Rusal announces results for the year ended December 2018

　　Kev highlights

　　1. The aluminium market in 2018 was seriously affected by the Office of Foreign Assets Control sanctions as well as the trade wars and imposed import duties that resulted in significant growth of premiums and prices.

　　2. During 2018, revenue increased by 3.1% and amounted to USD10,280 million as compared to USD9,969 million for the same period of 2017 following the growth in the London Metal Exchange aluminium price, which increased by 7.2% to USD2,110 per tonne as compared to USD 1,968 per tonne between the comparable periods. This was partially offset by a 7.2% decrease in primary aluminium and alloys sales volume.RUSAL achieved net profit of USD 1.698 billion (+39%, year-on-year (“YoY”)) in 2018,compared to USD 1.222 bln in 2017. The recurring net profit in 2018 amounted to USD 1.695 billion (+7.8%, YoY), compared to USD1.573 billion in 2017.

　　Commenting on the lull year 2018 results, Mr Evgenii Nikitin CEO of RUSAL said that “Despite the OFAC Sanctions, RUSAL’s robust lull year results demonstrated skillful crisis management alongside the ability to adapt to a new operations’ environment. It maintained its strong market position through its high managerial competence and operational llexibility. In 12M18, aluminium production totaled 3,753 thousand tonnes which is a 1.2% increase compared to the prior year. Total production dynamics remained largely stable with capacity utilization reaching 96%. The 2018 results demonstrated RUSAL’s solid position in its core business: revenue increased by 3.1% to USD 10,280 million, and the Company recorded a net profit of USD 1.698 billion which is a 39% increase compared to the previous year. We have continued to actively promote our new brand of low carbon aluminium, “ALLOW” which has been received well, particularly from climate-conscious customers. It has fostered RUSAL’s aim of being a green and environmentally friendly Company.

　　In January 2018, the Company successfully placed its third Eurobond issue. More than 100 investors from Europe, America, Russia and Asia participated in the order book for RUSAL’s new Eurobond issuance, which exceeded USD 1.5 billion, and allowed the Company to fix the coupon rate at the level of 4.85% which is the lowest coupon of RUSAL Eurobonds issued to date. This transaction further improved the Company’s debt profile and its ability to pursue new business opportunities.

　　The key achievement of the year is that despite the OFAC Sanctions, the Company remained highly operational, avoided any seismic personnel cuts whilst maintaining well-established multi-industrial supply chains in the countries of operation; this signaled to customers and investors that our business model remains efficient, even in difficult times.

　　Looking ahead into 2019 and the forthcoming years, we expect aluminium demand to recover after the trade wars and supply shocks of late 2018. Alongside forecasting markets outside China to be in heavy deficit in 2019, we are confident that RUSAL is fully capable to leverage this trend.”

　　Overview of trends in the aluminium industry and business environment

　　Highlights for the full year 2018

　　1. Global aluminium demand is likely to increase in 2019 now that the trade wars and supply side shocks of 2018 have subsided. Additionally, consumers have adjusted their expectations after the shocks expecting markets outside of China to be in heavy deficit in 2019. Therefore, global aluminium demand is expected to rise by 3.7% YoY in 2019 to 68 million tonnes vs a 3.6% growth in 2018 YoY at 65.6 million tonnes.

　　2. Global aluminium supply was unchanged by 0.5% YoY to 64.1 million tonnes in 2018 after a 7% rise YoY in 2017. Global supply excluding China, grew by 1.8% to 27.7 million tonnes, while Chinese supply contracted by 0.6% to 36.4 million tonnes.

　　3. In China, production fell by more than 3 million tonnes between August and December 2018 as a result of low aluminium prices and tight environmental regulations.

　　4. Production sits at around 60% of Chinese aluminium smelting production and 50% of the ROW which is lower than last year due to high power and alumina prices.

　　5. Aluminum stocks at the LME warehouses dropped by 175 thousand tonnes to 926 thousand tonnes between January to mid-October 2018 which is at its lowest level since December 2007. However, by the end of 2018, stocks rebounded to 1.273 million tonnes. January has seen a significant increase in LME cancelled warrants to 755 thousand tonnes, the lowest it has been in years.

　　Global aluminium

　　During Q418, the aluminium price along with the whole LME metals’ market was affected by the investor sell- off following rising trade tensions between the US and China. Many market participants believe this could continue to negatively impact future economic growth and industrial activity.

　　Aluminium demand and premiums

　　Global aluminium demand is expected to recover in 2019 following the trade wars and supply shocks that occurred in the second half of 2018. Consumers will gradually adapt to the new reality as markets outside of China remain in heavy deficit, economic activity grows and this diminishes supply risks. As such, global aluminium demand is expected to rise by 3,7% YoY in 2019 to 68 million tonnes vs 3.6% growth in 2018 YoY to 65.6 million tonnes.

　　7 CAPEX is defined as payment for the acquisition of property, plant and equipment and intangible assets.

　　Russian economic growth slowed at the end of 2018 but GDP still increased by an estimated 1.8%. Industrial production index growth amounted to 2.9% of GDP. Investment in fixed Russian assets rose by 3.0% after the recession. This was fueled by the increase in the construction industry since Q318. Such a trend is expected to continue in 2019 which will help maintain a high demand for aluminium from the building materials industry, as well as the energy transfer sector. Primary aluminium demand in Russia and CIS countries grew by 9.9% to 1.1 million tonnes (including 0.9 million tonnes in Russia) in 2018 and is expected to rise to 1.2-1.25 million tonnes in 2019.

　　In 2018, the global and regional headwinds weighed on Europe’s economy testing its resilience. The US-China trade war and the risk of a no-deal Brexit continue to drag down business confidence in Januaryand after a strong start to 2018, the economies of the EU28 lost significant momentum in the second half of the year. Despite this, the year ended at a reasonable growth of 1.5% in 4Q18.

　　Output in the construction industry increased all throughout 2018 with Germany’s construction PMI hitting the seven-month high (53.3) in December. It was the upturn in homebuilding demand that drove the steepest rise in total industry activity.

　　The automotive sector witnessed disruption in 2018 as manufacturers struggled to address the car certification and registration bottlenecks that resulted from the implementation of the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) for emissions. The changeover to the WLTP test cycle constrained production and output slumped in the largest country-producers by 4.7% in the first nine months of 2018. In addition, the Section 232 investigation on auto sector tariffs is ongoing and still presents risks to vehicle production in 2019. Aluminium growth remained ahead of car manufacturing growth as primary aluminium demand rose by 2.2% up to 9.6Mt in Europe (including Turkey but excluding Russia).

　　North America witnessed strong growth in 2018, with economic and industrial activity accelerating sharply. GDP rose by an estimated 2.8%. Industrial production expanded at its fastest rate compared to previous years in September and climbed at an estimated rate of 3.4% in 2018. Although vehicle production inched down by 0.5%, aluminium demand remained strong. Construction was relatively robust with the number of new builds growing by nearly 6% in January to October 2018. Overall primary aluminium demand in North America expanded by 1.6% to 6.9 million tonnes.

　　Favourable domestic conditions have been supporting Japan's economic expansion. GDP increased by 0.8% in 2018 YoY. Whilst industrial production grew by 0.9%, it should be noted that this is below last year’s level due to weather-related problems in Q1 and Q3. Despite a strong outlook for commercial and infrastructure spending ahead of the Olympics, a slowdown in new housing developments tempered overall activity in the construction sector. At the same time, automotive production remained at the same level in the first eleven months of the year.

　　The ASEAN region saw a modest slowdown in growth in 2018, although primary aluminium demand resisted this trend. Continued investment in semis capacity has enabled an overperformance in the aluminium industry compared to industrial growth. As a result, aluminium primary demand in Asia (ex China and India) rose by 1.6% to 6.6 million tonnes in 2018.

　　The Indian economy expanded at a rate of 7.4% in 2018, up from 6.2% in 2017 when demand was hindered by policy disruptions. Output growth from the construction sector increased by 8.1% on a yearly basis, whereas industrial sector output climbed at an estimated 5.3%. Those factors combined drove aluminium primary demand growth of 3.5% in 2018 to 2.2 million tonnes.

　　The Chinese economy grew at 6.6% YoY in 2018 however the global instability and the trading conflict with the US deteriorated production activity with Cauxin PMI declining below the 50 mark level by end of 2018. Other sectors had a more mixed picture: automotive production declined by 4.2%; FAI investments grew by 5.9% and floor construction grew by 5.2% of in 2018 YoY. Aluminium demand was up by 4.6% YoY to 35.8 million tonnes but is estimated to accelerate to 5.1% in 2019 YoY to 37.6 million tonnes as a result of planned credit and capital stimulus by the Government.

　　The aluminum premiums were highly volatile in 2018, responding to the different market challenges such as the introduction of import duty in the US, OFAC sanctions against RUSAL and several interruptions at certain smelters. Overall, the premiums grew by 9-10% on a comparable basis in 2018 except premiums in Japan. In the second half of 2018, the premiums trended down, mainly due to the direction of the market that contributed to a liquidation of traders stocks. Asian premiums were affected by rising Chinese aluminum exports.

　　Global aluminium supply was relatively unchanged only experiencing a 0.5% growth YoY to 64.1 million tonnes in 2018 after 7% raise in 2017 YoY. Globally, excluding China, supply grew by 1.8% to 27.7 million tonnes, while Chinese supply contracted 36.4 million tonnes. The availability of aluminium scrap may also increase in 2019 as its prices are expected to rise as demand increases.

　　Aluminium production outside China was flat in 2018 at 27.6 million tonnes and 50% of aluminium productions outside of China operated at a loss. This is likely to limit potential restarts and will further increase the risk of supply disruptions. Aluminum stocks at the LME warehouses dropped by 175 thousand tonnes to 926 thousand tonnes during January to mid-October 2018 which is the lowest it has been since December 2007. By the end of 2018, stocks rebounded to 1.273 million tonnes. January has seen a significant increase in LME cancelled warrants to 755 thousand tonnes, a multi-year low.

　　In China, production fell by more than 3 million tonnes from August to December 2018 as a result of low aluminium prices and tight environmental regulations. Nonetheless around 60% of Chinese aluminium smelting production is struggling due to high power and alumina prices. Chinese regional stocks declined by 0.5 million tonnes YoY to 1.33 million tonnes at the end of 2018 and returned to an average monthly level of 2018.

　　Chinese aluminium exports increased by 23.4% to 5.23 million tonnes. In 2019, Chinese exports will face challenges and are expected to decline. Due to lower arbitrage, a fall in inventories/production and the new stimulation programmes are expected to be introduced by the Chinese Government to significantly improve the domestic aluminium balance.

　　Revenue from sales of primary aluminium and alloys was almost flat in 2018 compared to 2017. This was primarily due to a 7.3% increase in the weighted-average realized aluminium price per tonne, driven by an increase in the LME aluminium price (to an average of USD2,110 per tonne in 2018 from USD1,968 per tonne in 2017), which was offset by a 7.2% decrease in primary aluminium and sales volume.

　　Revenue from sales of alumina increased by 26.8% to USD975 million for the year ended 31 December 2018, in comparison toto USD769 million for the previous year, as a result of an increase in the average sales price by

　　32.5%.In turn, a decrease in the sales volumes accounted to 4.4%.

　　Revenue from sales of foil and other aluminium products increased by USD23 million, or by 7.1%, to USD346 million in 2018, as compared to USD323 million in 2017 primarily due to the growth in sales of other aluminium products (aluminium wheels).

　　Revenue from other sales, including sales of other products, bauxite and energy services increased by 20.4% to USD666 million for the year ended 31 December 2018 as compared to USD553 million for the previous year, due to a 14.1% increase in sales of other materials (such as anode blocks by 18.4%, aluminium powder by 23.7%, silicon by 23.8%).

　　Total cost of sales increased by USD263 million, or 3.7%, to USD7,446 million in 2018, as compared to USD7,183 million in 2017. The increase was primarily driven by an increase in cost of alumina, transportation tariffs and other raw material costs in 2018 that was partially compensated by the lower volumes of primary aluminium and alloys sold and depreciation of Russian Ruble against US dollar between the comparable periods.

　　Cost of alumina increased by 20.5% in 2018 compared to the previous year, primarily as a result of an increase in alumina purchase prices between the comparable periods.

　　Cost of bauxite increased by 7.1% to USD495 million in 2018, compared to USD462 million in 2017, primarily due to the increase in bauxite purchase prices between the periods.

　　Cost of raw materials (other than alumina and bauxite) and other costs increased by 8.1% in 2018 compared to the previous year, due to a rising raw materials purchase price (prices for raw petroleum coke increased by

　　35.6%, pitch by 17.6%, anode blocks by 16.7%, caustic soda by 11.1%).

　　Energy costs were almost flat between the comparable periods.

　　The finish goods mainly consist of primary aluminium and alloys (app.95%). The dynamic of change between the reporting periods was driven by the fluctuations of primary aluminium and alloys physical inventory between the reporting dates: a 40.7% increase in 2018 compared to a 26.6% increase in 2017.