Russian aluminium giant Rusal goes greener and higher up the value chain

PUBLISHED : Monday, 27 June, 2016, 12:17am
UPDATED : Monday, 27 June, 2016, 12:17am

Rusal, the world’s second largest aluminium smelter, plans to spend US$600 million to US$700 million annually until 2020 to raise its output capacity of higher value-added alloy products, as it seeks to raise profit in the face of excess capacity.

Rusal also aims to use hydro power to generate all of its electricity needs by 2020, up from 80 per cent currently. The new hydro power capacity will replace coal and natural gas-fired power as the company expects to be subject carbon emission charges in the future, said chief executive Vladislav Soloviev.

“I was in Paris two weeks ago where countries are preparing for the [22nd session of the global conference to tackle climate change] ... everybody recognises that a carbon price will be here for sure sooner or later, the question is how much,” he said.

“We have already started to calculate for internal purposes a carbon price in order to rearrange our power investment projects,” he said, adding that Rusal has built in a US$10 a tonne cost for carbon emission from next year for business planning purposes.

The Moscow-based firm listed in both Russia’s capital and Hong Kong, is also spending up to US$50 million a year on new alloy products research and development together with key customers to meet their needs.

Rusal is upgrading its production facilities so that they can produce more alloys that are increasingly in demand due to their lightweight and sturdy properties that can compete with steel products in vehicles.

Soloviev said he wanted to see higher value-added alloys account for 80 per cent of its total output by 2020, up from 50 per cent currently.

Rusal’s goal of going higher up the value chain comes as low aluminium prices saw many inefficient smelters shutting down globally, especially in mainland China, where he estimated some 45 per cent of smelters are not profitable at current aluminium prices.

This makes them vulnerable to Beijing’s plan to tighten emission regulations from next year when trial carbon emission quotas trading is slated to begin.

Solovieve expects the Chinese aluminium smelting industry to see a reduction in output and higher production costs as a result of future carbon reduction regulations, and urged the industry to be disciplined in permanently closing down outdated and pollution-prone production lines.

Wan Ling, the Beijing-based head of Asia aluminum at metals consultancy CRU, said Chinese aluminium demand has been unexpectedly strong in the year’s first five months thanks to a rise in construction activity, which had a beneficial effect with tighter supply due to capacity curtailment from low prices in last year’s second half.

This resulted in a supply deficit in the second quarter, but she expected it to revert back to surplus in the second half as some idled capacity is expected to be put back into production.

“Permanent shut-downs only account for a minority of total capacity curtailed,” she told The Post, adding she is projecting total output of 32.2 million tonnes for this year, compared to total capacity of 38 million tonnes.

She projected aluminium prices to average US$1,521 a tonne this year and US$1,580 next year, not far higher than the lows seen in the 2009 global financial crisis.

Rusal has planned two aluminium smelting projects in central Siberia, involving total annual capacity of 1.3 million tonnes that will be brought on line in phases.

Some 150,000 tonnes of the capacity is expected to come on stream this year, with an additional 150,000 tonnes slated for start-up in 2018, and 400,000 tonnes more may be commissioned in 2020.

As some outdated production lines will be shut down, Soloviev expects the net total annual smelting capacity addition of Rusal between now and 2020 to be up to 300,000 tonnes.

Rusal produced 3.64 million tonnes of aluminium last year, up 1.2 per cent from 2014.

She expects all of the output from the additional capacity will be absorbed by the domestic Russian market, where demand is projected by Rusal to rise to 2 million tonnes by 2020 from 1.4 million tonnes currently.

Soloviev said he considered the company’s share price undervalued and would like to see its trading volume increase.

Rusal shares last Friday closed at HK$2.17, not far higher than the record low of HK$1.98 seen in January, and much lower than its initial public offering price of HK$10.8 in 2010. Only HK$1.23 million worth of shares changed hands on Friday.