Rusal could reduce exports, mothball some production due to export duty
MOSCOW. July 21 (Interfax) - The introduction of export duties this year will make some of Rusal's export supplies unprofitable and may force the company to mothball a number of low-margin assets, Rusal's deputy general director for sales in Russia, CIS and China Roman Andryushin told reporters.
"Due to the introduction of the duty, we may reduce export sales this year because some of the products will become unprofitable. According to our estimates, we're talking about hundreds of thousands of tons. We may have to think about mothballing some types of production, some of which are already operating on the verge of profitability," he said.
"If we don't produce these products, then, naturally, some plants will not operate at full capacity with the corresponding consequences," he said.
The timeframe for launching the Taishet aluminum smelter could also be reconsidered, the top manager said. Deliveries of metal from the first stage of Taishet should start this year, with the decision on the second stage of Taishet planned for next year.
For most long-term contracts, Rusal will not be able to include the duty in the price, and where it is possible, market conditions may not allow it, because Rusal, although large, is not the only market participant (12-13% of the market outside China), Andryushin said.
"Rusal produces about 4 million tons of primary aluminum and alloys a year, of which it exports 2.8 million tons. Rusal estimates losses from introduction of export duties at hundreds of millions of dollars, said the deputy head.
The export duty prevents the company from implementing the program for modernization of Siberian plants, which is estimated at about 380 billion rubles, he said. "Under these conditions, levying such significant amounts of money on us through the duty may seriously affect the implementation of investment projects," Andryushin said.
Rusal considers the application of the export duty to aluminum unfair. "Unfortunately we were struck by the ricochet during the general movement to force market participants to lower prices. We saw an explosive growth of prices in rebar and rolled steel, but we didn't participate in this price race," Andryushin said.
The company simply cannot drastically increase prices on the domestic market, as it operates within the framework of the order issued by the Federal Antimonopoly Service in 2013, which limits pricing actions. Rusal reports to the FAS on its domestic market prices on a monthly basis.
In addition, Rusal allowed customers within the Russian Federation to fix prices under long-term agreements and use market hedging instruments to manage price risks, said the deputy head of the company.
Furthermore, Rusal allowed customers inside Russia to fix prices under long-term agreements and use market hedging instruments to manage price risks, the executive said.
"That's why the decision to introduce the export duty was doubly unexpected for us because Rusal does not have any windfall now, especially in the domestic market, where we do not just sell aluminum, but create products with high added value together with our partners. We create products that were simply not available in our country: train cars, helicopter platforms, lighting supports, sound shields, bridges, etc.," he said.
"If the plan was to take windfall profits off the table, the price of aluminum, for example, is now not at its peak for the historical stretch. The price is now at 10-year averages, and the average cost of production is now much higher than it was. The scissors have cut the average margin," Andryushin emphasized. Aluminum does not represent such a large share in the cost of construction, he also said.