MOSCOW, Sept. 1 -- United Co. Rusal, the world's largest aluminum maker, expects prices of the metal to rise from next year as investors flock to newly created funds owning the metal and demand from industry improves.

Rusal, which beat analyst forecasts for second-quarter profit today, will be able to sell aluminum to the exchange- traded funds from January, Oleg Mukhamedshin, capital markets chief, said in Moscow today. At least one ETF will be set up in 2010, he said. Some funds will list in Hong Kong, he added.

"The new investment products will rely on investor demand, which we estimate at 1 million tons," Mukhamedshin said. Rusal aims to produce 4.1 million metric tons of aluminum in 2010.

The company, controlled by billionaire Oleg Deripaska, swung to second-quarter net income of $1.02 billion, after a $230 million loss a year before, as prices gained faster than costs and the value of a stake in OAO GMK Norilsk Nickel rose, the Moscow-based company said in a statement. The median estimate of five analysts Bloomberg surveyed was for net income of $392 million.

The company restarted plants after aluminum prices rose an average 50 percent in the first half from a year earlier, while higher power costs in China, the biggest producer of the metal, curbed output in the nation. Aluminum prices will be "steady" until the end of this year and grow from 2011, First Deputy Chief Executive Officer Vladislav Soloviev said.

Rising Demand

"The result has far exceeded market expectations," said Helen Lau, a Hong Kong-based analyst at UOB-Kay Hian Ltd. "The unexpected sharp increase in gross margin showed that Rusal's profit is highly geared to aluminum prices and immune from rising energy costs."

Rusal rose 2 percent to HK$7.80 at the 4 p.m. close of Hong Kong trading. The company today announced plans to offer investors Moscow-traded Russian depository receipts by the end of 2010 and said it would cut the board lot size of shares in Hong Kong to 6,000 from 24,000 on Oct 4.

Russian demand will surge 50 percent in 2010, and grow 30 percent next year on demand from machinery, construction and packaging industries, Rusal said. Global aluminum stocks will fall by as much as 5 percent by the end of this year.

The stocks will drop to a "normal" level of 40 days worth of supply, from 60 days now, during 2011 and 2012 as China shuts aging smelters, Maxim Sokov, head of strategy, told reporters in Moscow today. Chinese output may drop by between 1 million and 1.5 million tons annually, Rusal said.

Norilsk Nickel

Inventories of the metal on the London Metal Exchange are near a record high at 4.45 million tons. That's five times the average since 1980 and more than Europe makes in a year. An estimated 60 percent to 65 percent of LME stocks are tied into financing transactions, according to Deutsche Bank AG.

"The on-going profitability of financing transactions may be challenged by rising interest rates and holding costs," Rusal said. "It is expected that improvement in physical demand will absorb any releases from warehouse stocks."

Second-quarter sales jumped 51 percent to $3 billion, while costs of sales gained 4.8 percent, Rusal said. Gross profit margin jumped to 34 percent in the first half, from 8 percent a year ago.

The market value of the company's 25 percent stake in Norilsk Nickel, Russia's biggest mining company, rose to $7.2 billion at the end of June, from $4.5 billion a year earlier. Rusal has received its 2009 Norilsk dividends and plans to use them to repay debt "soon," Mukhamedshin said.

Aluminum Prices

Aluminum on the London Metal Exchange rose to an average of $2,130 a metric ton in the first half, from $1,422 a ton a year ago, the company said.

Rusal cut aluminum cash operating costs 2.3 percent to an average of $1,666 a ton in the second quarter from the first three months, it said. The pace of the cuts can't continue and Rusal will focus on capping cost rises, including through job cuts, Soloviev said, declining to give further details.

The company targets a second-half margin on earnings before interest, tax, depreciation and amortization of 24 percent to 25 percent, in line with the second quarter's 24.9 percent, Soloviev said. This will help cut loan rates further from the current 5.5 percent, Mukhamedshin said.

Rusal appointed Evgeny Kornilov as chief financial officer, replacing Tatiana Soina, who was appointed head of control and internal audit, it said in a separate statement.