1H results: Rusal holds its ground despite sanctions

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Russia’s aluminium producer UC Rusal has reported its half-year results. The company produced 1.870m tonnes of aluminium in the first six months of 2018, up 2.1% on the 2017 period.

The value-added products volumes declined by 7.7% to 869,000 tonnes due to adjustment of sales mix following the OFAC (The US Office of Foreign Assets Control) Sanctions. Alumina production was stable, amounting to 3.816m tonnes. In May 2018 alumina production at Friguia refinery was restarted in Guinee at half the total capacity.

Total revenue increased by 4.9% to USD5.0 billion during the first six months of 2018. Adjusted Ebitda increased by 14,1% to USD1.1 billion.

Economic background

During 1H 2018 aluminium among other base metals was affected by series of supply disruptions. The lock-out of workers at the 450,00 tpy ABI smelter in Quebec has caused Canadian output fall over 8% year-on-year. Meanwhile, Albras in Brazil continues to operate at half capacity following the Alunorte outage. At the same time, there is no significant rise of smelters’ restarts both in China and in the World ex-China due to high raw material costs and power supply disruptions.

The escalating trade dispute and imposed import duties, together with the OFAC (The US Office of Foreign Assets Control) Sanctions, have caused significant growth of premiums and prices increasing total costs incurred by consumers of aluminium. Rusal supplies significant volumes of alumina to EU smelters. Consequently OFAC Sanctions against Rusal, coupled with Alunorte outage, have caused a surge in alumina prices in April, pushing price level close to USD600/t. This in turn led to significant cost pressure on non-integrated smelters, when alumina price has approached the point of 21% of LME aluminium price against historical average of 14-15%.

Presently aluminium is the only major commodity trading close to the marginal producer cost level, says Rusal, while Chinese smelters are experiencing even further costs increase pressure due to high power and alumina prices.

Chinese aluminium production declined by 3.4% year-on-year in 1H 2018, and Chinese exports growth for the same period was insufficient to fill the supply gap outside of China. As a result ex-China visible inventories have continued to drift lower by 349,648 tonnes or 20.5% year-on-year, down to 1.359m tonnes in the first half. At the same time Chinese inventories started to decline in 2Q 2018 due to robust domestic demand.

Aluminium prices and premiums continue to be volatile as key supply and LME trading disruption issues, as well as lack of liquidity and LME suspension of Rusal’s brands are still in place and global aluminium deficit continue growing.

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