Rusal Predicts ‘Significant Improvement’ in Aluminum (Update1)

June 3 (Bloomberg) -- United Co. Rusal, the world’s largest aluminum producer, expects a “significant improvement” in the price of the metal from the third quarter after smelters cut output and as the global economy recovers. “Prices are still at the bottom,” Artem Volynets, director of corporate strategy, said yesterday by phone from Moscow. “But if you look into the third quarter, you will see a significant improvement, maybe earlier.” Aluminum prices have slumped by half in the past year in London trading and world stockpiles almost quadrupled as demand from automakers and builders collapsed. Rusal and rivals such as Rio Tinto Group, New York-based Alcoa Inc. and Norway’s Norsk Hydro ASA have been firing workers, cutting expansion plans and curbing output as falling prices eat into profits from smelting. Alcoa, the largest U.S. aluminum producer, is also among companies predicting a rebound. Distributors of the metal are showing renewed buying interest and will generate a “giant sucking sound” of demand when the global economy revives, Chief Executive Officer Klaus Kleinfeld said May 29 in New York. Kleinfeld has idled about 20 percent of production, slashed 13,500 jobs and cut salaries since the second half of 2008. Industry cuts in smelting helped curb global output in April by 13 percent from a year earlier, while stockpiles shrank to 2.59 million tons, from 2.74 million tons in March, according to the London-based International Aluminium Institute. Inventories Shrinking The surge in inventories that began in the last quarter of 2008 pushed aluminum for three-month delivery on the London Metal Exchange to a six-year low of $1,279 a ton by February. The metal has recovered 15 percent since then to $1,476 a ton. The full effect of the cuts in production will begin to be felt by the middle of the year, Volynets said. Demand from China, the world’s biggest metals consumer, to replenished stockpiles needed for the country’s 4 trillion yuan ($586 billion) stimulus program is also soaking up inventories. Chinese imports of primary aluminum in April surged to 362,400 tons, about four times the volume in March, customs data showed. “The money allocated for the stimulus package has not hit the market yet,” Volynets said. “That is a big wave of demand that we still expect to see.” Usage in China rose to about 1.3 million tons a month in April, from about 1 million tons in January, he added. Chinese Demand Overcapacity in the aluminum market this year is as much as 1.5 million metric tons, Volynets said. While China, the largest producer and user of the metal, restarted about 1 million tons of the 3.5 million tons of capacity it previously took offline, it’s unlikely to resume the entire stalled output, he said. “If you satisfy domestic demand with lower-cost aluminum from abroad, there is no need to restart domestic production,” Volynets said, adding that Moscow-based Rusal has sold 200,000 tons of metal into China this year. Rusal has completed closures that will cut annual output this year by 500,000 tons, or 11 percent of the total, and will consider further action if conditions worsen, he said.