Rusal Returns to Profit From Loss on Higher Aluminum Prices, Norilsk Stake

LONDON, Aug. 31 -- United Co. Rusal, the world’s largest aluminum producer, rebounded to a better-than-expected profit in the second quarter as prices climbed faster than costs, and the value of its stake OAO GMK Norilsk Nickel increased.

Net income was $1.02 billion for the three months ended June 30, or 7 cents a share, compared with a loss of $230 million, or 2 cents, a year earlier, the Moscow-based company said in its statement. The median estimate of five analysts surveyed by Bloomberg News was for a net income of $392 million.

Rusal, controlled by billionaire Oleg Deripaska, restarted plants after prices jumped an average 50 percent in the first half from a year ago and global demand rose. Higher power costs in China, the biggest producer of the metal, is curbing output in the nation, according to rival Aluminum Corp. of China Ltd.

"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 related to aluminum prices and immune from rising energy costs.”

Rusal rose 0.7 percent to HK$7.65 yesterday in Hong Kong trading, down 29 percent since its debut on Jan. 27. The company sold shares for HK$10.80 each, raising $2.24 billion to pare debt. Aluminum Corp., the biggest producer in China, has fallen 22 percent in the same time period.

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

Costs Support

“While volatility is likely to persist in the short term, aluminum is expected to outperform other base metals due to fundamental price support from marginal costs,” Deripaska said in the statement. “These results reflect the significant improvements in our operational efficiency including the impact of various cost-saving initiatives and productivity enhancement programs.”

The company today announced plans to sell Russian depository receipts by the end of 2010, and also said it will cut the board lot size of shares traded in Hong Kong to 6,000 shares from 24,000 shares from Oct 4.

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 for the same period a year ago.

Rising 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, Rusal said. Demand in China, the world’s biggest consumer of the metal used in planes and window frames, may grow 20 percent this year, and demand in Russia will grow 50 percent, Rusal said today.

Rusal posted a first-half profit of $1.27 billion, reversing a loss of $868 million from a year ago.

Aluminum production rose 1 percent to 2 million tons in the first half from a year ago, while second-quarter output rose 5 percent from the first quarter, Rusal said. Output of alumina, a semi-finished material used to make the metal, fell 1 percent to 3.7 million tons from a year ago in the first half.

“Second-quarter production of aluminum and alumina both increased from the first quarter, showing that the company stands in a stable position to meet full year target,” UOB-Kay Hian’s Lau said.

The Russian metal producer is planning to raise aluminum production by 3 percent for the year. Output of alumina will increase by 11 percent, the company said April 12.