Rusal expects aluminum to climb to $2,300 a tonne in 2013
MOSCOW. Jan 28 (Interfax) - UC Rusal expects aluminum prices to rise to $2,300 in 2013, from their average of $2,018 in 2012, the aluminum giant's first deputy CEO, Vladislav Soloviev, told Interfax.
"The LME price topped $2,000. I'm hoping that will be a solid support level. We're hoping it'll be $2,300 by the end of the year," Soloviev said.
The premium for physical metal delivery is still at a record high, even though prices are low. "We expect this trend to continue, even if perhaps the dynamic will not be the same," he said.
The premium has grown 50% in the United States and 80% in Europe, he said. "In Europe the premium is $220, but the standard premium used to be $30-$40 [a tonne]," Soloviev said.
Soloviev also said he thought queues to get aluminum from warehouses would also persist this year. A consumer has to wait 64 weeks to get aluminum from the warehouse in Detroit and 57 at Rotterdam.
Another trend that began in 2010-2011 and looks set to continue is for the volume of financial transactions to grow - aluminum is of interest to financial investors.
This market situation, particularly the higher premiums and warehouse queues, is emerging against a backdrop of a robust contango and is encouraging carry trade, where aluminum is bought at a low price and sold at a higher forward price. In other words, the contango is supporting warehouse deals, warehouse deals are encouraging queues and queues are causing premiums to grow.
Soloviev said the problem of queues cannot be resolved in its entirety, and can only be eased.
"Metal costs the same when it comes out of the warehouse. But if you want it right now you have to pay a premium. If you don't want to pay the premium you have to wait and they you can pay the LME price," he said.
CURTAILING CAPACITY
Soloviev said around 30% of the world's smelting capacity was struggling to break even at current prices.
It is crucial for all producers to control supply in these conditions, he said.
"It is important to be responsible from the point of view of what new capacity we are commissioning, how much metal we are putting on the market, so that we can rejuvenate stockpiles. This is improving gradually. Volumes in warehouses are not growing, and consumption is rising, so stockpiles decrease within days," he said.
Global aluminum output is likely to fall approximately 1.5 million tonnes this year, as in 2012, he said.
Rusal also plans to cut output at inefficient smelters, where electricity is costly.
At the end of August, the Rusal board approved a program to cut inefficient capacity, shutting 7% of its capacity, or 275,000 tonnes of primary aluminum by 2018. It was expected that up to 150,000 tonnes of the capacity could be decreased by the end of 2012 with the remainder to be gradually decreased in stages by 2015 and 2018. Four smelters would be affected: Bogoslovsk aluminium smelter (BAZ), Volkhov aluminium smelter (VAZ), Nadvoitsy aluminium smelter (NAZ) and pot rooms 3 and 4 of Phase 1 of Novokuznetsk aluminium smelter (NkAZ). But Rusal cannot always do this without the state's approval as it needs to preserve jobs at mono-towns.
Rusal will preserve a sixth potline at BAZ. Soloviev said the first to fourth potlines had almost been decommissioned.
"Nadvoitsy and Volkhov are the next important target for us," Soloviev said, adding that the company had not yet reached agreements with the authorities on closures there.
Rusal is in active talks with the federal and regional governments to ensure that the cuts at these smelters do not affect employees.
Sergei Belsky, Rusal's Russia and CIS sales manager, has said the company hoped in H1 2013 to sign documents on the creation of a joint venture to produce automobile components in Russia, possibly near St Petersburg, where the Volkhov smelter is located.
"Phase 1 of NKAZ - we're also looking at a program to see how we can decommission this gradually, we have this written down in an agreement with the Kemervo region," Soloviev said.
The company is optimizing production volumes at the Uralsky and Volgograd smelters, which are also affected by high electricity tariffs.
"We'll carry our program out very accurately, and we'll see some cutbacks this year," Soloviev said.
