Aluminum giant seeks to double alloy income

UC Rusal (0486), the world's largest aluminum producer, seeks to double income from aluminum alloy products to up to 70 percent of revenue in three to five years.

Customers are ready to pay more for alloy, which commands a higher profit margin than primary aluminum, Rusal chief financial officer Evgeny Kornilov said, but did not provide details.

No smelting procedure is required for alloy products so the firm will not incur higher electricity costs, he explained.

"More importantly, we can lock in our customers as the shape and formula of alloy products is exclusive to each customer. This is a repeatable business," Kornilov said.

Rusal's EBITDA margin was 23.7 percent in 2010, with that for aluminum alloy being 34 percent.

The company is confident about securing financing worth US$1 billion (HK$7.8 billion) to restart construction of its Taishet smelter this year, Kornilov said.

"[Russian state-owned bank] VEB, which granted us a loan for the Boguchansk Energy and Metals Complex construction has shown interest to support a similar construction project," he said. VEB gave project financing of US$1.7 billion to Rusal in October.

The Taishet project will have a full capacity of 750,000 tonnes annually, and Rusal plans to develop 375,000 tonnes in the first phase. Metal production is set to start 20 months after financing is received.

The Boguchansk or BEMO project in East Siberia is a 50-50 joint venture between Rusal and Russian state- owned RusHydro. Expected to cost about US$5 billion (HK$39 billion), it will have a 3,000 megawatt hydropower plant and an aluminum smelter with 600,000 tonnes annual capacity.

It marks Rusal's first step to tap the energy industry to supply its own needs for producing aluminum.

The Taishet and BEMO projects will add 1.3 million tonnes to aluminum production capacity in 2013 for Rusal, which produced 4.1 million tonnes of the metal last year.

Meanwhile, chief executive Oleg Deripaska said the listing of EuroSibEnergo will start after several pre-IPO deals to be released soon. The hydropower firm, in which Rusal holds a significant stake, plans to list in Hong Kong.

Deripaska said floating in London is more expensive than Hong Kong, or Russia and other European markets.