LONDON United Co Rusal is taking the traditionally quiet summer months to finalize its plan to shut at least 300,000 tonnes of aluminum capacity this year, with the companys recently upgraded Division West smelters in Russia slated for closure in the fourth quarter.
"Were looking at the closure plan for next year. It will include most of the western Russian smelters, depending on local governments," a source at the Moscow-based company said.
Division West is capable of producing more than 300,000 tonnes per year of aluminum, mostly in the form of foundry alloys, following a $55 million investment program last year to convert much of the capacity to the manufacture of semi-products.
Rusal said in May last year that it was considering idling up to 600,000 tonnes per year of aluminum production after a 65-percent slump in first quarter core earnings, before revising that figure downward later in the year. Last March it said it planned to cut 300,000 tonnes per year after reporting a slump in earnings for 2012 (amm.com, Mar. 4).
Between May 2012 and May 2013, Rusal cut just 42,000 tonnes per year of aluminum production capacity.
In the past few weeks, however, there have been indications that Rusal is now much more committed to slashing production volumes than in 2012. The company has been buying primary metal to cover potential supply shortfalls to its contract customers, and has started offering to the market alumina shipments that it will no longer need in its smelters.
"The company is more firm on moving capacity out at higher cost locations," the source said. "Capacity cuts of 300,000 to 350,000 tonnes per year will be achieved before the end of this year, starting in September."
While the London Metal Exchanges announcement of new warehouse load-out rates next year has prompted a decline in aluminum premiums (amm.com, July 1), it is low LME prices that have prompted Rusals new focus on capacity closures.
"Our view is that a lot more capacity needs to be taken out of the market," the source said.
The source added that some Division West capacity may be maintained to feed existing supply contracts.
"Well see what it does to our contracts. We may need to maintain some capacity to fulfil them," he said.