chairman Viktor Vekselberg over Deripaska's refusal to sell the company's stake in miner Norilsk Nickel.

RUSAL bought a quarter stake in Norilsk at the top of the market in 2008 for an estimated $14 billion, but Deripaska's hopes of merging the two firms were dashed by the crisis.

Deripaska has said he would discuss buying out Vekselberg's stake in RUSAL, but he said on Friday that the former chairman did not want to sell.

He added RUSAL had had "a lot of discussion" on its stake in Norilsk, the world's largest nickel and palladium producer, but the plan was to remain invested in the company.

"There is a mutual understanding there should be no more buybacks at Norilsk because it destroys shareholder value. It will be a normal practice of dividends and a proper investment programme," he said.

Deripaska declined to comment on the latest escalation of the feud, in which Vekseberg's investment firm Sual Partners, which owns 15.8 percent of RUSAL, launched legal action over a $47 billion supply deal struck between RUSAL and commodities trader Glencore.