

(Posted on 31/07/19)
Rusal, a leading global aluminium producer, has announced its operating results for the second quarter 2019.
Aluminium
? Aluminium production[2] in 2Q19 totaled 938 thousand tonnes (+1.0% quarter-on-quarter (“QoQ”)), with Siberian smelters representing 93% of total aluminium output;
? In 2Q19, aluminium sales amounted to 1,082 thousand tonnes (+20.8% QoQ). This increase is due to the partial sell down of surplus inventories of primary aluminum that were accumulated by the end of 2018 as a result of OFAC[3] Sanctions[4]. During the period, sales of value added products (VAP[5]) increased to 414 thousand tonnes (+59.9% QoQ) as a result of the planned gradual recovery of VAP share in total sales mix to 38% in 2Q19, compared to 29% in 1Q19;
? In 2Q19, the average aluminium realized price[6] marginally increased by 1.1% QoQ to USD1,970/t. The decrease of the London Metal Exchange (“LME”) QP[7] component (-1.4% QoQ to USD1,824/t) was compensated by an increase of average realized premium component (+46.2% QoQ to USD146/t). The growth of premiums during 2Q19 is primarily attributed to the increase of VAP share in product sales mix.
Alumina
? In 2Q19, total alumina production marginally decreased by 0.7% QoQ, to 1,918 thousand tonnes. The Company’s Russian operations accounted for 36% of the total output.
Bauxite and nepheline ore
? In 2Q19, bauxite production increased by 10.7% QoQ, to 4,242 thousand tonnes, primarily as a result of seasonal accumulation of inventories on North Urals and Timan mines. Nepheline production increased by 13.4% QoQ, to 1,144 thousand tonnes due to increased demand for nepheline from the Achinsk alumina refinery.
Market overview[8]
? Trade tensions between China and the U.S. continue to cause uncertainty in the market, suppressing economic growth. While 1Q19 saw some optimism in the aluminium market, reflected in a slight improvement in growth, 2Q19 was disappointing and led to a deterioration in aluminium demand. Global primary aluminium demand demonstrated 1% growth in 1H19 YoY, up to 33 million tonnes (ex-China it was almost flat at 15 million tonnes and in China it was up by 1.4% YoY, to 18 million tonnes). Coupled with currently experienced global contraction of manufacturing activity (JP Morgan Global Manufacturing PMI fell from 49.8 in May to 49.4 in June, which is the lowest index in more than 6 years)[9] we are concerned that overall macroeconomic situation will negatively affect aluminium demand in 2H19.
? Global aluminium production in 1H19 grew by 1% to 31.9 million tonnes including RoW growth of 1.4% YoY to 13.9 million tonnes and an increase in China of 0.4% YoY to 18 million tonnes. Overall, the global market was in a deficit of 1.1 million tonnes during 1H19.
? Looking at the cash cost curve, today in RoW still around 12% of smelters operate at a loss despite a decline in cost of alumina and carbon materials. Approximately 3.4 million tonnes of capacity outside of China operates with costs above current prices including around 1.5 million tonnes of independent non-integrated plants.
? Operating capacity growth in China during 1H19 was insignificant, and now its overall capacity stands at 36.6 million tonnes, almost at the same level as at end of 2018. Around 1.1 million tonnes of capacity remains closed due to low prices and new capacity is ramping up at a slower pace.
? In 1H19 aluminum inventories at LME warehouses dropped below 1 million tonnes, demonstrating a decline of 284 thousand tonnes compared to the beginning of 2019. LME live warrants remain at the level of 640 thousand tonnes. Chinese regional stocks continued their strong decline in June 2019 and fell in total by 235 thousand tonnes during 1H19 to 1.05 million tonnes.
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