Rusal targets China after surging into profit

Rusal has predicted that it will make big inroads into China's aluminium market after surging back into profit.

The Russian company, which listed its shares in Hong Kong this year, said that it hoped to exploit its cost advantage against domestic Chinese competitors.

The performance of the world's biggest aluminium producer has been lifted by a soaring price and its low operating costs. Rusal's net profit for last year was $821 million, sharply higher than forecast, against the previous year's loss of $5.9 billion.

Rusal said that its efforts to manage overheads and to close less efficient plants had lowered its cash cost per tonne of aluminium to $1,471, a level which makes the group's output highly competitive with Chinese producers. The company believes that demand will increase by a fifth this year and is bringing 100,000 tonnes of aluminium capacity out of mothballs, mainly from its Siberian operations.

Artem Volynets, Rusal's deputy chief executive, said that Chinese aluminium producers could not compete with Rusal on energy costs. “We compete very well, what matters is the cost of production,” he said. “Eighty per cent of our aluminium is produced using hydropower, which costs us less than $2 per megawatt. Eighty per cent of China's aluminium industry is supplied with electricity made from coal and China has become a net importer of thermal coal.”

Mr Volynets said he believed that China's aluminium smelters were only operating at break-even, despite a surge in the price of aluminium, because of the rising cost of imported coal. The Beijing Government has ordered the closure of inefficient aluminium smelters and Rusal hopes to fill the emerging gap.

"That is why we listed in Hong Kong. We want to be a household name in China,” he said. Mr Volynets said that he expected Rusal's Asian sales to rise by 50 per cent this year and that China would play a big role in achieving that aim. Last year Chinese aluminium sales doubled from 3 per cent to 6 per cent of total sales.

Mr Volynets saw little sign of political opposition to Rusal taking more of the Chinese market. “The Chinese are focused on the production of value-added products. We produce a commodity”, he said. Last year, Rusal secured a contract to sell 240,000 tonnes of aluminium to Norinco, a leading Chinese defence contractor.

Rusal raised $2.2 billion from its dual public offering this year in Hong Kong and in Paris. Most of the funds were used to pay off some of the company's borrowings, incurred with the acquisition of a stake in Norilsk Nickel, the mining group. Rusal said yesterday that the value of its stake in Norilsk had increased by 123 per cent to $6.7 billion.

Oleg Deripaska, Rusal's chief executive, said that he expected Norilsk to pay its first dividend within two years. “They can well afford to pay good dividends to shareholders. We expect them very soon,” he said.