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Rusal decides not to close plants with capacity of 200,000 tonnes of aluminum per year

June 20, 2016, 16:46 UTC+3 MOSCOW

However, it may happen in case of a decline of aluminum prices below $1,500 per tonne

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© Anatoly Kuzyarin/ITAR-TASS

MOSCOW, June 20. /TASS/. Rusal will not close two aluminum plants at current metal, the company’s CEO Vladislav Soloviev said on Monday in an interview with TASS.

However, he did not rule out that in the future, with a decline of aluminum prices below $1,500 per tonne the company could get back to the idea of closing plants with a total capacity of 200,000 tonnes of aluminum per year.

"We talked about reducing capacity by 200,000 tonnes of aluminum, meaning two plants - Kandalaksha and Novokuznetsk. Year ago, we said that suspension of capacity at the Kandalaksha plant will depend on contract signing with Rosatom, Novokuznetsk - on the general market situation. We signed Kandalaksha contract, the market situation has improved. But this does not mean that the issue is gone completely, we continue monitoring this companies," Soloviev said.

According to him, if the current price of the metal was below $1,500 per tonne, the company would reduce capacity before the end of the year. However, the current price is at $1,600, the company has a contract with Rosatom and there is no urgent need to close them.

"If, for example, two months later, the price falls to $1,450, I will say it again - the plants will be at risk. As long as the price is above $1,500, they are working. Thus, we are talking about financial model - in today's financial macro-economic conditions there is no need to shut down the plant. In January, even taking into account the contract with Rosatom, this topic was relevant," he said.

Dividends tied to market

According to Soloviev, the company might pay dividends in 2016 with the price of aluminum above $1,600 per tonne.

"The shareholders will decide on dividend payment in September, as usual, after the results of six months and the preliminary results of the Q3. Everything will depend on the metal price and our cash flow. It is difficult to talk about it now. There is also Q3, if the price in this period will be higher than $1,600, we could pay dividends," he noted.

Currently the price of the metal on the London Metal Exchange is at $1,602.5 per tonne.

Last time the company paid dividends last fall. In October 2015, management of Rusal decided to pay interim dividends for 2015 totaling $243 mln (before that the company paid dividends in 2008).

En+ of Oleg Deripaska, which owns 48.13% of Rusal shares, accounted for about $117 mln in the form of interim dividends. Mikhail Prokhorov Onexim (17.02%) received about $41 mln, SUAL Partners of Viktor Vekselberg and Leonid Blavatnik (15.8%) received $38 mln. Amokenga Holdings company (owned by Glencore and owns 8.75% of Rusal) received $21 mln, Rusal management (around 0.26%) - $600,000. A little over 10% of the company’s shares are in free float.

Earlier Rusal said it adopted a new dividend policy whereby dividends will be paid at the rate of 15% of EBITDA.

Rusal to retain debt

Until the end of the year, the company has no plans to attract debt financing. "We received $700 mln due to refinancing, the rest of the debt we will pay using our own funds .This year we are certainly not planning to attract financing," Soloviev said.

At the beginning of 2016, Rusal expected to repay and refinance its debt during the year totaling about $1.3 bln.

The company's net debt as of December 31, 2015, amounted to $8.372 bln.

Negotiations with RusHydro

According to Soloviev, Rusal is negotiating with RusHydro on a possible involvement of the generating company in the completion of the Taishet aluminum smelter in the Irkutsk region with the capacity of up to 750,000 tonnes of aluminum per year.

"We are discussing with RusHydro and ministries a possible participation of the company in the project of Taishet aluminum smelter. We hope that by the end of summer or until the end of July we reach some decision. There are instructions from the President on this subject, we need to perform," he said.

Construction of Taishet plant aluminum smelter in 2007. In November 2013, Rusal froze construction due to low aluminum prices. As of now, Rusal has invested more than $700 mln of his own funds in the construction of the plant. A search for investors for the further construction of the enterprise is in progress.

The China factor

According to the International Aluminium Institute, China has finally started to cut production. In addition, metal production in North America reduced significantly.

"Now it is clear that China at least does not increase production of aluminum. There is no growth of semi-finished products export from China; we even saw a slight decline. Possibly in August-September ther will be import, China itself might need aluminum. We will hope that China is serious about this, and capacities will not grow anymore, which means that the market will slowly restore. I think that China until the end of the year will be in balance, maybe in slight deficit that may result in short-term import," he said.

Speaking about the current pricing environment, Soloviev said that the company currently receives the premium from sale of their products and expects further growth.

"Premiums are on the same level as at the end of last year. Europe - $75 per tonne, Asia - $85 per tonne. I think that now Asia will grow to $100 per tonne, America will have $7.5-8 per tonne. I believe they have reached a more or less stable level - the bottom, almost. Before the end of the year we should see this level shifting by 15-20% up," Soloviev said.

Aluminum Association holds the market

A year ago, the idea of ··creating the Aluminum Association has just been discussed, and at the end of 2015 the association has been created.

"This year we saw growth of consumption of our aluminum in Russia. It is not very significant, but it exists, and this is very important, because in 2014 we saw a drop. I think that by 2020 we will get a result similar to what we have stated - 2 mln tonnes per year - instead of 850,000 tonnes now," Soloviev said.

According to him, this year the company's sales in the Russian aluminum market will grow by 3-5%.

"Without the work of the Aluminum Association it be negative, there is a general contraction of the market by 30%, or about 300,000 tonnes. In 2016 we will lose additional 150,000-200,000 tonnes of aluminum. The total volume of the domestic market is 1.4 mln tonnes, including around 850,000 tonnes of our metal. This year our production will remain at the level of 3.6 mln tonnes," Soloviev added.

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