Rusal leaps into profit as demand for aluminium soars

The Moscow-based group controlled by Oleg Deripaska made a net profit in the first quarter of $247m (£167m)

Rusal, the aluminium group controlled by controversial billionaire investor Oleg Deripaska, has surged back into the black on soaring Asian demand.

Rusal, which plunged into the red last year in the midst of the global downturn, was also bolstered by a reduction in debt after it listed on the Hong Kong stock exchange this year.

The group reported its first financial results as a public company today, shedding some light on its share register. Glencore, the world's biggest commodities trader, emerged as a significant shareholder with 8% while US hedge fund Paulson & Co, which made a fortune by betting against the US housing market, is also an investor. Deripaska, married to the daughter of a former chief of staff of ex-president Boris Yeltsin, is the largest shareholder with more than 40%.

The Moscow-based group said it had made a net profit in the first quarter of $247m (?167m), despite interest charges on a debt of $12bn, down from $15bn.

The turnaround from last year's loss has been impressive with revenue increasing by 31% to $2.3bn on the back of rising aluminium prices, which analysts say are expected to leap 25% by the end of the year. Prices could go higher if some Chinese aluminium smelters go out of business after Beijing hiked the cost of electricity, piling on the pressure for some producers in the energy-intensive industry. If Chinese operations are forced to the wall, the country will have to rely more heavily on imports with fewer domestic suppliers.

Rusal deputy chief executive Oleg Mukhamedshin said: "We observed very strong demand for aluminium especially in Asia and we believe that Chinese demand could rise significantly from where we are today." He added that the group was close to securing financing for two new smelters.

Rusal's indebtedness is still a concern for investors, knocking the company's share price in Hong Kong down 23% since the float.

Deripaska faces a legal challenge in the high court in London from Michael Cherney, a fellow oligarch and former business associate who claims he was the beneficial owner of 20% of Rusal's stock which, he alleges, Derispaska held in trust for him. Deripaska is strongly contesting the claim.

A restructuring of Rusal's debt obligations paved the way for Rusal's flotation at the end of January. In what was a hugely protracted and complicated refinancing of loans involving 72 international banks, lenders agreed to give Rusal more time to repay money owed by the company.

Derispaska said in a statement: "We are delivering a significant turnaround in Rusal's fortunes and are well placed for the future with a planned gradual restoration of production volumes. Market conditions continue to improve, with the aluminium price benefiting from improving US demand, a stable picture in Asia and a continued decrease in stocks."

A London-based analyst said: "If investors hold Rusal for about three years, they should make a return of 50% to 60%, assuming the recovery doesn't get blown off course by the sovereign debt crisis."

The company warned in its prospectus that a "sustained fall" of more than 20% in the aluminium price could adversely affect the company's ability to meet certain targets and financial covenants under its debt restructuring agreements.