According to an Interfax report, Rusal is mulling over the shutdown of several plants that are currently not profitable, as reported by a source close to one of the company’s creditors. The situation stems from the low aluminum prices and substantial financial losses following the implementation of a new export duty based on exchange rates.
The pressure of persistently low market prices for aluminum necessitates the closure of production facilities that aren’t financially viable. The plants in the spotlight for potential shutdown include the Kandalaksha, Volgograd, and Novokuznetsk aluminum smelters. These particular sites, with operational costs surpassing Rusal’s average, contribute around 500,000 tons to Rusal’s total annual production of 3.83 million tons.
While a depreciating ruble somewhat offsets the negative impact of falling aluminum prices for Rusal, the company faces another challenge: covering a considerable portion of its alumina requirements through imports. This necessity arose after Rusal’s disconnection from the Nikolaev alumina refinery and supplies from Australia, which previously covered approximately 40% of its alumina usage. The shift to more expensive, imported sources has significantly inflated operational costs.
These costly imports are a substantial barrier to profitability, with Rusal’s margins currently sitting at a sector-low of 8%. This figure is an average across its operations; however, plants located in the European part of Russia, far from the cost-effective electricity of Siberian hydroelectric stations, are experiencing even tighter margins.
Complicating the financial landscape is the fact that Rusal is unable to cut back on investment in plant modernizations. Compliance with environmental standards and potential penalties associated with the Clean Air Program mandates continuous investment. These ongoing commitments are creating additional financial strain, as confirmed by the Association of Producers, Suppliers, and Consumers of Aluminum.
You may also be interested: “Gold and Copper Prices Stumble Amid Strong Dollar and Rising Inventories”