RUSAL sees global aluminium output down, China cuts

 

 

A supply glut on the back of a deepening European debt crisis and global economic slowdown has hurt demand and prices for the lightweight metal, sending many aluminium producers into the red and triggering a round of production cuts, including at top U.S. aluminium maker Alcoa.

 

 

"RUSAL's estimation is that primary aluminium production losses ex-China may achieve 2.7 million tonnes in 2012, and expect China closures will cut 1.2 million tonnes," Rusal said said in a statement.

 

 

That would equal a total cut of 3.9 mln tonnes, about 8 percent of its previous 2012 production forecast and take forecast global output to around 48.75 million tonnes, a RUSAL spokesman said.

 

 

RUSAL, which is considering cutting aluminium output by 6 percent in the next 18 months, said it expected demand to rise by 7 percent to 48.2 million tonnes, with 11 percent growth in China offsetting flat demand in Europe.

 

 

China accounts for about 40 percent of global output, and analysts cautioned it was hard to gauge the outlook for production cuts in China.

 

 

"RUSAL can say China will cut production, they don't know. The key variable is to see how Chinese output responds to rising costs. Chinese suppliers are swing, but quite nimble and can come on quite quickly," said ANZ Bank senior commodities strategist Mark Pervan.

 

 

Some analysts expect excess capacity in aluminium smelting will drag on for years as political pressures in China and Russia to keep jobs and push self-sufficiency prevent or delay plant closures.

 

 

RECOVERY EYED

 

 

In a bright note, RUSAL said demand remains well above 2009 recession levels and it expected evidence of a potential recovery to come in the second quarter of 2012.

 

 

At around $2,254 a tonne for three-month aluminium on the London Metal Exchange, prices have fallen by a third since hitting a record high of $3,380 in July 2008.

 

 

"Aluminium is a losing business because aluminium prices are very, very close to their cost curve. RUSAL has already estimated that around 30 percent of world aluminium smelters are loss-making at today's prices," said Judy Zhu, analyst at Standard Chartered in Shanghai.

 

 

Highlighting the uncertain outlook for the industry, BHP Billiton has halted investment in the metal, while Alcoa said in January it would slash output at two Spanish smelters and shut its Portovesme smelter in Italy. Norwegian producer Norsk Hydro has said it plans to idle a third of its output at a plant in Australia.

 

 

Global miner Rio Tinto also acknowledged a gloomy outlook for the sector last week, when it slashed the book value of its Alcan unit by $9 billion.

 

 

UNDER PRESSURE

 

 

RUSAL said it believed about a third of Chinese aluminium production capacity was unprofitable at current prices.

 

 

Many producers have been plagued by high costs. Aluminium Corp of China , the country's top aluminium maker, said in January it expected profits for 2011 will fall more than 50 percent from a year earlier.

 

 

RUSAL forecast the cost of production in China to continue rising in 2012 as Beijing maintains its efforts to rein in growth in energy-intensive industries, although it said low-cost aluminium production in the western parts of China may partly replace losses from high cost production.

 

 

Beijing was already imposing measures to address some of these issues, analysts said.

 

 

"In China we have seen very high-cost smelters still running, but we have seen structural changes already happening in the last few years ... when we saw new capacity being built in western China where energy prices are lower," Standard Chartered's Zhu said. "We have also seen increased pressure for the closure of high-cost smelters in eastern China."

 

 

RUSAL said worldwide primary aluminium production in 2011 was estimated at 45.6 million tonnes, a rise of 8 percent and higher than forecast aluminium consumption of 45.1 million tonnes, which was up 10 percent from 2010.

 

 

RUSAL said its aluminium output rose 1 percent to 4.12 million tonnes in 2011 and alumina production was up 4 percent at 8.15 million tonnes.

 

 

The company decided to partially shift sales of aluminium produced at the end of 2011 to 2012 and revenue from these sales would be reflected in the first quarter of 2012, it said.

 

 

"The dynamic growth of the world economy in the first half of 2011 slowed down significantly by the end of the year, impacting the situation in the aluminium industry," RUSAL said.

 

 

RUSAL's Hong Kong-listed shares rose 0.5 percent on Monday, largely in line with a 0.7 percent gain in the blue chip Hang Seng Index.

 

 

But they lost more than half of their market value in 2011 before rebounding about 35 percent so far this year.