Russia's RUSAL (0486.HK), the world's biggest aluminum producer, is prepared to cut output and costs this year to support prices, which could recover in 2013 if China also reduces production, a senior executive told Reuters.
People enter an office of RUSAL company in Moscow March 19, 2012.
"The market price is at a level where about 30 percent of producers are unprofitable. This means that people are forced to significantly reduce capital expenditures, which leads to stagnation of the industry," Oleg Mukhamedshin, RUSAL's (RUAL.PA) head of equity and corporate development, said in an interview.
Aluminum prices ended last year near 18-month lows on concerns about weakening global demand for the metal, which is used in drink cans, car parts, planes and iPads, and prompted Alcoa (AA.N) and Norsk Hydro (NHY.OL) to cut capacity.
Since then aluminum prices have fallen another 5 percent and forced RUSAL to prepare to shut 250,000 to 300,000 metric tons of annual capacity this year to support global prices.
But RUSAL also expects China to support the global market.
"This has gone on for long enough, and all producers should take responsibility for decisions on production volumes and more actively cut unprofitable production," Mukhamedshin said in remarks cleared for publication on Tuesday.
"This particularly suggests China."
On Monday aluminum prices plumbed their lowest level in nearly two years at $1,915.25 a metric ton before ending down $3 at $1,930.
The metal, which is in chronic oversupply, is under pressure from reports that China's top aluminum-producing province of Henan may subsidize electricity used by loss-making smelters in a bid to spur local growth.
Mukhamedshin criticized this policy, calling on China to cut unprofitable production. Global companies, excluding Chinese producers, have cut output by about 1.3 million metric tons of since December 2011.
Mukhamedshin estimated that 6 to 7 million metric tons of aluminum output in China are unprofitable now out of the 22 million that the country is expected to produce this year.
The rest of the world has about 3 million metric tons of loss-making capacity, he said.
"Our Chinese colleagues cut 1.7 million metric tons last year, and since January we do not see capacity shutting down in the country, which accounts for 45 percent of global aluminum output," he said.
If producers take more responsibility, average aluminum prices can reach $2,500 to $2,600 per metric tons in 2013, up from an expected average this year of $2,200 a metric tons, he said.
RUSAL is cutting its own cash costs, which were at $1,950 per metric tons in the first quarter. The company has slightly delayed its Taishet project, which was expected to produce the first metal in 2013 and move to a full annual capacity of 750,000 metric tons eventually.
Last year non-recourse project financing for the Taishet aluminum smelter was arranged, and the company was expected to start major investments in the project in March. But it now plans to start investing later this year, Mukhamedshin added.
Decreasing aluminum prices have also helped RUSAL cut spending on power, which accounts for about a quarter of its costs, Mukhamedshin said. RUSAL's energy supply contracts are linked to aluminum prices on the London Metal Exchange.
A weak rouble and oil prices will also help the company in the second quarter, he said.
RUSAL owns the Friguia alumina refinery in Guinea, which has not been in production since April 3, despite the suspension of a strike at the plant.
Mukhamedshin said the company still believed the political situation in the African country would change for the better but was also interested in bauxite mines elsewhere on the continent.
"There are other fish in the sea. We are also interested in other countries in Africa - Sierra Leone, Cameroon and Ghana," he added, without elaborating.
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