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Rusal quest for value to dent Glencore's aluminum clout

Wednesday, Feb 28, 2018

   Mining giant Glencore’s deal to buy aluminum from Rusal will be renewed from 2019, but the tonnage is likely to be much lower as the Russian producer taps into growing demand for value-added products, two sources close to the matter said.

  Unless it sources from additional suppliers, the reduction in volume will weaken the leading position held for years by Swiss-based Glencore in the global aluminum market.
  Rusal, controlled by billionaire Oleg Deripaska and co-owned by Glencore, is expected to cut the volume in any new deal by 25-50 percent from the 14.5 million tonnes that covers the seven years from 2012 to 2018.
  The deal was valued at $47 billion in 2012. The new arrangement is likely to last a number of years although the exact duration is not yet clear, sources said.
  Glencore owns 8.75 percent of Rusal, the world’s second-largest aluminum producer after China’s Hongqiao.
  “Rusal simply doesn’t have the same amount of primary aluminum it used to have in 2012 due to its focus on value-added products,” said a senior source, who asked not to be identified as the discussions are not public.
  Glencore declined to comment.
  A Rusal spokesman said: “We don’t comment on any individual customer business, however, we are committed to pursuing our strategy to expand the share of value-added product sales to 60 percent by 2021.”
  Aluminum, a light metal valued for its strength, is widely used in transport and packaging.
  Rusal’s output of value-added products - from slabs and billets to wire rods - has climbed in recent years, reaching 47 percent of its overall output last year from below 40 percent in 2012.
  The company plans to boost the value-added product component to 50-52 percent of aluminum sales this year and 60 percent by 2021 with new investment at its Siberian plants in Krasnoyarsk and Khakas.
  Hong Kong-listed Rusal said it sees growing demand, especially in Asia ahead of the Tokyo 2020 Olympics and as China expands its transport, construction and computer industries.
  Rusal, part of the power, auto and metals conglomerate En+, also believes it is positioned to benefit from the boom in electric vehicles (EVs) as it produces power, aluminum for lighter cars as well as nickel, cobalt and lithium for EV batteries through its co-ownership in Norilsk Nickel.
  “If you take an EV and break it down into components and if you take En+ plus and break it down into components - those components will almost match,” En+ President Maxim Sokov told Reuters last month at the World Economic Forum in Davos.
  “The EV revolution will require a huge power-charging infrastructure. That requires a lot of aluminum and a lot of wire rods. We have been working on aluminum products which can rival copper in terms of conductivity.”
  Global aluminum production is forecast at around 65 million tonnes this year, of which Glencore will control about 4-5 million tonnes. The Rusal deal contributes around half of Glencore’s aluminum portfolio.
  Deripaska and Glencore boss Ivan Glasenberg, long-time allies, have faced multiple shareholding battles that rocked Rusal and Norilsk.
  The Russian firms could be heading for another crisis as billionaire co-owner Viktor Vekselberg battles for more control of Rusal.
  Vekselberg’s investment firm in 2012 filed an unsuccessful lawsuit aimed at stopping the deal between Rusal and Glencore, saying it was against the interest of all shareholders.
  A spokesman for Vekselberg declined to comment on whether the co-owner would support any new supply deal.

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