UC RUSAL to Decide on Cuts After Russia Sets Tariffs

Reuters cited Mr Oleg Deripaska CEO of UC RUSAL as saying that the company will decide on the scale of planned capacity cuts once Russia details tariff increases delayed by the country's elections.

Mr Deripaska said that aluminium producers have been badly hit by soaring power and other costs, forcing major producers including US based Alcoa Inc to slash capacity in an effort to counter a supply glut and weak prices. A quarter of global production was operating at a loss.

RUSAL said earlier this year it could cut its aluminium output by up to 6 percent, but has not yet detailed the cuts, pending increases in energy and other tariffs expected in July after months of freezes as price increases were kept on hold while Russians voted.

Mr Deripaska said that "They have no other option but to create a clear policy by July 1st 2012 and based on that we will see. We have two risk zones, the northwest and the Urals where the power tariff is too high for us to run. Based on that, we will finalize a plan of shutdowns, which will be between 300,000 tonnes and 600,000 tonnes and it will be a permanent shutdown."

He said that the cuts would be made over 18 months given social aspects but said RUSAL had already made progress in talks with local government. Aluminium prices are almost 40% below record highs hit in the summer of 2008 but expected the strength of demand to act as a floor.

Mr Deripaska said that "We believe the high physical demand creates enough incentive for the price to move up, as soon as the worries come out of the markets Spain, Europe in general, China. We can't see the China slowdown. Our people are in China every day and we just can't see it confirming RUSAL's view that the aluminium price would trade in a range between USD 2,200 tonnes and USD 2,400 per tonne. Three month aluminium on the London Metal Exchange is trading at around USD 2,083 per tonne.”

Mr Deripaska whose holding company En+ owns 47.4% of RUSAL, is at loggerheads with minority shareholders led by former chairman Mr Viktor Vekselberg over Mr Deripaska's refusal to sell the company's stake in miner Norilsk Nickel. RUSAL bought a quarter stake in Norilsk at the top of the market in 2008 for an estimated USD 14 billion but Mr Deripaska's hopes of merging the two firms were dashed by the crisis.

Mr Deripaska said that he would discuss buying out Mr Vekselberg's stake in RUSAL but he said that the former chairman did not want to sell. RUSAL had had a lot of discussion on its stake in Norilsk, the world's largest nickel and palladium producer but the plan was to remain invested in the company.

He said that there is a mutual understanding there should be no more buybacks at Norilsk because it destroys shareholder value. It will be a normal practice of dividends and a proper investment program.