RusAl Sees Aluminum Upside in 2011

United Company RusAl, controlled by billionaire Oleg Deripaska, said Friday that aluminum prices were bottoming out and that a very significant recovery was expected in 2011. Artyom Volynets, director of corporate strategy, said in an interview after a presentation to analysts in London that aluminum prices, currently at about $1,420 per ton, would remain volatile this year before rising $200 to $300 in 2010 ahead of a "big" improvement in 2011. "It feels very bad now, but it also means that we shall start seeing the light at the end of the tunnel because we are finding a bottom," Volynets said. "If the production costs were to stay at last year's levels, none of the global smelters would be profitable." In February at the World Economic Forum in Davos, Deripaska said he expected aluminum prices to average $1,600 per ton over the next seven years, shortly after RusAl chairman Viktor Vekselberg said he was "100 percent sure" that the price per ton could hit $2,000 by the end of the year. London Metal Exchange inventories, now at record levels above 3.4 million tons, are set to peak in the third quarter before falling as industry cutbacks take effect, Volynets said, adding that 17 percent of global aluminum capacity had already been cut. "We are open to the possibilities of making further cuts, but that all depends on global demand and the supply situation," Volynets said. "We may consider bringing our production cuts up to 20 percent, but the decision has not been made." Helping to lift prices from 2010, Volynets highlighted economic stimulus packages announced in China and the United States, combined with a weaker dollar, which makes metals priced in dollars less expensive for holders of other currencies. RusAl is also taking steps to cut costs as it faces peak debt repayment of $8 billion this year. The unlisted company has been in talks with Western and Russian banks to restructure billions of dollars of debt. Volynets said the debt talks were progressing well but would not involve surrendering its major stake in Norilsk Nickel. He also said RusAl had not discussed using any smelters or mines as collateral against foreign loans and maintained that the aluminum producer would not be asking for any financial assistance from the government. He said all five smelters in Siberia continued to produce and are part of a strategy to centralize such activities. "We are in a cyclical business," Volynets said. "Pressures go up and pressure go down -- but if you keep your costs low, you'll be fine."