UC Rusal felt the first effect of closing inefficient capacities / A.Rudakov / Bloomberg

UC Rusal has already felt the first effect. The average cost of production at the holding's plants has decreased by $40/t. It turns out that now the cost of 1 ton of aluminum is 2.1% less than in the second quarter: $1871/t. According to BCS analyst Oleg Petropavlovsky, in 2014 the cost of UC Rusal's products will decrease by another $30/t, and if the ruble to dollar exchange rate does not change, then by $70-80/t. Currently, the cost of UC Rusal's aluminum is higher than market prices, which are not expected to grow significantly (see chart). However, the aluminum holding can earn on premiums to the market that the seller on the LME receives if the buyer wants to receive the goods on the day of purchase (the premium is currently $240/t), Petropavlovsky believes. But this situation may not last long, the expert warns, if the LME management adopts a new commodity policy.

"We are preparing to live for a long time with low prices. We are already mentally prepared for this, but it is not easy financially," Vladislav Solovyov, First Deputy General Director of UC Rusal, admitted in an interview with Interfax in June. Since then, the company has approved a plan to reduce production at inefficient plants and is reducing metal output.

UC Rusal planned to reduce production by 357,000 tons, or 8.7% compared to production in 2012 (4.1 million tons of aluminum). Yesterday, the company announced that in 2013, capacity would be reduced by 324,733 tons. And since the process did not begin at the beginning of the year, in 2014, aluminum production will decrease by 15%, or 647,504 tons, compared to 2012, explains a representative of UC Rusal. It turns out that UC Rusal can produce 3.45 million tons of aluminum. This is even less than in the crisis year of 2009: then the company produced 3.9 million tons of the metal.

The most inefficient capacities of UC Rusal were cut. Production was completely suspended at the Volgograd, Volkhov and Ural aluminum plants, at the first site of the Novokuznetsk plant and the Nigerian Alscon, in some buildings of the Bogoslovsky and Nadvoitsky plants. Due to the reduction in current, production was reduced at the Sayanogorsk, Irkutsk, second site of the Novokuznetsk and Khakassky plants. In addition, UC Rusal and RusHydro decided to postpone the launch of the Boguchansky aluminum plant, scheduled for the end of 2013, to mid-2014.

Aluminum companies are forced to reduce production (see chart). The reason is the global overproduction of metal. UC Rusal CEO Oleg Deripaska has been talking for a long time about the need to close unprofitable capacities. "The industry needs greater discipline and self-organization of each manufacturer in order not to work for a warehouse. Global manufacturers need to adopt a program to rationalize production capacities, which would imply a 10% reduction in capacity utilization compared to last year's volumes," Deripaska said in an interview with Interfax in August. Reducing production is the only way to support prices, agrees Petropavlovsky. Since the beginning of the year, aluminum on the London Metal Exchange has fallen in price by 14% to $1,786/t.

There will be less aluminum