United Co Rusal, the world's largest aluminium producer, yesterday reported a 95.25 per cent plunge in net profit to US$37 million in the first half, largely because of a US$37 million net loss in the second quarter.
A major reason for the loss in the second quarter was a one-off impairment loss of US$167 million taken on an alumina and bauxite plant in Guinea where production decreased, Hong Kong-listed Rusal said.
The Russian firm was embroiled in a legal dispute with the government of Guinea over the privatisation of its subsidiary there, which Guinea opposes, Rusal said. The plant has suffered production disruptions because of a strike that ended in April, according to press reports.
Excluding the impairment, Rusal's recurring net profit fell 74.4 per cent in the first half, because of lower aluminium prices as well as increased transport and raw material costs. Revenue fell 9.7 per cent to US$5.71 billion.
To save costs, it said it would cut 275 million tonnes of annual aluminium production at its inefficient smelters by 2018, including up to 150,000 tonnes this year.
"New lows in aluminium prices, compounded with uncertainty as to when prices would rebound, have made planning especially difficult," Rusal chairman Barry Cheung Chun-yuen said. "China, in particular, remained a key market for Rusal."
The company forecasts global demand for aluminium will grow 6 per cent to 47.5 million tonnes this year, but more than 4.5 million tonnes of global aluminium production will be idled because of aluminium prices being below the break-even point that renders production economical. It said China would remain the fastest-growing market with a 10 per cent growth this year.
A J.P. Morgan-Cazenove report on the company warned that it would encounter pricing headwinds, since Chinese aluminium producers, which account for 38 per cent of global aluminium output, are to continue receiving state support.
Contradicting the opinion of Russian President Vladimir Putin, J.P. Morgan-Cazenove expects no quick resolution of Rusal's conflict with Norilsk Nickel, the world's largest nickel producer, as Rusal has no plans to divest its 25 per cent stake in the Russian nickel company.