Rusal Sees Aluminum Market Deficit Erased on Chinese Exports

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United Co. Rusal, the world’s largest aluminum producer, said increasing Chinese exports may eliminate a market deficit of the metal this year.

“Rusal doesn’t see the aluminum market in deficit this year after April,” Chief Executive Officer Vladislav Soloviev said to reporters on Wednesday, after the Moscow-based company reviewed its forecast. “There is a possibility that China will cover the whole deficit on the market this year, although we don’t see a metal surplus either.”

The average price for the metal used in cars, airplanes and drink cans dropped in the first quarter from the preceding three months on concern over a supply glut this year. Rusal said on April 27 that it was keeping its forecast deficit, excluding China, at about 1 million metric tons as new supplies are slow to start up.

In March, China exported about 300,000 tons of semi-finished products, which are refined to make aluminum products, Soloviev said. In April, China probably exported 430,000 tons, meaning full-year shipments from the country may total about 5 million tons, he said. That may be enough to cover the deficit, according to Soloviev.

Alcoa Inc., the largest U.S. aluminum producer, said in April that it expects global production to exceed demand by 326,000 tons this year, compared with its January forecast for a deficit of 38,000 tons.

Premiums Decline

Aluminum premiums, a sum paid by buyers for faster delivery, have declined by an average of 20 percent this year as the metal becomes less attractive as a financial investment and stockpiles are sold, Soloviev said.

“Nobody expected such a quick decline,” he said. The company “hopes premiums will reach a floor in May.”

Rusal hopes to see the London Metal Exchange aluminum price at about $1,900 to $1,950 per ton by the end of the year, down from a previous forecast of $2,000, according to the CEO.

The company posted an 11 percent increase in first-quarter profit on Wednesday.

“Our good results for the first quarter are intermediate and do not reflect the difficult market situation, which is similar to the beginning of 2014,” Soloviev said. The market is changing rapidly and it’s “hard to say when the company will have an opportunity to pay dividends,” he said.

Ruble strengthening plays against Rusal as it exports the metal, while the cost of production is under pressure, according to Soloviev.

“Electricity tariffs in Siberia may go up by as much as 20 percent this year,” he said.

Rusal shares rose 2.1 percent to HK$4.79 in Hong Kong after the company reported first-quarter results.