Rusal considering closure scenario for number of unprofitable plants amid low prices, 'exchange rate' duties
MOSCOW. Oct 17 (Interfax) - Rusal is considering closure scenarios for a number of unprofitable plants amid low aluminum prices and financial losses from the introduction of the "exchange rate" export duty, a source close to one of the company's creditors told Interfax.
At current prices on the aluminum exchange, the shutdown of unprofitable production facilities is inevitable, he believes. Rusal has does not commented on the possibility of closing a number of its plants.
A spokesperson for SUAL Partners, which controls 25.72% of the aluminum company, said that "UC Rusal has not notified shareholders of its plans".
The most vulnerable in Rusal's structure are the Kandalaksha, Volgograd and Novokuznetsk aluminum smelters, whose costs are higher than is average for the group, Dmitry Kazakov, an analyst at BCS, said. Their capacities are designed to produce 500,000 tonnes of the total 4.2 million tonnes (in 2022 Rusal produced 3.83 million tonnes of aluminum).
On the one hand, the weak ruble compensates Rusal for the decline in aluminum prices, but on the other hand, the company has to cover a significant part of its alumina needs via imports, Kazakov said. Last year, Rusal lost access to the Nikolaev alumina refinery and alumina supplies from Australia - these sources together accounted for about 40% of alumina consumption. Rusal's plants in the European and West Siberian parts of Russia, which used to operate on alumina from Nikolaev, switched to imported sources with expensive logistics.
Expensive imports are hindering the growth of profitability and its level at the half-year mark - 8% - is the weakest in the sector. This is an average profit margin, but smelters in the European part of the country and in the Urals, far from Siberian hydroelectric power plants with their cheap electricity, actually have lower margins.
Costs in the aluminum segment at the end of the half-year were at $2,300/tonne, and the average aluminum price on the LME was $2,331/tonne (plus an average premium of $200), which means that almost all of Rusal's profit was generated from the premium, Kazakov said.
According to analysts' estimates, the exchange rate duty will deprive Rusal of a quarter to a third of EBITDA, increasing the ratio of net debt to EBITDA to 13-14x. This is happening amid capex growth (last year it reached $1.24 billion, up 4%).
The company cannot suspend investments in the modernization of the smelters due to possible turnover penalties under the Clean Air Program, the Association of Aluminum Producers, Suppliers and Consumers told Interfax. The program for modernization of four Siberian aluminum smelters in 2021 was estimated at 385 billion rubles (the federal budget provides state guarantees totaling 329 billion rubles to implement the program).
Rusal has often raised the issue of mothballing some capacities, mainly the former plants of SUAL, which became part of the merged company in 2007. In 2021, the company cited losses of "hundreds of millions of dollars" due to the introduction of an export duty on metals (effective from August to December 2021). The duty was prompted by excess profits of steelmakers amid high prices for their products. Current aluminum prices are 12% below the average level of 2021, and furthermore, Rusal is not receiving dividends from Nornickel this year.
Rusal's largest creditors are Sberbank , which had a loan balance of 17.9 billion rubles in H1 2022 (the loan is secured by Nornickel shares), VTB and GPB, which lent Rusal up to 45 billion rubles for the construction of the Taishet aluminum smelter. The rate on the loans is linked to the Central Bank's key rate. The company's net debt at the end of H1 was $6.29 billion, while net debt to EBITDA stood at 12x.
