Oleg Derispaska, head of Russia’s United Company RUSAL had some interesting comments to make about the future of the world aluminum market at Davos this week as reported by Reuters. Russia’s richest man confirmed estimates we and others have made recently that at current prices, 75% of the world’s aluminum producers are losing money. But he went on to say that with intergovernmental assistance, he expects there will be mass closures of smelters during this year as the industry strives to accommodate a fall in consumption from 36.5 million tons in 2008 to 28 million tons in 2009, on top of carrying the highest global stocks in 14 years.
Interestingly Derispaska went on to match MetalMiner predictions that the aluminum price would not get beyond $1600/metric ton in 2010. In fact, he went further and said he expects that level to prevail for the next seven years! Even taking some headline grabbing hubris out of it his message is clear, there will be no sharp rebound in prices anytime soon to save the industry. Producers have the long, slow and extremely painful challenge of cutting capacity to meet demand if they want prices to rise again. To use his words, “The only chance to survive is to be the most efficient. And RUSAL will be the most efficient smelter in the world this year. Whether it will, remains to be seen but blessed with abundant cheap hydro power and it’s own alumina facilities, it is better positioned than most to survive in spite of the low metal prices.
Yet even RUSAL has not been without its problems. The company may be making money even at current aluminum prices but they have still struggled to roll over debts as they have come due. According to The Independent the firm had to be bailed out to the tune of $4.5bn by the Russian government late last year when it failed to raise refinancing from western banks.