Metals News
UPDATE 2-RUSAL Eyes Major Chinese Aluminium Deals
industry news
Mar 9,2010

MOSCOW/LONDON, Mar. 9 -- UC RUSAL, the world's largest aluminium producer, plans to secure between five and eight major Chinese buyers on long-term contracts to carve a larger share of the world's biggest market for the metal.

UC RUSAL, fresh from Russia's biggest-ever private sector debt restructuring, also plans to restart 100,000 tonnes of idle capacity by the end of the first quarter as global consumption enters the second phase of recovery, a senior official said.

"Large Chinese companies represent a very interesting customer segment, and that is where we would like to focus our efforts," Artyom Volynets, RUSAL's deputy chief executive for strategy, said at the Reuters Global Mining and Steel Summit.

UC RUSAL, whose largest shareholder is Russian billionaire Oleg Deripaska, is seeking a bigger share of a Chinese market where per capita aluminium consumption has doubled to 10 kg a year in the last five years, versus 20-25 kg in western Europe.

The company struck a deal in November to sell 1.68 million tonnes of aluminium to Chinese state conglomerate NORINCO over seven years.

"We are in discussions with several similar-sized corporations, which will hopefully be buying from us at the same levels," Volynets said on Monday. "Our goal is to sign five to eight similar customers over the next three to five years."

Demand for aluminium, used in transport, construction and packaging, was rising as the global economy enters its second wave of recovery, Volynets said.

In China, demand could rise about 20 percent this year from the 15 million tonnes consumed in 2009. India, with annual per capita consumption of 1.8 kg, was also a growth market, he said.

UC RUSAL has capacity to produce 4.6 million tonnes a year of aluminium and produced about 3.9 million last year. About 100,000 tonnes of idle capacity, in Siberia, Sweden and Nigeria, would be operational by the end of the first quarter, he said.

"The other 500,000 tonnes can also be added. It is also profitable at today's aluminium prices, but we are not in a hurry to do that," he said. "We'll review plans for this idle capacity every quarter."

Though aluminium stocks in London Metal Exchange warehouses are near record highs in excess of 4.5 million tonnes, Volynets said supply was tighter than it might appear.

"A very significant proportion of those inventories are still locked into long-term financial deals: 60 or 70 percent," he said. "These were two- to three-year deals, so they are not yet up for renewal.

"It's inventories in Asia that matter for the global market. In Japanese ports, in South Korean ports, they are done to a single day's consumption and that has pushed up premiums."


Volynets said RUSAL sold approximately 10 percent of its annual output to Glencore, the commodity trading giant that owns a stake in the Russian aluminium firm. "In a typical year, we sell roughly 10 percent to them," he said.

"Having them as a shareholder gives us a very interesting insight beyond aluminium ... It helps us to understand the bigger picture."

RUSAL, which raised over $2 billion in a Hong Kong share float in January, could potentially consider issuing convertible bonds at the suggestion of investors during the IPO roadshow.

Volynets stressed that the issue had not been discussed and that the company had no immediate need to convert or attract loans as it had agreed the terms of its debt restructuring.

"Now we have some free time, perhaps we should sit down and think about it," he said. "No thinking has been done. No decision has been made. It's something for us to consider, it's interesting and dependent on market conditions."

Volynets said RUSAL had no plans to sell its 25 percent stake in Russia's Norilsk Nickel, the world's largest producer of nickel and palladium, as it preferred to keep its exposure to other metals.

"We could have sold that stake last year and paid off half of our debt, and we wouldn't have needed to go into debt restructuring. But we didn't," he said.

"We could probably sell it a year from now and pay off all of our debt, but that is not what we are going to do."

He said the entire global aluminium industry, worth $100 billion, was still less than the market capitalisation of BHP Billiton, the world's largest miner.

"Unless you are in oil or, to a lesser extent, steel, you cannot build a big balance sheet on one commodity ... If you want to compete on a global scale, that's the type of company one needs to be thinking of building."



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