High costs block aluminium output rise in Balkans

* The exception is Bosnia's modernised smelter * Restructuring will lead KAP back to profit * 2010 won't offer such changes as to say crisis is over By Petar Komnenic and Maja Zuvela PODGORICA/SARAJEVO, Oct 12 (Reuters) - Aluminium smelters across the Balkans will wait before restoring full output in response to rising demand and higher prices on the world market because of high operational costs, officials say. The exception is Bosnia's smelter, which began returning to full production in September, saying its modernised aluminium plant enabled it to cope better with the economic crisis than other regional smelters. Russia's En+ Group, co-owner of Montenegro's sole smelter Kombinat Aluminijuma Podgorica (KAP), says the indebted firm could return to full output levels only after cuts of workforce and restructuring. "It is necessary to continue restructuring KAP because the structure of the cost price makes it extremely sensitive to global trends," Viacheslav Krylov, president of KAP's managment board, told Reuters. KAP has to pay high electricity prices and employs almost twice as many workers than other smelters in the region, he said. The company, which employs 4,000 workers, accounted for 41 percent of Montenegro's exports from January to August. It halved its annual output this year to around 60,000 tonnes. Krylov said the rise in aluminium price was encouraging but cautioned that "extremely unfavourable cost structure and cyclical trends in industry require it (KAP) to continue with actions related to aluminium production optimisation." "To minimise loss, production was reduced... but KAP realised losses of more than 50 million euro," he said. In June, Montenegro's government and the Russian firm agreed to swap a stake in KAP for a bailout package. Under the deal the cabinet and EN+ each hold a 29.365 percent stake in the smelter. [nL51019821] Under the deal, KAP would have to fire about half the workers in its smelting and bauxite mining complex, which would require 31 million euros in severance pay. The government would provide guarantees for the related loan, Krylov said. "The economic restructuring model will lead KAP to the business profitability zone, possibility to pay all debts to creditors and return to full capacity," he said. SLOVENIA CAUTIOUS, BOSNIA OPTIMISTIC The general manager of Slovenia's state-owned smelter Talum was cautious, saying he believed the rise in aluminium price would be short-lived and could badly hurt the industry. Talum cut 2009 output plan to 122,400 tonnes from 129,425 tonnes produced in 2008. "The producers that have lower production costs have started activities to reactivate production capacities that were not used, which will in the short-term increase the aluminium supply and put pressure on prices," Talum's Danilo Toplek said. "The year 2010 will surely not offer such changes on the aluminium market enabling us to say with certainty that the crisis is over." Only Bosnia's sole aluminium smelter Aluminij Mostar started restoring the full output amid rising demand and prices of the metal after it had cut output by a quarter. Bosnia's aluminium processors, who were affected by their main supplier Aluminij Mostar's move to cut output, said the sector is gradually improving. "The situation is getting better both with supply and demand," said Robert Curcic, general manager of Alloy Wheels Jajce Factory. "Earlier this year we were forced to import the metal to cover some of our needs, which increased our costs. But now with Aluminij Mostar back on track, it can meet up to 90 percent of our needs," he said. The company exports all of its products to Germany's Brock Alloy Wheels company, which supplies major European car makers. Bosnia's aluminium sector exports around 70 percent of their products but its exports fell by nearly 48 percent in the January-August period compared the same period last year. ($1=.6795 Euro) (Additional reporting by Marja Novak in Ljubljana; Editing by Adam Tanner)