Rusal Says at Least 500,000 Tons of Output at Risk

Aug. 17 (Bloomberg) -- United Co. Rusal, the world’s biggest aluminum producer, may lose at least 500,000 metric tons of output after an accident shut Russia’s largest hydroelectric power plant and reduced electricity supply to the company. “At least 500,000 tons of aluminum capacity might be at risk,” Artem Volynets, Rusal’s director of strategy, said by phone today. Power “supply from the backup is a temporary solution. You can run like this for days, maybe two months but not years.” Rusal said earlier it found alternative supplies for four of its smelters located near the hydropower plant. At least eight died and 54 were missing after the turbine room flooded at the Sayano-Shushenskaya power station in eastern Siberia. Replacing equipment may take two years, the plant’s owner OAO RusHydro said. Power use was limited for most of the day in the Kemerovo, Altai and Khakassia regions, and companies such as steelmaker Evraz Group SA said output was affected. Rusal’s Khakas and Sayanogorsk smelters, which produce an annual 832,000 tons of aluminum, consumed as much as 75 percent of the power produced by the plant, Volynets said. “It will be very difficult to fill such a huge gap in power supply,” he said. “The threat of production disruption is very real. This might be a huge shock to the markets.” Aluminum for three-month delivery has surged 28 percent this year on the London Metal Exchange, rebounding from a 36 percent slump last year on global recession. ‘Doesn’t Look Pretty’ “Given the recovering aluminum demand, the picture with this risk doesn’t look pretty,” Volynets said. European demand is growing and there are “positive signs” in Japan and the U.S. “We also see some recovery in demand from automakers.” Rusal said in February it would cut 500,000 tons of output, forecasting production of 3.9 million tons in 2009. The company won’t likely restart such capacity because the idled plants are less efficient than those in Siberia, Volynets said. Russian President Dmitry Medvedev said today the state will prioritize supplying power to the population over business. Excess capacity at other power plants has been turned on to replace electricity from the damaged station, the Energy Ministry said in an e-mailed statement. To contact the reporter on this story: Maria Kolesnikova in Moscow at mkolesnikova@bloomberg.net