Rusal Says Aluminum Prices Will Rise on Spending, Output Cuts

March 23 (Bloomberg) -- United Co. Rusal, the world’s largest aluminum producer, said prices for the metal will rise next year as China’s economy grows and as Western governments use monetary policy and spending to stimulate demand. Prices will rebound in 2010 after “bouncing around” $1,400 to $1,500 a metric ton this year while economic stimulus measures and production cuts take effect, said Artem Volynets, Moscow-based Rusal’s director of corporate strategy. “I don’t believe people when they say we’re not at the bottom yet,” Volynets said in a March 20 telephone interview. “There will be very significant upside potential to prices in 2010 when the global economy comes out of the financial crisis. After the production cuts, there will be no new supply coming on to deal with the demand.” Governments in the U.S., Europe and China have detailed spending packages to help boost demand for industrial metals after a global economic slowdown led to fewer purchases by builders and carmakers. Rusal and rivals Rio Tinto Group, Alcoa Inc. and Norsk Hydro ASA have curbed output of the metal, used in cars, planes and beverage cans, as prices and demand dropped. Aluminum has slumped 48 percent in the past year on the London Metal Exchange and traded at a six-year low of $1,279 a ton last month. Stockpiles of aluminum monitored by the LME have more than tripled in the past year to a record 3.46 million tons as demand from construction and automotive users slumped. While the aluminum market is “unbalanced at the moment,” as much as 6.5 million tons of capacity, or 17 percent of last year’s global output, has been idled, Volynets said. That may rise to more than 20 percent as more operations are curtailed, he added. Production Cuts “China alone has closed about 27 percent of its capacity, and we have yet to see the impact of that,” Volynets said. “We won’t see the full impact from all these curtailments until the middle of this year.” By the end of next month, Rusal will have shuttered 500,000 tons of its “higher-cost” capacity and will “re-evaluate its options” for further cuts after that, Volynets said. The cuts and the depreciation of the Russian currency have helped reduce its operating costs by 30 percent since December, and the company is targeting a further 25 percent reduction, he added. “I think we will emerge a very different company in two or three months,” Volynets said. “Our debt repayment profile will be vastly different and our cost of production will be much lower.” Rusal yesterday reached an agreement with shareholder Onexim Group to restructure $2.8 billion of its debt. The company has until early May to renegotiate $7.4 billion owed to more than 70 foreign banks including ABN Amro NV, Citigroup Inc., BNP Paribas SA and Merrill Lynch & Co. source：www.bloomberg.com