5 February 2018

UC RUSAL announces fourth quarter and full year 2017 results

Aluminium

  • Aluminium production[2] in 4Q17 totaled 944 thousand tonnes (+1.4% quarter-on-quarter (“QoQ”)), with Siberian smelters representing 94% of total aluminium output. Total production dynamics remained largely stable with capacity utilization reaching 97%. The production of value added products (VAP[3]) in 4Q17 amounted to 469 thousand tonnes (+9.1% year-on-year (“YoY”)), the company maintains VAP production levels as per its guidance at c.50% of total product mix.

  • In 4Q17, aluminium sales increased (+3.3% QoQ) totaling 1 million tonnes. In 4Q17 sales of VAP stood at 462 thousand tonnes (-3.4% QoQ). The QoQ decline in VAP sales dynamics is largely explained by a skew towards primary aluminium under existing contracts which led to a decline of VAP’s share in total sales to 46%. The Company expects that the sales mix will trend towards the production mix and targets 50-52% share of VAP through 2018 on the back of a solid backlog of end-customer product orders for 2018 and the launch of new VAP capacities.

  • In 4Q17 the average aluminium realized price[4] increased by 6.5% QoQ to USD2,263/t. The increase was due to positive dynamics in London Metal Exchange (“LME”) QP[5] component (+7.1% QoQ to USD2,102/t). The average realized premium component remained almost flat (-0.6% QoQ to USD161/t).

  • In 12M17 aluminium production totaled 3,707 thousand tonnes (+0.6% YoY).

  • In 12M17 aluminium sales increased (+3.6% YoY) totaling 3,955 thousand tonnes. This increase was achieved largely due to an increase in third party aluminium products sales (+91.3% YoY to 169 thousand tonnes).

  • During 12M17 the company as per its strategy continued to grow VAP’s sales, which totaled 1,869 thousand tonnes (+11.4% YoY). The share of VAP’s sales in total sales increased to 47% in 12M17 in comparison with 44% in 12M16.

  • In 12M17 the average aluminium realized price increased by 21.5% YoY to USD2,105/t due to positive dynamics in LME QP component (+23.5% YoY to USD1,942/t). The average realized premium component increased by 2.3% YoY to USD163/t).

 

Alumina

  • In 4Q17, total alumina production increased by 1.3% QoQ, totaling 1,990 thousand tonnes. Russian operations accounted for 36% of the total output. The performance of the Company’s alumina assets was largely in line with the production plan.

  • The continuation of ramping up capacity at Russian (Urals Alumina Refinery) and Ukrainian (Nikolaev) based refineries post the completion of upgrades earlier in 2017 was largely behind the 12M17 YoY production increase of +3.3%, to 7,773 thousand tonnes. 

 

Bauxite and nepheline ore

  • In 4Q17, bauxite production increased by 7.4% QoQ to 2,945 thousand tonnes. This is due to a low comparison base in 3Q17 for mines of Bauxite Company of Guyana, Kindia and North Urals. In 4Q17, nepheline output decreased by 7.4% to 1,041 thousand tonnes, due to seasonal decline in production.

  • In 12M17 bauxite output totaled 11,645 thousand tonnes (-4.4% YoY). The decrease of bauxite production is largely attributed to a decline in output in 3Q17, due to abnormal weather conditions that affected the operational performance of Bauxite Company of Guyana and Windalco as well as scheduled operational equipment care and maintenance works at mines in Kindia and Timan. Nepheline ore output decreased by 2.3% YoY to 4,332 thousand tonnes.

 

Market overview[6]

  • The LME aluminium price increased 30.8% YoY in 2017, reaching USD2,256/t on January 2, 2018, nearly a six-year high, consolidating at c.USD2,200/t as a result of widespread capacity cuts in China and a steady reduction of LME stocks - further evidence of a global market deficit. Rising cost inflation in China made a significant proportion of operating Chinese aluminium capacity barely breakeven by the end of 2017.

  • According to the World Bank estimates, the global economy demonstrated robust growth in 2017, with GDP strengthening from 2.4% in 2016 to 3.0% in 2017. China’s GDP in 2017 accelerated from 6.7% in 2016 to 6.9% according to National Bureau of Statistics. Global manufacturing PMI continued to stay significantly above the 50 level during 2017, rising to 54.5 in December. Manufacturing activity increased in nearly all major economies and consumer confidence stayed at a high level during 2017.

  • The reported aluminium inventories in the world ex-China fell further to ~2.9 million tonnes at the end of 2017, down ~1.0 million tonnes from the level at the end of 2016. The ratio of inventories to aluminium consumption continued to decline at a steady rate during 2017 and fell to ~36 days at the end of 2017 as compared to ~51 days at the end of 2016.

  • UC RUSAL preliminary estimates show that global aluminium demand grew by 6% YoY in 2017 to 64 million tonnes as a result of strong demand across all geographical regions. Robust demand growth left the global aluminium market balance in a deficit of around 1 million tonnes in 2017.

  • UC RUSAL estimated demand for aluminium in China in 2017 grew by 7.8% to 34.9 million tonnes compared to 32.4 million tonnes a year ago. Ex-China demand grew by 3.7% to 29.2 million tonnes for the same period.

  • There is strong evidence of the implementation of Supply Side reform in the Chinese aluminium industry in 2017 with more than 10 million tonnes of illegal operating and project capacity cuts. As a result, according to Aladdiny data, annualized Chinese aluminium production in November 2017 has dropped to 35.4 million tonnes from its maximum of 38.6 million tonnes in July of 2017. 

  • The announcement by the Chinese regulator regarding winter capacity cuts, which has now been implemented, will result in annualized production losses of approximately 1 million tonnes of metal, and 4.4 million tonnes of alumina, according to UC RUSAL estimates. Larger losses may take place in the carbon material supply chain, including anodes and coking coal, which would exert upward pressure on the costs base of aluminium producers due to increasing raw material prices.

  • China continues to focus on implementing strong anti-pollution controls and environmental measures on energy intensive industries and intends to further cap and reduce CO2 emissions. Starting this year, Chinese aluminium smelters will start paying environmental tax, potentially increasing production costs by 70-100 RMB/tonne for big producers.

  • In addition to Chinese domestic regulatory measures, Chinese semis exports stay under significant pressure from international anti-dumping initiatives and there have been recent announcements calling for further investigations under Section 232 of the Trade Expansion Act of 1962 of the US, alongside the possible introduction of new duties on Chinese semis exported to the US. This could result in a continued drop of exports of Chinese flat rolled products and other aluminium semis products to United States, the second largest Chinese semis consuming market.

 

Key operating data[7]

(‘000 tonnes)

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

 

 

 

 

 

 

 

Aluminium

944

931

1.4%

3,707

3,685

0.6%

Utilisation rate

97%

95%

 

96%

95%

 

Aluminium foil and packaging products

26.1

25.5

2.1%

100.7

84.7

18.9%

Alumina

1,990

1,965

1.3%

7,773

7,527

3.3%

Bauxite

2,945

2,742

7.4%

11,645

12,187

-4.4%

Nepheline

1,041

1,125

-7.4%

4,332

4,432

-2.3%

 

Sales data

(‘000 tonnes)

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

 

 

 

 

 

 

 

Aluminium sales, including

1,000

968

3.3%

3,955

3,818

3.6%

BOAZ aluminium product sales

39

37

6.7%

147

140

5.1%

other third party aluminium products sales

41.6

41.5

0.1%

169

88

91.3%

Aluminium realised price, USD/ tonne

2,263

2,124

6.5%

2,105

1,732

21.5%

LME QP component

2,102

1,962

7.1%

1,942

1,573

23.5%

Realised premium

161

162

-0.6%

163

159

2.3%

VAP sales in tonnes

462

479

-3.4%

1,869

1,677

11.4%

Share of VAP

46%

50%

 

47%

44%

 

 

Aluminium production results

(‘000 tonnes )

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Russia Siberia

 

 

 

 

 

 

 

Bratsk aluminium smelter

100%

255

254

0.5%

1,008

1,005

0.2%

Krasnoyarsk aluminium smelter

100%

258

255

1.3%

1,019

1,024

-0.5%

Sayanogorsk aluminium smelter

100%

135

134

0.8%

533

530

0.6%

Novokuznetsk aluminium smelter

100%

54.4

54.1

0.6%

215

213

1.0%

Irkutsk aluminium smelter

100%

106

105

0.9%

419

415

0.9%

Khakas aluminium smelter

100%

74

73

1.6%

292

293

-0.2%

 

 

 

 

 

 

 

 

Russia – Other

 

 

 

 

 

 

 

Volgograd aluminium smelter

100%

8

4

85.3%

13

Nadvoitsy aluminium smelter

100%

2.9

3.1

-7.8%

12

13

-4.1%

Kandalaksha aluminium smelter

100%

18.4

18.1

1.4%

72

68

5.3%

 

 

 

 

 

 

 

 

Sweden

 

 

 

 

 

 

 

KUBAL

100%

32

31

3.5%

123

124

-0.6%

 

 

 

 

 

 

 

 

Total production[8]

 

944

931

1.4%

3,707

3,685

0.6%

Remelting of third-party primary aluminium at Volgograd smelter

 

4

6

-35.2%

22

39

-44.0%

 

 

 

 

 

 

 

 

Total aluminium products output including remelting

 

948

937

1.2%

3,728

3,724

0.1%

 

Alumina production results

(‘000 tonnes)

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Ireland

 

 

 

 

 

 

 

Aughinish Alumina

100%

490

497

-1.5%

1,937

1,967

-1.5%

 

 

 

 

 

 

 

 

Jamaica

 

 

 

 

 

 

 

Alpart[9]

100%

Windalco

100%

153

149

2.8%

582

609

-4.5%

 

 

 

 

 

 

 

 

Ukraine

 

 

 

 

 

 

 

Nikolaev Alumina Refinery

100%

431

416

3.7%

1,676

1,510

10.9%

 

 

 

 

 

 

 

 

Italy

 

 

 

 

 

 

 

Eurallumina

100%

 

 

 

 

 

 

 

 

Russia

 

 

 

 

 

 

 

Bogoslovsk Alumina Refinery

100%

258

252

2.5%

983

961

2.3%

Achinsk Alumina Refinery

100%

238

234

1.9%

945

916

3.2%

Urals Alumina Refinery

100%

228

230

-1.0%

894

803

11.3%

Boxitogorsk Alumina Refinery

100%

 

 

 

 

 

 

 

 

Guinea

 

 

 

 

 

 

 

Friguia Alumina Refinery

100%

 

 

 

 

 

 

 

 

Australia (JV)

 

 

 

 

 

 

 

Queensland Alumina Ltd (20%)

20%

192

187

2.7%

756

760

-0.6%

 

 

 

 

 

 

 

 

Total alumina production

 

1,990

1,965

1.3%

7,773

7,527

3.3%

 


 

Bauxite mining results

(‘000 tonnes)

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Jamaica

 

 

 

 

 

 

 

Alpart

100%

69

Windalco

100%

471

476

-1.1%

1,954

2,054

-4.9%

 

 

 

 

 

 

 

 

Russia

 

 

 

 

 

 

 

North Urals

100%

608

548

10.9%

2,360

2,367

-0.3%

Timan

100%

714

839

-14.9%

3,163

3,064

3.2%

 

 

 

 

 

 

 

 

Guinea

 

 

 

 

 

 

 

Friguia

100%

Kindia

100%

829

717

15.6%

3,124

3,538

-11.7%

 

 

 

 

 

 

 

 

Guyana

 

 

 

 

 

 

 

Bauxite Company of Guyana Inc.

90%

324

161

100.4%

1,045

1,094

-4.5%

 

 

 

 

 

 

 

 

Total production

 

2,945

2,742

7.4%

11,645

12,187

-4.4%

 

Nepheline ore production[10]

(‘000 tonnes)

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

 

 

 

 

 

 

 

 

Kiya Shaltyr Nepheline Syenite

100%

1,041

1,125

-7.4%

4,332

4,432

-2.3%

Total production

 

1,041

1,125

-7.4%

4,332

4,432

-2.3%

 

Foil and packaging production results

(‘000 tonnes)

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Russia

 

 

 

 

 

 

 

Sayanal

100%

9.3

9.7

-3.7%

38.2

34.4

11.1%

Ural Foil

100%

6.9

6.3

10.8%

25.3

17.8

42.3%

Sayana Foil

100%

1.2

1.0

24.9%

3.8

3.5

8.5%

 

 

 

 

 

 

 

 

Armenia

 

 

 

 

 

 

 

Armenal

100%

8.9

8.6

3.4%

33.7

29.0

16.2%

 

 

 

 

 

 

 

 

Total production

 

26.4

25.5

3.3%

101.1

84.7

19.3%

 


 

Joint venture operating results

 

Interest

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Boguchanskaya HPP[11]

 

 

 

 

 

 

 

Electricity generation, mwh

50%

2,824

3,716

-24.0%

13,287

13,969

-4.9%

 

 

 

 

 

 

 

 

Boguchansky aluminium smelter[12]

 

 

 

 

 

 

 

Aluminium production (‘000 tonnes)

50%

37.4

37.3

0.1%

148

149

-0.6%

 

Other aluminium products output and silicon output

(‘000 tonnes)

 

4Q17

3Q17

Change, % (QoQ)

12M17

12M16

Change, % (YoY)

Secondary alloys

 

7.4

7.2

2.4%

28.3

25.0

13.2%

Silicon

 

15.4

14.1

9.2%

56.0

59.3

-5.5%

Powder

 

3.9

5.0

-21.3%

18.5

18.7

-0.8%

Wheels (‘000 units)[13]

 

215

191

12.8%




[2] Aluminium production represented by salable products output (the number includes all facilities excluding Volgograd remelting).


[3] VAP includes alloyed ingots, slabs, billets, wire rod, high and special purity aluminium.


[4] The realised price includes three components: LME component, commodity premium and VAP upcharge.


[5] QP (quotation period) prices differs from the real time LME quotes due to a time lag between LME quotes and sales recognition and due to contract formula speciality.


[6] Unless otherwise stated data for the “Market overview” section is sourced from Bloomberg, CRU, CNIA, IAI and Antaike.


[7] Unless stated otherwise the production data throughout the report is presented on equity-adjusted basis (for exceptions please refer to the data of the Boguchansky smelter and Boguchanskaya HPP). Production volumes are calculated based on the pro rata share of the Company´s (and its subsidiaries´) ownership.


[8] Here and further “total production” may not equal to the arithmetic addition of the numbers above presented in the table. The difference arises due to the roundoff of exact numbers (incl. decimals).


[9] The Alpart was sold to an external party (see UC RUSAL’s announcement dated 19 July 2016). The results of Alpart are excluded from UC RUSAL Consolidated Financial Statements from 3Q 2016.


[10] Nepheline ore used as a feedstock for alumina production at the Achinsk alumina refinery.


[11] Boguchanskaya HPP data is represented by 100% of energy generated (not on an ownership pro rata basis).


[12] Boguchansky aluminium smelter data is represented by 100% of volumes produced (not on an ownership pro rata basis).


[13] SKAD operations, engaged in wheels production, were consolidated in April 2017. Taking into account production volumes before the date of acquisition, output in 12M17 significantly grew by 28.4% YoY, up to 842 thousand wheels from 656 thousand wheels in 12M16.



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