Rusal Sees Aluminum Rising to $2,500 by End-June on Output Cuts

 

 

“This price is the current level of profitability for so- called marginal aluminum makers,” Deputy Chief Executive Officer Oleg Mukhamedshin said in a phone interview.

 

 

Rusal may reduce production about 6 percent in the next 18 months, Chief Executive Officer Oleg Deripaska said on Jan. 27, adding to cuts by rivals Alcoa Inc. (AA) and Rio Tinto Group (RIO) after a the slump in prices last year. Aluminum traded at $2,273 a ton at 9:09 a.m. on the London Metals Exchange, a rebound of 12 percent this year following an 18 percent slump in 2011.

 

 

About 2 million tons of capacity was halted in 2011 and another 3 million tons may be idled this year, including 1.7 million tons in China, Mukhamedshin said. About 1.5 million to 2 million tons may be lost for good should China proceed with a plan to stop production that consumes excessive power, he said.

 

 

The worst case this year is that demand and supply will be balanced, while the optimistic view is for a deficit of as much as 1 million tons, supporting prices, Mukhamedshin said.

 

 

Demand will probably increase everywhere except for Europe, where it will be flat, he said. “China’s consumption will continue to grow, and we expect an 8 percent increase in demand in Japan and up to 5 percent in the U.S,” the deputy CEO said. Prices may average about $2,400 a ton for the year, he said, little changed from the figure for 2011 of $2,421.

 

 

Price Cap

 

 

Last year prices were capped as some producers, including the Chinese, restarted capacity when prices rose to $2,600. “We hope that this year the same process may start when the prices are much higher due to cost inflation,” Mukhamedshin said.

 

 

Aluminum is also supported by the Federal Reserve decision in January to hold interest rates low through 2014, which keeps investment stockpiles out of the market, he said. The market is in “contango,” meaning prices are seen rising in the future, Mukhamedshin said. “The Fed’s decision, amid contango, gives a strong level of support to aluminum” as investors have little incentive to shift funds to securities such as Treasuries.