Rusal: Not Seeking QAL Alumina Expansion In Current Market

SYDNEY -(Dow Jones)- Russian aluminum producer United Company Rusal won't seek to expand alumina output at its Australian Queensland Alumina Ltd. joint venture if current market conditions persist, Rusal Australia Chairman John Hannagan said Wednesday. This contrasts with Rusal's assessment last year, when it identified QAL as an immediate growth opportunity. At the time, analysts pegged the cost of such a development at around US$1.1 billion. Rusal owns a 20% stake in QAL, acquired in 2005 for A$600 million, with Rio Tinto Ltd. (RTP) holding the remaining 80%. "At the moment, we would not be proposing to go forward with an expansion," Hannagan said. "An expansion is always tied to demand, and that demand is currently soft," he said. Last March, Alexander Bulygin, chief executive of the newly created alumina and aluminum giant UC Rusal, said the operation had potential for a 1 million-metric-ton expansion, and that Rusal was keen to participate with its partners in any expansion. In March 2007, London Metal Exchange aluminum prices traded at just under US$3,000/ton, but this month fell to a three-year low of US$2,039/ton, leaving about one-third of the global aluminum industry in the red, according to a recent note from Credit Suisse. Following its three-way tie-up with fellow Russian aluminum producer Sual and Switzerland-based commodities trader Glencore, UC Rusal had outlined a five-year, US$11 billion investment plan. A Rio Tinto spokeswoman said there has not yet been a decision on QAL, one of the world's largest alumina refineries, with a capacity of just under four million tons per year. "QAL operates in the second quartile of the industry cash cost curve and has opportunities for further development," Rio said in its latest annual report. "Upcoming aluminum-sector projects will struggle. Expect project delays," said an analyst, who declined to be named. In addition to soft market conditions, Rusal is struggling with its debt, and has asked the Russian government for funds to refinance foreign loans, a company spokeswoman said last week. She declined to give details on the amount it is seeking. -Dow Jones Newswires