United Company Rusal, the world’s second-largest aluminium company by primary metal output, has announced a reduction of 6 per cent in production in response to the global alumina price surge, causing skyrocketed production costs. Slow economic progress dampening domestic demand for aluminium is also a reason for Rusal to cut its output.
Image Source: Wall Street Journal
Rusal explicitly said it would reduce its production by 250,000 tonnes annually due to the global alumina price rally buoyed by output suspensions in Australia, the world’s second-largest alumina producer, upon bauxite supply disruptions from Guinea and Brazil, without specifying the timeline when the production cuts would begin and also not naming the smelter that would witness the reduction. The company operates 11 smelters, including one in Sweden.
However, the Russian aluminium giant assured that its production cut would create no job losses. This move is only to mitigate high production costs as alumina prices have doubled over the past months to more than $700 per tonne, whereas aluminium usage in the end-user products has increased by 11 per cent this year.
“As a result, the share of alumina in the cash cost of aluminium increased to over 50% compared to the normal level of 30-35%,” Rusal explained.
Rusal buys over one-third of the alumina needed to produce the primary metal at market prices. In 2023, the company produced 3.85 million tonnes of aluminium or 5.5 per cent of global output.
To offset the shortfall of alumina in the market, Rusal has decided to produce the raw material on its own and is building a new refinery in Russsia’s Leningrad region. In addition, the company has also bought a 30 per cent stake in a Chinese alumina refinery.
The production cut decision could also be due to the challenges it faced when some Western consumers shunned new deals for Russian metal. However, the Hong Kong-listed company was not directly targeted by Western sanctions over the war in Ukraine.
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