Rusal, the world’s largest aluminium producer, on Monday confirmed it would slash output by more than 7 per cent this year, as its struggles to cope with oversupply in the global aluminium market coupled with lower prices.
The news came as Rusal reported a full-year net loss for 2012 of $55m, buoyed by an improvement in the fourth quarter when the company reported a profit of $62m.
The company, owned by Russian tycoon Oleg Deripaska, is saddled with $10.8bn in debt, and is still struggling to recover from the 2008-09 global financial crisis, during which it acquired a significant minority stake in Norilsk Nickel in a failed attempt by Mr Deripaska to merge the groups into a global mining giant.
While much of Mr Deripaska’s attention over the past few years has been devoted to a war with his fellow Norilsk shareholder Vladimir Potanin, the two billionaires now appear to have made peace, with an agreement that puts Mr Potanin in Norilsk’s chief executive seat but paves the way for greater dividend payments – a key step to Mr Deripaska paying back his debts.
According to VTB Capital, Norilsk is expected to pay as much as $550m in dividends in 2013, and $1.1bn in 2014.
Analysts said conditions for Rusal were likely to start improving in 2013, and the company itself forecasts that aluminium prices will rise as much as 16 per cent from their current levels by the end of the year – about the same percentage that aluminium prices fell in 2012.
Rusal’s full-year sales dropped 11 per cent to $10.9bn, and the company confirmed it planned to cut output from 4.2m metric tonnes of existing capacity to 3.9m metric tonnes this year.
Most of the cuts will occur at its smelters in the European part of Russia, where it costs an estimated $2,400 to produce just one tonne of aluminium, versus the current market price of $1,973 a tonne, said Oleg Petropavlovskiy, a senior mining analyst at BCS, the Russian brokerage.
Mr Petropavlovskiy added that Rusal could even start buying aluminium from the market this year to fulfil some of its long-term contract obligations. “It might be more profitable for the company to buy from the market than for it to produce at such high costs,” he said.
He forecast a better 2013 for Rusal but questioned how successfully the company was managing to repay its debts. While the aluminium producer said it had generated $999m in free cash flows in 2012, it was able to reduce its net debt by only 2 per cent to $10.8bn.
After receiving an extension on its covenant holiday last autumn, Rusal is due to pay back $500m to creditors in 2013 and $1.5bn in 2014.
Rusal’s shares fell 3.4 per cent in Hong Kong on Monday.