Russia's Rusal, the world's largest aluminum producer, is running its mills at full capacity for billet, slab and foundry alloy production but cutting ingot output, Rusal Marketing CEO Steve Hodgson said in an interview Friday in Tokyo.
Later this month, Rusal will start negotiations with Japanese buyers on 2014 contracts for billet and other value-added products, or VAP. Hodgson said he expects a sellers' market.
Rusal said previously it started to focus on VAP in 2012. VAP prices were generally $150-200/mt higher than the standard 99.7%-aluminum ingot, market sources said.
Rising demand from Japan and elsewhere has expanded Rusal's VAP output to 42.8% of the company's total aluminum production in the April-June quarter, compared with 34% of sales in 2010.
"Our VAP production is running fully, and [customers] in Japan are competing for the VAP capacity," Hodgson said. The "supply landscape is changing and Japanese customers sought security of supply." Japan imports 20,000-40,000 mt/month of VAP aluminum. Major suppliers have included Rio Tinto Alcan, Norsk Hydro and Dubal, according to Japanese market sources.
Japanese buyers sought new supply sources after Norsk Hydro closed its Kurri Kurri plant in Australia in 2012 and after rising production costs at other coal-fueled Australian plants triggered a hike in some VAP prices in 2013, sources said.
The 2013 upcharge -- a processing fee added to ingot prices -- was more than $160/mt for 6063 billet, compared with around $150/mt in 2012, they said.
Japanese buyers have also tried to diversify supply risk.
"There are materials from [three smelters] in the Middle East, but it is risky to rely on one region," said a rolling mill source. "Russia is also geographically close to Japan." Hodgson said VAP accounted for 20% of Rusal's aluminum sales volume to Japan for 2013, up from 10% in 2011.
"In 2011, most VAP sales were foundry alloys such as A356 alloys, and billet sales were zero," Hodgson said. "Foundry alloy sales remained flat over the years while those of billet and slab grew." Rusal exports 6063 billet and 5000/1000 slab to Japan. The company did not provide figures for VAP sales in the country.
VAP is produced mainly at the eastern Russian smelters Sayanogorsk, Novokuznetsk, Krasnoyarsk, Irkutsk and Brask. Rusal's 324,733-mt cut to ingot output, announced last month, took place mostly in western Russia. Russia exported 127,288 mt of ingot to Japan over January-September, down from 267,955 mt in 2011, according to Japanese customs data.
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