Production costs soar at Rusal due to Russia-Ukraine conflict By Reuters


© Reuters. FILE PHOTO: Aluminium ingots are seen stored at the foundry shop of the Rusal Krasnoyarsk aluminium smelter in Krasnoyarsk, Russia October 3, 2018. REUTERS/Ilya Naymushin/File Photo

MOSCOW (Reuters) – Russian aluminium giant Rusal reported a 33% jump in first-half production costs on Friday, hit by a production halt at a refinery in Ukraine and Australia’s ban on exports of alumina and bauxite to Russia.

The world’s largest aluminium producer outside China has been suffering these problems since March, shortly after Moscow sent troops into Ukraine prompting waves of Western sanctions on the Russian economy.

The company said aluminium production costs jumped to $2,028 per tonne in the six months to the end of June.

“The ban on alumina exports to Russia imposed by the Australian government, as well as the suspension of production at the Nikolaiev [Mykolaiv] Alumina (OTC:) Refinery due to the events in Ukraine, negatively affected the supply of raw materials for aluminium production and led to an increase in costs,” Rusal said in a statement.

It did not say who replaced supplies of raw materials from Australia and Ukraine. It reported a 37.4% increase in first-half earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.8 billion amid higher aluminium prices.

“The company is forced to rebuild its supply chains,” Rusal, which sells its products to Europe, Russia, Asia and North America, said.

Its sales of primary aluminium fell by 11.9% to 1.76 million tonnes, while production rose by 1.2% to 1.89 million tonnes.

Apart from Russia and Ukraine, Rusal operates in Guinea, Jamaica, Ireland, Italy and Sweden. Its largest shareholder, En+, said in March it was considering carving out Rusal’s international business.

“Rusal’s prospects for the second half of the year are not very bright as of yet,” analysts at BCS said in a note.

“Aluminium prices have fallen sharply recently and the rouble currency [RU/RUB] has strengthened, putting additional pressure on profitability,” BCS added.

Still, Rusal shares rose 1.6% in Hong Kong.

The company made no mention of potential developments with its 26% stake in Russian mining giant Nornickel. Nornickel’s larger shareholder, Vladimir Potanin, said in July he was ready to discuss a possible merger between Rusal and Nornickel to strengthen their defence against any possible sanctions.

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