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. Last Updated: 07/27/2016

RusAl, SUAL Join to Boost Aluminum Output

SUALThe $1.2 billion agreement with SUAL is part of RusAl's quest to become the world's top producer of aluminum.
Russia's two aluminum producers RusAl and SUAL said on Monday they had reached a deal on equal partnership in SUAL's major project in the Komi republic in the Northwest Federal District.

"RusAl and SUAL, joining their efforts for the first time, are creating a serious platform for strengthening the position of the Russian aluminum sector in the international arena," a joint RusAl and SUAL statement quoted RusAl CEO Alexander Bulygin as saying.

"It is a major step forward in the consolidation of the Russian aluminum industry that creates new possibilities for further cooperation between two major Russian aluminum producers," added SUAL Holding president Brian Gilbertson.

The Komi project involves boosting output of raw material at SUAL's Sredny Timan bauxite deposit to over 6 million tons in 2008 from 1.5 million now, as well as building a 1.4 million ton refinery of intermediate product alumina in 2008.

It also includes building a smelter with an annual capacity of 300,000 to 500,000 tons, a project which has been frozen by SUAL and was not mentioned in the statement.

The total project was initially valued at $2.1 billion, but the statement said that under the deal -- without the smelter -- each partner would bear half the $1.2 billion investment.

"The investments are meant for the development of the raw materials base and building the refinery," RusAl spokeswoman Vera Kurochkina said. "At the current stage, RusAl does not participate in the aluminum part of the project but has the right to take part.

"A feasibility study to build the smelter has been put on hold until the key issue of long-term energy supplies is resolved," a SUAL spokeswoman said. "As soon as this issue is resolved, we will be ready for talks with all potential participants in the project, including RusAl."

SUAL has held talks with Alcoa, the world's top aluminum producer, on involvement in the smelting part of the project. Last September SUAL said Alcoa pulled out of the project, but later both companies said the talks continued.

"There is perfect logic in this partnership," said Maxim Matveyev, senior equity analyst at Alfa Bank. "SUAL failed to attract a Western major as a partner and doesn't want the project to stall, while RusAl needs the alumina."

Alumina prices surged by two-thirds in the past two years to about $450 per ton, according to Metal Bulletin data. China, the world's biggest aluminum-producing nation, is importing more of the material to supply an industry that expanded 19 percent last year.

RusAl, which aims to become the world's top aluminum producer, is seeking to cut dependence on external supplies of alumina. It produced 2.7 million tons of aluminum in 2004, but only 3.1 million tons of alumina, roughly two tons of which are needed to produce one ton of the metal.

RusAl is expanding its alumina refineries in Russia, Ukraine and Guinea and plans to build new ones at home and in neighboring Kazakhstan. It has also purchased a stake in Australia's Queensland and Russia's Boksitogorsk refineries.

SUAL, which last year produced 923,800 tons of aluminum and 2 million tons of alumina, has said it was looking for a strategic partner in the Komi project, but was ready to proceed with it independently.

SUAL has also said it was seeking a $600 million loan from the European Bank for Reconstruction and Development and the International Finance Corporation for the second stage of the project after receiving $150 million for the first stage.

The SUAL spokeswoman said SUAL was continuing loan talks with the EBRD and IFC on the basis of RusAl's equal participation in the project. She also said RusAl would have an equal share with SUAL in all assets involved in the project.

RusAl is owned by billionaire Oleg Deripaska. SUAL is controlled by another tycoon, Viktor Vekselberg, and a U.S. businessman of Russian origin, Len Blavatnik.

(Reuters, Bloomberg)