China Eximbank to Help Fund RusAl’s Factory Construction in Siberia

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Jun. 26 – Russian UC RusAl, the world’s largest aluminum producer, and the Export-Import Bank of China (China Eximbank), one of China’s largest financial institutions, have signed a cooperation agreement on a RusAl greenfield project in Eastern Siberia worth up to US$850 million.

The agreement foresees joint cooperation on financing for the construction of a new anode factory in the Irkutsk region. Anodes (carbon electrodes) are used in the electrolysis process to produce aluminum. About 550 kilograms of anodes are required to produce 1 ton of aluminum.

The main consumers will be RusAl’s aluminum smelters in Eastern Siberia, which are able to meet China’s growing demand for the light metal, a company press release said. The geographic proximity of the factory to its key consumers will shorten the supply chain and strengthen the company’s vertical integration.

“The construction of the anode factory in direct proximity with the company’s most green and technologically advanced units will further strengthen RusAl’s position in the current competitive environment,” RusAl First Deputy CEO Vladislav Solovyov said.

“Cooperation with RusAl will be an important step in further enhancement of Chinese-Russian relations development. In the frame of the signed agreement, our companies will cooperate on the anode factory construction project as well as exploring other opportunities of interest in the context of developing partnership between China and Russia,” said China Eximbank Vice President Liange Liu.

RusAl needs to reduce costs this year due to the falling prices. Aluminum prices ended at 18-month lows last year on concerns about weakening global demand for the metal. Meanwhile, Rusal is interested in boosting cooperation with China, hoping China’s consumption will help to recover the aluminum market by 2013, if it also cuts production.

In an interview with Reuters, RusAl Head of Equity and Corporate Development Oleg Mukhamedshin said the company is prepared to cut output and costs this year to support prices, which could recover in 2013 if China also reduces production.

“The market price is at a level where about 30 percent of producers are unprofitable. This means that people are forced to significantly reduce capital expenditures, which leads to stagnation of the industry,” Mukhamedshin said.

The price of the metal, which is in chronic oversupply, is under pressure from reports that China’s top aluminum-producing province of Henan may subsidize electricity used by loss-making smelters in a bid to spur local growth.

Mukhamedshin criticized this policy, calling on China to cut unprofitable production. Global companies, excluding Chinese producers, have cut output by about 1.3 million tons since December 2011.

He estimated that 6 million to 7 million tons of aluminum output in China are unprofitable now out of the 22 million that the country is expected to produce this year.

“Our Chinese colleagues cut 1.7 million tons last year, and since January we do not see capacity shutting down in the country, which accounts for 45 percent of global aluminum output,” he said.

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