UC RUSAL Returns to Black in First Quarter

Russia's United Company RUSAL, the world's top aluminum producer, returned to the black in the first quarter, boosted by higher aluminum prices and cost cutting, and said it aims to expand in Asia and is close to securing financing for two smelters.

Industry watchers are optimistic about prices of the lightweight metal, which is widely used in the construction, auto and packaging industries, on the back of a recovering global economy.

Aluminum prices have been in a free fall since mid-April dropping 16 percent to a three-month low of $2,056 a ton on Tuesday. But the average price is expected stay above $2,000 per ton this year, up 20 percent from 2009, based on a poll by Reuters.

"UC RUSAL plans to continue our sustainable development by introducing new, efficient aluminum and energy production capacities, reducing operating costs, diminishing our debt and further expanding our presence in Asia," said the company's chairman, Oleg Deripaska, in a statement.

RUSAL, the first non-Asian company to make its primary listing in Hong Kong with its January IPO, had cut its average cash operating costs for aluminum by 23 percent last year to $1,471 a ton.

Global demand for aluminum is expected to rise by 12.6 percent in 2010 after consumption fell 8 percent on the year in 2009, the company forecast.

The company reiterated its previously stated plan to boost aluminum production by 3 percent this year, and alumina production by 11 percent to tap the strength of the metal. It made 3.9 million tons of aluminum in 2009, or about 10 percent of the global output.

To meet growing demand, the company said it is in talks to get project financing for its BEMO and/or Taishet smelters, and expects to receive long-term loan facilities by mid-year.

It said it plans to restart construction of the initial phases of the BEMO and Taishet smelters, with projected capacity of 147,000 tons and 187,000 tons of aluminum per year, respectively, with a target of starting metal production in the third quarter of 2011.

The company posted a net profit of $247 million for the first three months of 2010, compared with a loss of $638 million a year ago, it said in a statement on Friday.

The company said its operating margin was at 16 percent for the first quarter against a negative 14 percent in the same period last year. Aluminum output fell 4 percent to 973,000 tons and output for alumina, the material for aluminium,  also dropped 14 percent to 1.8 million tons.

Its Chinese competitor Aluminium Corp of China (Chalco), also reversed losses to post a quarterly net profit.

U.S. aluminum maker Alcoa [AA  12.80    0.34  (+2.73%)   ] reported a loss in the first quarter last month, but would have recorded a profit that matched market forecasts after excluding charges.

Shares of RUSAL are still trading below their initial public offering price of HK$10.8 on concerns over its heavy debt position. The stock closed up 0.36 percent at HK$8.25 on Thursday, but is still 24 percent below its IPO price.

Some say beaten-down aluminum stocks such as Rusal look like a good buy as the sector bounces back from its recent downcycle, while others worry about future oversupply.