27 July 2017

UC Rusal announces second quarter 2017 operating results

UC RUSAL (SEHK: 486, Euronext: RUSAL/RUAL, Moscow Exchange: RUAL/RUALR), a leading global aluminium producer, announces operating results for the second quarter 2017 (“2Q17”)[1].

 

Aluminium

  • Aluminium production[2] in 2Q17 totaled 921 thousand tonnes (+1.2% QoQ), with Siberian smelters representing 94% of total aluminium output. The total production dynamics is largely explained by the number of calendar days in the periods (91 days in 2Q17 and 90 days in 1Q17). Smelters utilization remained on average at a high of 95%.

  • In 2Q17 aluminium sales totaled 1,002 thousand tonnes (+1.7% QoQ).

  • In 2Q17 sales of value added products (VAP[3]) increased strongly QoQ by 13.1% to 493 thousand tonnes from 436 thousand tonnes in 1Q17. As a result the share of sales of VAP in total sales grew to 49.2% in 2Q17 in comparison with 44.3% in 1Q17. The strong growth of VAP sales is in line with Company’s strategy of increasing the share of respective product mix and it was achieved due to continuous upgrades in relevant capacities and achieved productivity gains.

  • In 2Q17 the average aluminium realized price[4] increased by 7.1% QoQ to USD2,087/t. The increase was driven by positive dynamics in London Metal Exchange (“LME”) QP[5] component (+6.5% QoQ to USD1,913/t) and average realized premium component growth (+13.7% QoQ to USD174/t).

 

Alumina

  • In 2Q17, total alumina production increased by 2.1% QoQ, totaling 1,928 thousand tonnes. Russian operations accounted for 36% of total output. Production volumes at refineries were largely in line with production plans. Seasonal repair works performed at Windalco, Auginish and Bogoslovsk were offset by production performance at Achinsk and Urals.

  • Capacity upgrades which were completed at Nikolaev and Urals refineries were largely behind the YoY production increase at refineries in 2Q17.

 

Bauxite and nepheline ore

  • In 2Q17, bauxite output totaled 3,090 thousand tonnes (+7.7% QoQ). Nepheline output increased by 5.2% QoQ to 1,111 thousand tonnes due to seasonal factor. Production volumes at Timan and Kia Shaltyr (nepheline ore[6]) increased by 22.7% and 5.2% QoQ to meet the production plan needs of the Urals and Achinsk alumina refineries and seasonal factor respectively. Kindia production volumes increased by 4.6% QoQ in 2Q17 which is largely explained by repairs and purchasing of rolling stock. Bauxite Company of Guyana production decreased by 2.4% QoQ.

 

Market overview[7]

  • The LME aluminium price reached USD1,962/t in April 2017, its highest level since December 2014, and since then has fluctuated around USD1,900/t during 1H2017. Price growth is attributed to the robust demand for aluminium during the period, market expectations of supply disruptions in China coupled with significant production cost inflation.

  • The world economy witnessed broad based growth in 1H2017, with an increase in business activity, particularly in the developed economies. The main drivers for demand for aluminium were the growth of consumer spending particularly for cars and durable goods sales and also fixed asset investments. Global PMI remains strongly above 52.6 level with EU and Japan leading the way with 57.4 and 52.4 respectively and the US ISM index was strongly at 52 level.

  • The Chinese economy continued to show strong growth through 1H2017. The official PMI reached 51.7 in June 2017 and Caixin showed 50.4 level. At the same time industrial production grew 7.6% in June YoY and GDP in 2Q2017 went up 6.9%YoY.

  • The reported inventories of aluminium have declined further to 3.1 mn tonnes as at the end of June 2017 (7.5% down from inventories level at end of April 2017). The days of consumption decreased to 37 days from 110 days in 2015 and continue to decline at a steady pace.

  • RUSAL estimates that in 1H2017 global aluminum demand grew by 5.7% YoY to 31.7 mn tonnes. Global supply in 1H2017 was up by 11.5% to 31.8 mn tonnes, leaving the aluminum market roughly balanced. 

  • Based on CRU estimates, aluminium demand in the world ex-China rose by a strong 3.5% in 1H2017 YoY to 14.7 mn tonnes while production (including eight non-reporting countries) increased by 2.3% YoY to 13.5 mn tonnes. This left the ROW (rest of the world) aluminium market with approximately 1.1 mn tonnes in deficit in 1H2017.

  • According to RUSAL’s estimates, demand in China grew by 7.5% in 1H2017 YoY to 17.0 mn tonnes implying that the Chinese market was oversupplied by c.1.2 mn tonnes during this period. This was a result of domestic production growing on the back of new capacity additions through 4Q2016 as well as restart of production.

  • Nevertheless, the announcement by the Chinese regulator regarding winter capacity cuts is expected to result in an annualized production loss of 1.2 mn tonnes, according to RUSAL estimates. When considering the expected curtailments of the so-called “illegal capacities” RUSAL expects that the Chinese aluminium market balance will improve in 2H2017 leading to much tighter market situation in 2018. As of the date of this announcement, according to SMM, around 1.8 mn tonnes of illegal operating capacity and 2 mn tonnes of projects under construction have been closed and RUSAL expects another 2-3 mn tonnes of operating capacity to be closed by the end of this year.

  • In addition, the continued aluminium cost push in China, mainly driven by surge in carbon materials prices, provides further support for growth of domestic aluminum prices amid the backdrop of expected winter cuts. Thus, even historically low cost producing regions like Xinjiang and Inner-Mongolia experienced average growth of producing costs including transportation cost up to the level of RMB13,000/t as at the end of June 2017 as compared to their level of RMB12,400/t on average through 2016.

 

Key operating data[8]

(‘000 tonnes)

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

 

 

 

 

 

 

 

Aluminium

921

910

1.2%

1,832

1,835

-0.2%

Utilisation rate

95%

95%

 

95%

95%

 

Aluminium foil and packaging products

26.0

23.1

12.8%

49.2

40.8

20.6%

Alumina

1,928

1,889

2.1%

3,818

3,724

2.5%

Bauxite

3,090

2,869

7.7%

5,959

6,135

-2.9%

Nepheline

1,111

1,056

5.2%

2,166

2,319

-6.6%

 


 

Sales data

(‘000 tonnes)

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

 

 

 

 

 

 

 

Aluminium sales, including

1,002

985

1.7%

1,987

1,915

3.8%

BOAZ aluminium product sales

37

33

12.0%

71

68

3.2%

other third party aluminium products sales

40

46

-12.4%

86

5

1,571%

VAP sales (included in the total aluminium sales)

493

436

13.1%

930

831

11.9%

Aluminium realised price, USD/ tonne

2,087

1,949

7.1%

2,019

1,689

19.5%

 

Aluminium production results

 

(‘000 tonnes )

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

Russia Siberia

 

 

 

 

 

 

 

Bratsk aluminium smelter

100%

251

248

1.2%

499

501

-0.4%

Krasnoyarsk aluminium smelter

100%

253

253

0.1%

506

512

-1.1%

Sayanogorsk aluminium smelter

100%

134

131

2.1%

264

263

0.6%

Novokuznetsk aluminium smelter

100%

54

53

1.0%

107

106

0.5%

Irkutsk aluminium smelter

100%

104

103

1.4%

208

206

0.8%

Khakas aluminium smelter

100%

73

72

0.9%

145

146

-1.0%

Russia – Other

 

 

 

 

 

 

 

Nadvoitsy aluminium smelter

100%

3

3

2.0%

6

6

-5.1%

Kandalaksha aluminium smelter

100%

18

18

0.1%

36

34

5.9%

Sweden

 

 

 

 

 

 

 

Kubikenborg Aluminium (KUBAL)[9]

100%

31

30

4.1%

61

62

-1.2%

 

 

 

 

 

 

 

 

Total production[10]

 

921

910

1.2%

1,832

1,835

-0.2%

Remelting of third-party primary aluminium at Volgograd smelter

 

6

6

2.5%

12

19

-36.9%

 

 

 

 

 

 

 

 

Total aluminium products output including remelting

 

927

916

1.3%

1,844

1,855

-0.6%

 

Alumina production results

 

(‘000 tonnes)

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

Ireland

 

 

 

 

 

 

 

Aughinish Alumina

100%

480

471

1.8%

951

965

-1.5%

 

 

 

 

 

 

 

 

Jamaica

 

 

 

 

 

 

 

Alpart[11]

100%

Windalco

100%

134

146

-8.2%

280

301

-7.1%

 

 

 

 

 

 

 

 

Ukraine

 

 

 

 

 

 

 

Nikolaev Alumina Refinery

100%

431

397

8.5%

828

740

11.9%

 

 

 

 

 

 

 

 

Italy

 

 

 

 

 

 

 

Eurallumina

100%

 

 

 

 

 

 

 

 

Russia

 

 

 

 

 

 

 

Bogoslovsk Alumina Refinery

100%

238

234

1.9%

473

473

-0.1%

Achinsk Alumina Refinery

100%

230

243

-5.5%

473

475

-0.4%

Urals Alumina Refinery

100%

227

209

8.7%

437

399

9.6%

Boxitogorsk Alumina Refinery

100%

 

 

 

 

 

 

 

 

Guinea

 

 

 

 

 

 

 

Friguia Alumina Refinery

100%

 

 

 

 

 

 

 

 

Australia (JV)

 

 

 

 

 

 

 

Queensland Alumina Ltd (20%)

20%

189

187

1.0%

376

370

1.6%

 

 

 

 

 

 

 

 

Total alumina production

 

1,928

1,889

2.1%

3,818

3,724

2.5%

 

Bauxite mining results

 

(‘000 tonnes wet)

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

Jamaica

 

 

 

 

 

 

 

Alpart

100%

69

Windalco

100%

504

503

0.1%

1,007

1,018

-1.1%

 

 

 

 

 

 

 

 

Russia

 

 

 

 

 

 

 

North Urals

100%

616

589

4.6%

1,205

1,148

5.0%

Timan

100%

887

723

22.7%

1,610

1,485

8.4%

 

 

 

 

 

 

 

 

Guinea

 

 

 

 

 

 

 

Friguia

100%

Kindia

100%

806

771

4.6%

1,578

1,852

-14.8%

 

 

 

 

 

 

 

 

Guyana

 

 

 

 

 

 

 

Bauxite Company of Guyana Inc.

90%

276

283

-2.4%

560

563

-0.6%

 

 

 

 

 

 

 

 

Total production

 

3,090

2,869

7.7%

5,959

6,135

-2.9%

 


 

Nepheline ore production[12]

 

(‘000 tonnes wet)

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

 

 

 

 

 

 

 

 

Kiya Shaltyr Nepheline Syenite

100%

1,111

1,056

5.2%

2,166

2,319

-6.6%

Total production

 

1,111

1,056

5.2%

2,166

2,319

-6.6%

 

Foil and packaging production results

 

(‘000 tonnes)

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

Russia

 

 

 

 

 

 

 

Sayanal

100%

10.1

9.0

12.4%

19.2

16.1

19.0%

Ural Foil

100%

6.2

5.9

5.2%

12.1

8.2

48.4%

Sayana Foil

100%

0.8

0.8

4.0%

1.7

1.5

9.9%

 

 

 

 

 

 

 

 

Armenia

 

 

 

 

 

 

 

Armenal

100%

8.9

7.4

19.8%

16.2

15.0

8.2%

 

 

 

 

 

 

 

 

Total production

 

26.0

23.1

12.8%

49.2

40.8

20.6%

 

Joint venture operating results

 

 

Interest

2Q17

1Q17

Change, % (QoQ)

1H17

1H16

Change, % (YoY)

Boguchanskaya HPP[13]

 

 

 

 

 

 

 

Electricity generation, mwh

50%

3,572

3,176

12.5%

6,748

6,491

4.0%

 

 

 

 

 

 

 

 

Boguchansky aluminium smelter[14]

 

 

 

 

 

 

 

Aluminium production (‘000 tonnes)

50%

37

37

0.5%

74

75

-1.6%

 

Forward-looking statements

This press-release contains statements about future events, projections, forecasts and expectations that are forward-looking statements. Any statement in this announcement that is not a statement of historical fact is a forward-looking statement that involves known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements  expressed or implied by such forward-looking statements. These risk and uncertainties include those discussed or identified in the prospectus for UC RUSAL. In addition, past performance of UC RUSAL cannot be relied on as a guide to future performance. UC RUSAL makes no representation on the accuracy and completeness of any of the forward-looking statements, and, except as may be required by applicable law, assumes no obligations to supplement, amend, update or revise any such statements or any opinion expressed to reflect actual results, changes in assumptions or in UC RUSAL’s expectations, or changes in factors affecting these statements. Accordingly, any reliance you place on such forward-looking statements will be at your sole risk.



[1] Operating data is based on preliminary data and may be updated in the 2Q17 financial results.


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


[3] VAP 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] Kiya Shaltyr Nepheline ore is used as a feedstock for alumina production at Achinsk alumina refinery.


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


[8] 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.


[9] Does not include remelting of the metal from other RUSAL’s smelters.


[10] 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).


[11] 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.


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


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


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



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