United Company Rusal, the world's largest aluminum producer has completed closures that will cut its annual production of aluminum in 2009 by 500,000 tonnes or 11 per cent of total output and does not rule out the possibility of needing to make further cuts, if necessary.

However, company officials are very bullish on the prospects for a "significant improvement" in the price of the metal from the third quarter of 2009 after global cuts in smelter output and closure of non-profitable producers worldwide are accomplished.

Arterm Volynets, director of corporate strategy told Bloomberg on June 2 that the full effects of the production cuts should begin to be felt by the middle of the year.

Biggest metals consumer

However, along with the production cuts, there has been a slowing of the decline in European demand for the metal, while the demand from China, the world's biggest metals consumer, continues to rise.

China earlier closed 27 per cent of its domestic capacity in aluminum production, however, its demand to replenish stockpiles needed for government-sponsored infrastructure projects under the country's four trillion yuan (US$586 billion) stimulus programme is also soaking up inventories.

Bloomberg reported that Chinese imports of primary aluminum surged in April by about four times the volume in March to 362,400 tonnes.

At the same time usage in China rose to around 1.3 million tonnes for the month of April, up from about 1.0 million tonnes in January.

Volynets noted that while China has restarted around one million metric tonnes of the 3.5 million tonnes of capacity that it had previously taken offline, "it is unlikely to resume the entire stalledoutput," he said. Rusal has already sold 20,000 tonnes of aluminum to China this year, and given the low-cost production from Rusal Siberian smelters, they expect China to increase its import of the metal from Russia.

"If you satisfy domestic demand with lower-cost aluminum from abroad, there is no need to restart domestic production," Volynets said.

UC Rusal accounts for 12 per cent of global aluminum output.

Most of its growth has come from Russia's domestic demand, while it provides around 25 per cent of Japan's aluminum needs, and company officials believe that there are some excellent market opportunities to supply the Japanese market further going forward.

Joint-venture partners

In fact the company is currently conducting preliminary discus-sions with potential Japanese and Chinese joint venture partners to participate in some aluminum projects, as well as the develop-ment of large-scale copper and molybdenum deposits in Russia's Far East and Eastern Siberia.

These projects include the relaunching of two Siberian aluminum smelter projects at Boguchany and Taishet to provide an outlet for a major hydropower station that Rusal is building with power giant RusHydro.

RUSAL owns a 25 per cent-plus-two-shares in the Russian giant OAO Norilsk Nickel, which produces nickel, cooper and platinum group metals.

It is currently considering several copper projects in Russia's Far East.

Rusal's majority shareholder, Oleg Deripaska also owns Strikeforce Mining and Resources Limited, the largest molybdenum producer in Russia.

Russia's Far East and Eastern Siberia regions possess tremen-dous reserves of oil and gas, brown and soft coal, and large mineral deposits such as iron-ore, copper-nickel, bauxite, as well as precious metals including gold, silver, platinum, palladium and diamonds.

Economic crisis

The reserves in these regions are large enough to sustain the demands for Russia, China and Japan for several centuries.

Rusal officials believe that when the current economic crisis is over Russia, the Middle East and China will emerge as the main aluminum producers, while the rest will lose their significance.

Rusal has undertaken an aggressive cost-cutting pro-gramme that has brought its production costs below world-market prices, and as such it is well positioned as compared to its main competitors.

The company is currently working on a deal to restructure its US$14 billion debt with its Russian and international creditors.

If this is accomplished, company officials believe that barring any major unforeseen circumstances, Deripaska's empire should survive without losing control of its major assets.

The standstill agreement that RUSAL negotiated with its creditors expired Thursday, June 11.

renee.shirley@yahoo.com