Rusal shines light on what 2010 may hold

When investors want to get a sense of where the global economy has been, and where it might be going, looking at the spread sheets of the giant metal producers can be a good place to start.

With Rusal — the world’s biggest aluminum and alumina producer — releasing its production results for 2009 and providing an outlook for 2010, investors got a peak into what could be in store for the global economy this year.

In 2008 Moscow-based Rusal accounted for 11% of the world’s supply of aluminum and 13% of its alumina. While the company did not release its stake in global production for 2009, its own production was down from the year previous.

Total aluminum production came in at 3.9 million tonnes,11% less than in 2008, and the decline was even larger on the alumina side. Rusal produced 7.3 million tonnes of alumina in 2009, a massive 36% decrease from the year previous.

Predictably with both aluminum and alumina production donw, bauxite production was off as well. Rusal said it produced 41% less of the metal in 2009 than it did in 2008, with the final tally being 11.3 million tonnes.

The only aspect of its production that remained unchanged was that of aluminum foil and packaging production.

“The past year tested the resilience of the aluminum industry and forced every company to respond to the downturn,” Oleg Deripaska, chief executive of Rusal said in a statement.

He went on to say that the company weathered the global economic downturn by cutting costs, restructuring debt and floating its shares on the Hong Kong and NYSE Euronext Paris stock exchanges.

Such changes have Deripaska optimistic about the coming year.

“We have laid a solid foundation for the further sustainable development of our business,” he said.

But such development will come only with an increase in demand for Rusal’s main products, and on that front the company says it is seeing the first signs of a recovery.

Rusal says orders from Europe and the U.S. are increasing, and that continued economic growth in Asia also bodes well for the industry.

“We believe that the stabilization that is now being seen will lead to consumption growth exceeding the pace of production increases,” Deripaska went on to say.

Such a scenario should be a boon to aluminum prices, and could go a long ways towards making up for what was, by all measures, a bad year last year.

Indeed 2009 will go down as one of the toughest years on record for the aluminum industry.

According to CRU Group – an international consultancy group specializing in mining and metals — the recession brought an 8.2% drop in demand for aluminum in 2009 compared to 2008.

That weaker demand translated into lower prices as the average price for aluminum fell by 35%.

In response to those poorer fundamentals, aluminum producers as a group cut annual production by about 2.4 million tonnes and new facilities that were set to bring 3.5 million tonnes a year on line were postponed.

Overall, global aluminum production dropped 5.9% to 37.8 million tonnes in 2009.

Rusal curbed its own aluminum production through the temporary suspension of what it says were its “least cost-efficient smelters”, which included three smelters in Russia and one in the Ukraine.

Alumina production was cut at relatively high cost facilities, such as Aughinish in Ireland and the Zaporozhye Alumina Refinery in the Ukraine.

Alumina production was also temporarily suspended at its Eurallumina project in Italy, and its Windalco and Alpart facilities in Jamaica.

The situation for aluminum overall, however, did begin to improve in late 2009 when the revival of developed economies triggered restocking throughout the production chain and boosted demand, the company says.

As for 2010, Rusal is expecting growth in the aluminum market due to rising demand in the automotive and packaging sectors.

CRU expects consumption to grow by 12.6% in 2010 as compared to 2009.

Rusal says that should such a positive scenario develop it would increase aluminum production by 3% this year and alumina production by 7%. It says it could meet such increases at its already existing plants.