United Co. Rusal (486), the world’s largest aluminum producer, swung to a profit for the first time in five quarters as aluminum prices and premiums rose.
Net income was $116 million for the three months ended June 30, compared with a loss of $325 million in the first quarter, Moscow-based Rusal said today in a statement.
Adjusted earnings before interest, tax, depreciation and amortization rose 27 percent to $220 million, missing the $258.7 million average estimate of six analysts surveyed by Bloomberg. Revenue climbed 6.5 percent to $2.26 billion. Analysts compare quarter-on-quarter results rather than year-earlier figures to track performance amid market volatility.
“In the first half of 2014 we witnessed some important trends which signaled that the global aluminum industry has turned a corner,” Chief Executive Officer Oleg Deripaska said in the statement. “Crucially, the positive price momentum is supported by strong market fundamentals.”
The average price for aluminum for three-month delivery gained almost 5 percent on the London Metal Exchange in the second quarter from the first quarter amid a supply deficit outside China. European aluminum premiums, which buyers pay for swift delivery, rose about 17 percent in the quarter.
“The company posted Ebitda that’s 6 percent higher than our forecast,” Dmitry Kolomytsyn, a Morgan Stanley analyst, said by phone from Moscow. “Still, it missed the average estimate as it sells metal at some distance from actual LME price, while some of the forecasts were based on actual LME aluminum pricing.” Kolomytsyn sees the results as neutral.
Aluminum can sustain the price gains of this year for the rest of 2014 because of an increase in canceled warrants on LME warehouses, which are “typically consistent with physical market tightness and strong demand,” Steve Hodgson, Rusal’s head of sales, told reporters today on a call. In addition, the price is buoyed by rising investor interest and “growing regional deficits in all the major markets” that will also support a continued increase in premiums, he said.
Rusal is offering a $460 a metric ton premium for Japanese buyers for the three months from October to December, for example, because of the supply situation in North Asia, Hodgson said. Buyers in Asia’s largest aluminum-importing nation are paying $400 a ton to $408 a ton in the current quarter.
Rusal said the aluminum market, excluding China, had a deficit of 600,000 tons at the end of the half. That may grow to 1.5 million tons by the end of 2014, the company said.
Global demand is expected to grow by a compounded annual average of 5 percent through 2018, when use of the metal could reach 66 million tons, compared with 52 million tons last year, as carmakers swap out steel for the lightweight metal, he said.
Meanwhile, about 6 million tons of capacity has closed since 2007 outside of China, with 60 percent of that likely never to restart and the rest held back from re-opening because of a shortage of power and raw materials, or high labor costs, Hodgson said. “We’re not forecasting smelter restarts in any jurisdiction any time soon,” he said.
Alcoa Inc. (AA), the largest U.S. aluminum producer, reported better-than-expected quarterly profit on its smelting business.
Rusal expects to post more than $600 million in Ebitda for the second half based on current aluminum prices, first deputy CEO Vladislav Soloviev said today.
Net debt was $10.6 billion as of June 30, up from $10.1 billion on Dec. 31. The producer said Aug. 21 that it completed a deal to merge loans, allowing it to refinance $3.55 billion of debt. The refinancing raised the average maturity on debt to 4.4 years from 2 years, the company said.
It also allowed Rusal to defer payments in case of “unstable market conditions,” and return less cash to lenders when aluminum prices are low and more when they’re high, according to Oleg Mukhamedshin, director of strategy.
Rusal is benefiting from the weakening ruble as 66 percent of costs from making aluminum are denominated in the currency, Chief Financial Officer Alexandra Bouriko said on the call. Its shares slid 0.5 percent to HK$3.95 in Hong Kong trading.