Aluminum market recovery to stretch beyond 2021 unless capacity reduced: Rusal

　　This year is unlikely to see global aluminum demand and stocks return to 2019 levels because recovery may be both U-shaped and slow, Andryushin told S&P Global Platts in an interview.

　　Smelters are mostly continuing to produce almost at the previous scale to preserve jobs, causing an estimated excess of 2 million-4 million mt/year of aluminum, the executive said. However, the market cannot sustain such imbalance long-term; producers will need to tackle surplus capacities, he said.

　　Some early signs of more positive sentiment are now visible in Europe and prices may already be at the bottom, but the major US market is still suffering, he said.

　　London Metal Exchange aluminum cash prices plunged from $1,800/mt in mid-January to $1,443/mt Wednesday as COVID-19 took its toll.

　　"The present minimum levels may be the bottom of the price and demand drop, as we see first evidence of recovery," said Andryushin.

　　"In Europe, many enterprises are restarting production. At the same time, we have countries, which are still struggling," he said, adding these include Rusal's strategic markets.

　　"Russia and CIS [Commonwealth of Independent States] are going through really tough weeks where every day sets records in the number of COVID-infected."

　　Rusal estimated Russia's aluminum demand may contract by up to 30% this year, but the actual loss will depend on the evolution of the pandemic, which is still unfolding. "We've seen the [president's] announcement of quarantine relief in the country, but effectively it is up to the regions to decide when to fully lift the lockdown and let industrial activities restart," said Andryushin.

　　For the company's home market, it is not only COVID-19, but also the low oil price, which reduces the purchasing power of the region.

　　The US is another sore spot. "In Rusal's perspective, we are suffering more in the US right now, than in Europe or Asia," noted Andryushin.

　　Overall, we will probably have slow recovery expressed in a series of ups and downs, he said.

　　Quarter of producers loss-making

　　Rusal sees that aluminum price recovery is absolutely essential for the health of smelters, at least 25% of which worldwide are currently operating at a loss. Their excessive output is also putting significant pressure on another side of the price -- on premiums, Andryushin said.

　　"The market will be frustrated beyond 2020 for sure, as we have a significant shift in the stock structure as well as its size. This time, we have different quality of the stocks with more value-added products lying on the shelves versus majority of ingots back in 2009."

　　"I have no feeling of immediate recovery before we bring back discipline to the market," he said, meaning improvement requires loss-making assets be diminished or idled. "The market should clean up everything that is not efficient and green."

　　"A substantial share of loss-making producers is located in the most developed countries, where you may rely on state support or market defense measures, and there we already see discussions on that matter," said Andryushin. If the pandemic drives particular regions to more protectionism, this won't help anyone, he feels.

　　Rusal does not receive subsidies from the government. In Russia, to see this happen, both price and demand would need to deteriorate considerably more than they have done till now, according to the executive.

　　Consolidation and warehouses

　　For now, the industry is falling back on the extensive network of warehouses, created over the last decade, and where supply for future demand is currently being built up.

　　Another remedy is consolidation. "We see some assets offered for sale publicly and unofficially; most of them are high cost, low margin or loss-making smelters," said Andryushin. "I don't think all these offers will meet demand, but we may well see M&A deals."

　　As recent acquisitions in downstream industries show, companies emerge stronger and better fit to promote the metal to end-users, which is especially important in light of the mature nature of the aluminum market. From two-digit growth a decade ago, the market now presents a challenge to any new capacity entering the sector, according to the director.

　　"The industry is not at its sunset, but has gone into a stage of very selective development, characterized by high specialization and a more prominent role of recycled material and low carbon primary aluminum," said Andryushin.

　　Asked if COVID-19 will slow down the move towards green aluminum, he said, on the contrary, these efforts are destined to gather momentum.

　　"If anything, people have become more adamant advocates of ecological lifestyle. COVID-19 threatens our population and carbon pollution has a similar impact on human health," he said. "The market that is about to emerge will be more than ever attuned towards the low carbon economy to fend off such threats."

　　This will be the pandemic's main legacy, he said.

　　As governments and big aluminum consumers commit to reduce their environmental footprint and seek information on feedstock-generated pollution, the LME might be encouraged to establish a green aluminum benchmark as a new asset class to help end-users recognize what so-called green aluminum is, Andryushin believes.