Rusal faces up to end of aluminium boom

Rusal CEO and metals tycoon, Oleg Deripaska, expects demand for aluminium to tumble by a quarter this year. With demand for its primary product vanishing, Rusal is considering production cuts and freezing investment.

With the global aluminium price 60% below its record peak last July, the head of Rusal, Oleg Deripaska, is preparing for the worst.

He's predicted the price for the metal won’t rebound this year and demand will shrink even further. Market experts, including Marat Gabitov, Metals analyst at Unicredit Aton, believe the world’s aluminum giants have to slash production significantly.

“Supply is really significant. Companies are hesitating about capacity cuts. Generally speaking, such companies as Rusal and Rio Tinto should be among the first to cut capacity because they have really huge debts.”

Rusal, which employs 90,000 people in Russia, is ready to cut output. But the firm will decide how big a cut only after talks with the Government. The company, whose debt stands at $16 Billion, is continuously seeking state financial support.

Tim McCutcheon, Partner at DBM Capital, says, so far, time is on Deripaska’s side.

“There is old saying – If you default on $100 to the bank you have a problem. If you default on $1 Billion to the bank – the bank has a problem. Deripaska is definately using that to his advantage. Clearly the banks realise that they have to play ball, so to speak, to get what they want. At some point Rouble devaluation and dollar inflation is going to cause profit margins of commodity producers to go up. If aluminium prices recover a little bit more, then clearly we going to have a situation when Rusal might not be in as bad a shape as it is now.”

Rusal shareholder Viktor Vekselberg says the aluminium price should stand at $1,700 per tonne for the firm to be able to pay its debts. Meanwhile, to survive the metals glut, the company is cutting costs, freezing all investment for at least 3 years and waiting for the state to open its coffers.