Rusal asked to cancel the exchange rate export duty for its new plants

Rusal asked to cancel the exchange rate export duty for its newest plants – Taishetsky and Boguchansky, which account for approximately 10% of output. The company explains this by falling aluminum prices. The Ministry of Industry and Trade confirmed that they are considering this idea. Although global aluminum prices are not currently historically low, Rusal is suffering from rising costs due to reduced access to its own alumina, as well as lower sales margins due to the reorientation of supplies.

The government is discussing the abolition of exchange rate export duties for the Taishet and Boguchansky plants of Rusal, sources familiar with the discussions said. Such an appeal was sent by the company itself, Deputy Head of the Ministry of Industry and Trade Viktor Evtukhov confirmed to Kommersant, noting that the ministry is “working through the feasibility of such a support measure.” The FAS and the Ministry of Finance told Kommersant that the issue of abolishing export duties on aluminum is being considered by the government subcommittee on customs, tariff and non-tariff regulation, but a final decision has not been made.

Rusal, in turn, said that this initiative will help maintain the stability of enterprises and jobs in the industry in an unfavorable environment, when exchange prices for aluminum fell by 40% compared to peaks in 2022.

The Taishet and Boguchansky plants are the newest enterprises of Rusal. The Boguchansky plant is part of the BEMO project, which provides for the construction of a plant in two stages with a capacity of 298 thousand tons of aluminum each and a hydroelectric power station with a capacity of 3 GW. The first stage of the plant reached its design capacity in May 2019, and Rusal was going to evaluate the possibility of building a second together with RusHydro “taking into account the market situation and the availability of project financing.” The first stage of the Taishet plant started operating in December 2021; by the end of 2022, the plant produced 78 thousand tons of aluminum with a design capacity of the line of 429 thousand tons. Rusal CEO Evgeny Nikitin said in December 2021 that the decision on the construction of the second stage of Taishet will be made by 2024. In general, in 2022, Rusal produced 3.83 million tons of aluminum, that is, the Boguchansky and Taishetsky projects accounted for less than 10% of output.

The exchange fee is 4–7% depending on the ruble exchange rate. According to My Investments analysts, Rusal suffers more than other mining and metallurgical companies from the duty: the effect on its EBITDA is 19–22%, while for ALROSA it is 11–15%, Norilsk Nickel is 8–13%, NLMK – 6–9%.

Rusal has repeatedly emphasized the company’s problems due to the loss of European markets and falling aluminum prices.

In October, Interfax, citing sources close to the company’s creditors, reported that Rusal was considering the possibility of closing unprofitable factories. Analysts assumed that we are talking about the Kandalaksha, Volgograd and Novokuznetsk plants, whose costs are higher than the average for the group. Viktor Evtukhov admitted on December 16 that Rusal’s production costs are already higher than the average exchange price for aluminum on the LME. He also said that due to sanctions, the usual export markets are limited, and Rusal has refocused on China and India, where import duties of 7–7.5% apply. According to reports, for European sales in Rusal’s revenue in the first half of the year decreased from 40% to 31%, and the share of Asia increased to 33% against 23% a year earlier. According to BCS estimates, the price premium for aluminum in Asia is lower than in Europe.

LME quotes are now around $2,200 per tonne and have actually declined from their 2022 peaks of over $3,800 per tonne in March. However, they are still higher than in 2019, while the ruble is now much weaker, which favors exporters. However, this only partially mitigates Rusal’s problems, since its production costs have increased due to the loss of a significant part of its own alumina sources. In 2022, Rusal lost control of the Nikolaev Alumina Refinery and access to raw materials from Australia due to sanctions. This has led to the need to purchase large quantities from the market. According to the company’s report, the cost of aluminum sales increased in 2022 by 30.2%, to $10.77 billion, including costs for the purchase of alumina soared by 149.3%, to $1.847 billion. To solve the problem, Rusal plans to build Leningrad region is the largest alumina refinery in Russia with a capacity of 4.8 million tons and a cost of 400 billion rubles. The aluminum holding also acquired 30% in the Chinese alumina producer Hebei Wenfeng New Materials Co.

Evgeniy Zainullin