Rusal Q4 profits hit by US sanctions but aluminium production stable

Aluminium producer UC Rusal’s profits from aluminium sales in the fourth quarter of 2018 were down by 16% year on year because the company was operating under trading sanctions imposed by the United States, according to an earnings statement published on Friday February 8.

Rusal’s aluminium production in October-December totaled 943,000 tonnes, up by 0.4% quarter on quarter. Smelters in Siberia contributed 93% of the total aluminium output, and the company said that production dynamics remained largely stable throughout the quarter.

Aluminium production globally totaled 3.753 million tonnes in 2018, up by 1.3% year on year.

But aluminium sales fell to 877,000 tonnes in the fourth quarter, down by 16.2% from the previous quarter. Total sales in 2018 decreased by 7.2% year on year to 3.671 million tonnes.

“The company was operating under the sanctions for the majority of 2018. These circumstances, coupled with other factors… led to certain changes [in] operational performance,” Rusal said.

The sanctions on Rusal were imposed by the Office of Foreign Assets Control (OFAC), part of the US Treasury Department, on April 6, 2018. On January 27 this year, OFAC removed the sanctions, which had been in place for nearly 10 months.

The imposition of the sanctions created uncertainty in the aluminium sector and kept a sizable volume of material out of the market. This pushed the Rotterdam duty-unpaid premium up to $150-165 per tonne in April 2018, a level last seen in 2015. The premium has since eased and was most recently assessed at $70-80 per tonne on February 7. 

Fourth-quarter sales of value-added products, such as aluminium billet and foundry, fell to 333,000 tonnes, down by 32.4% quarter on quarter.

“In general, the aluminium market is in heavy deficit and demand is likely to improve. The aluminium price has upside potential,” Rusal said in the earnings report.

“Aluminium continues to be challenged by supply disruptions and soaring production costs. Based on the current [London Metal Exchange] price, and data on average market premiums, around 50% of aluminum production facilities outside of China and 60% of those in China are loss-making,” it added.

The LME benchmark three-month aluminium price was most recently trading at $1,898.50 per tonne, it has not traded above $2,000 per tonne since early November.

In alumina, total production decreased by 2.1% quarter on quarter to 1.958 million tonnes in the fourth quarter. Russian operations contributed 34% of the total output.

“In June 2018, the company restarted operations at the Friguia alumina refinery in Guinea,” Rusal said. “As a result, despite various factors, including abnormal weather conditions that affected the operational performance of [West Indies Alumina Co] Windalco capacities, overall alumina production in 2018 remained similar to 2017, at 7.774 million tonnes.”

Windalco is a joint venture between Rusal and the government of Jamaica, and mines bauxite in the Caribbean nation.

Bauxite production decreased by 3.4% in the fourth quarter compared with July-September, down to 3.719 million tonnes.