UC Rusal boosts output by 3.5% in firest quarter

UC Rusal boosted aluminum output 3.5% YoY to 1.049 million tonnes in the Q1 of 2012.

However in response to continued uncertainty in the global economy, Rusal is currently considering the curtailment of 300,000 tonnes to 600,000 tonnes of high cost smelting capacity starting from the H2 of 2012 with corresponding alumina production to be possibly idled in order to achieve the production capacity balance.

A company presentation for investors said that the drop in output over eighteen months could lead to the shutting down of capacity which will not be revived. Earlier company management said that a contraction would likely affect the company's plants located in the European part of Russia that has high production costs.

Mr Vladislav Solovyev first deputy DG of Rusal said that the most loss making primary aluminum plants remain plants in the company's Western Division Bogoslovsky and Volkhovsky aluminum smelters.

Rusal tried to shut down aluminum production at BAZ in December of last year but the government stepped in and the decision was made that OJSC IES Holding was to sell Rusal the Bogoslovsky TETs and the under construction Novo Bogoslovsky TETs to ensure the stable operation of BAZ the biggest consumer of the station's electricity. However, the parties to the deal a little while ago began a public dispute over the valuation of Bogoslovsky TETs and Novo Bogoslovsky TETs and to this day have not reached an agreement.

Mr Solovyev said that a resolution to BAZ's problems can only be found by means of a significant reduction of electric power tariffs or by completely shuttering unprofitable aluminum production. We're trying to find a solution with the generating company IES but unfortunately, there is no resolution yet. I think we can return to the discussion of this matter with the government very soon. Negotiations could resume this month or early next.

In the cost of selling Rusal aluminum a significant part is power expenses. The company presentation says that the average Q1 2012 charge for electricity decreased by 15% YoY and by 3.4% from Q4 of last year to 3.12 cents per kilowatt.

The statement said that the increase [in output] was mostly due to increased production at Kubal of Sweden and certain Siberian (Russia) smelters. "Production of value added products reached 37% of total output in the three months ended March 31st 2012. Total alumina output amounted to 2,034 tonnes for the first quarter of 2012 and demonstrated a 1.9% increase as compared to the same period in 2011. The increase in the volume was due to increased production at QAL of Australia and Nikolaev alumina refinery in Ukraine.

It said that aggregate bauxite production was 3,622 tonnes for the three-month period ended March 31st 2012 as compared to 3,139 tonnes for the same period in 2011 and demonstrated a 15.4% growth. The main factor of growth over the respective period was increased production at Compagnie de Bauxite de Kindia in Guinea, Bauxite Company. De Guyana in Guyana, Windalco Ewarton plant in Jamaica and North Urals in Russia.

UC Rusal expects that the uncertainties seen in 2011 and the first quarter of 2012, namely the current Eurozone financial crisis and slowdown or hard landing in the growth in aluminum demand in China, may continue to dominate the outlook for the metal markets in the months to come, with evidence of potential recovery coming in the second half of 2012.

The company said that overall global aluminum consumption in the Q1 of this year rose 5% compared to the same period in 2011 to 11.2 million tonnes. Our view is that aluminum consumption in Europe will remain negative in the first half of 2012, offset by moderately higher US demand and continued recovery in the growth in the aluminum consumption in China in 2012.