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November 12, 2012 6:09 am
Rusal has reported its worst quarterly earnings margin since it went public in 2010, adding to the woes of the world’s biggest aluminium producer.
While global aluminium players have all suffered on the back of depressed prices for the metal and an oversupply of the market, few have felt the squeeze more keenly than Rusal.
The Russian group reported a net loss of $118m in the third quarter, compared with a net profit of $432m a year earlier. Sales fell 18.9 per cent to $2.6bn, while the company’s margin for adjusted earnings before interest, tax, depreciation and amortisation fell to 5.1 per cent.
The low margin is especially worrying for Rusal, which is struggling to pay back $10.9bn of net debt – $1.3bn of which is due by the end of next year.
While the company recently reached an agreement with creditors to extend its covenant holiday on a $4.8bn syndicated loan from March until December 2013, Erik Danemar, an analyst at Deutsche Bank in Moscow, said the 5 per cent margin was “uncomfortably thin” for a company carrying such a high debt load.
“The combination of the significant debt burden and a weak operating margin makes the company more vulnerable to aluminium prices. They are reliant on prices picking up or regional premiums [which are currently at historical highs] staying elevated or growing further,” he said.
Regional premiums – or the cost of physical aluminium over and above the London Metals Exchange prices – have risen sharply over the past year, a rare bright spot for producers like Rusal.
The company has been hit hardest by a sharp drop in aluminium prices, which have fallen 6 per cent so far this year. Rusal’s share price is down 9.2 per cent year-to-date.
Analysts say prices for the metal must recover at some point, and producers including Rusal have started cutting production to reduce the supply glut. But it remains unclear when a turnround will happen.
In its third-quarter earnings, Rusal revised down its forecast for 2012 global aluminium consumption from 47.5m to 47.3m tonnes.
But the company added that it expected a slight pick-up in consumption in the fourth quarter thanks to a recovery in China’s economic growth and improvement in key sectors such as the US car industry.
The company’s shares rose 0.7 per cent in Hong Kong, with analysts saying the earnings had already been priced into Rusal’s share price.
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