Rusal Says Most China Aluminum Producers Unprofitable

Oct. 16 (Bloomberg) -- United Co. Rusal, the world's largest aluminum smelter, said 75 percent of producers in China, Europe and the U.S. are unprofitable after the price of the metal fell on slowing demand. ``The global aluminum industry is facing a challenging time,'' the Moscow-based company's Chief Executive Officer Alexander Bulygin said today in a statement. The proportion of unprofitable producers will ``inevitably lead to fundamental changes in the global aluminum industry.'' Aluminum has fallen 36 percent since trading at a record $3,380.15 a metric ton in July on concern a global economic slowdown will cut commodity demand. Rusal pays less for electricity than some of its rivals because the company has its own supplies of hydropower. Energy accounts for about 40 percent of the cost of aluminum smelting. Rival companies will be forced to cut output and expansion plans, Bulygin said. London-based Rio Tinto Group, the world's second-biggest producer, said yesterday it idled some sections of its highest-cost plants. Rusal will ``take advantage of this challenging time,'' Bulygin said. ``In this environment, even if the global economy falls into the recession during the coming year and in the worst case scenario, the demand for aluminum drops by 10 percent, supply will still be far behind demand in the medium term,'' Bulygin said. That will secure ``sustainable growth'' for the aluminum price, he added. Loan Application Rusal, controlled by Oleg Deripaska, Russia's richest man, said Oct. 14 it applied to state-run Vnesheconombank for a loan to refinance credits from foreign banks used to build and modernize plants. Deripaska's Basic Element investment group ceded stakes in Hochtief AG and Magna International Inc. in recent weeks and said it sees ``no bottom'' to the global credit-market turmoil. Closely held Rusal has outstanding debt of $14 billion, its Head of Capital Markets Oleg Mukhamedshin said in May. Rusal borrowed $4.5 billion in May to pay for 25 percent of OAO GMK Norilsk Nickel. Russia is making funds available to companies in an effort to preserve a decade-long economic boom. Investors withdrew about $63 billion from Russia because of the country's five-day war with Georgia in August, a plunge in commodity prices and the seizing up of global markets, according to UniCredit SpA. Price Drops Aluminum fell 0.6 percent to $2,157 a ton at 12:11 p.m. on the London Metal Exchange. Three-quarters of European, U.S. and Chinese producers are unprofitable when aluminum is less than $2,500 a ton, Bulygin said. China is the world's largest aluminum-producing nation. Rusal also said aluminum output increased 6.5 percent in the first nine months of the year to 3.3 million tons as it ramped up smelters in Siberia and began operations at its Alscon plant in Nigeria. Sales gained 14 percent to $12.3 billion. Russian sales gained 12 percent to $3 billion. Alumina output grew 2 percent to 8.4 million tons on increased efficiency at Rusal's refineries. Bauxite production gained 3.4 percent to 13.5 million tons. Source: Bloomberg