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Rusal first-quarter profit declines 84 per cent

United Company Rusal reported an 84-per-cent drop in profits in the last quarter on sagging demand for aluminum and falling prices for the metal.

Bobby Yip/Reuters/Bobby Yip/Reuters

United Company Rusal, the world's largest aluminum producer by volume, reported a sharp drop in first-quarter net profit as prices for the metal slump and said it might start cutting production later this year.

"The first quarter of 2012 has proved to be a tough test for the aluminum industry with the global demand for the metal slowing down and the aluminum price weakening," said Oleg Deripaska, Rusal's chief executive officer and controlling shareholder, on Monday.

Net profit in the three months to March 31 fell 84 per cent to $74-million (U.S.) compared with the same period last year as the price per tonne of aluminum dropped 13 per cent from a year ago, the company said.

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Its net debt rose 0.7 per cent to $11.1-billion while first-quarter sales fell 3.7 per cent to $2.9-billion.

Citing continued uncertainty about the state of the global economy, Rusal said it was considering cutting its global capacity by 4 per cent to 6 per cent in the second half of the year.

Slowing growth in the Chinese economy has prompted the global metals industry to curb costs and put the brakes on expansion. Mining groups Rio Tinto and BHP Billiton both said recently that they would rein in their spending plans.

The aluminum sector has been under particularly heavy pressure because it has struggled with overcapacity even during the recent boom in the commodities market.

In response, U.S. producer Alcoa slashed global capacity by 12 per cent at the beginning of this year while state-run Aluminum Corp. of China reported a net loss of $173-million for the first quarter.

Rusal's share price has fallen 28 per cent over the past three months, and the company has also been hit by a fierce battle between two of its main shareholders.

Viktor Vekselberg, the Russian billionaire who stepped down as chairman in March, has fallen out with Mr. Deripaska over the company's refusal to sell its 25-per-cent stake in Norilsk Nickel and his claim that Rusal is in "deep crisis" because of bad management and a heavy debt load.

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His latest move was to file a lawsuit in London last month challenging a major supply contract between Rusal and Glencore, the commodities trader that owns an 8.75-per-cent stake in the Russian aluminum group.

The company said the euro zone financial crisis and the slowdown in Chinese demand were likely to dominate the outlook for the metal markets in the months to come. But it said a severe contraction was unlikely because of higher U.S. demand and an expected recovery in Chinese consumption in the second half of the year.

Rusal shares were down around 1 per cent at $5 Hong Kong (64 cents U.S.) after the results announcement.

Copyright The Financial Times Ltd. All rights reserved.

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