Aluminum: The price increase benefits the giant Rusal (sales +31%), but the anti-Russian sanctions weigh on its profit (-16.7%).

From the beverage can to the cabin of an airplane, in the construction industry, in the automotive or naval sector, aluminium, a French invention, is everywhere.

Energy-intensive aluminum manufacturing has pushed up its production costs as energy prices rise on the back of the post-Covid economic recovery. But prices really went up after Russia invaded Ukraine.

In this context, the results of the leading Russian aluminum producer, published this Friday, are revealing in several respects, in particular to measure the impact of European sanctions on exports – double-edged swords, as for this metal Europe and France are very dependent on Russian supplies.

European sanctions and increase in aluminum prices

The Russian industrial giant therefore announced on Friday “adjusted” net income from $699 million in the first half, up from +1.5% over a year.

At first glance, European sanctions appear to have been ineffective for the last two-thirds of this first half, which was marked by the Russian army’s invasion of Ukraine.

In reality, this is a bill being highlighted because it is valuable to Rusal, but the Hong Kong-listed industrialist’s press release says it will be without “adjustment”. net profit is in the first semester Down 16.7% over one year, at $1.68 billion. Explain this drop by the fall in demand in Russia and thus the impact of the sanctions hitting the country.

In detail, this “adjustment” also takes into account Rusal’s participation in the mining group Norilsk Nickel (of which Rusal is a shareholder). “the net effect of financial derivative instruments” and “the net effect of impairment of long-term assets”writes the group.

the Sales volume which marks a jump of $7.2 billion +31.3% in the first quarter over a year while theAdjusted EBITDA increased by +37.4% at $1.8 billion.

Good figures, which the Russian group explains through the “Sharp increase in aluminum prices in Q1 2022” which also benefited “adjusted” operating profit depreciation and amortization.

Domestic demand affected

However, the group, founded by oligarch Oleg Deripaska, emphasizes that “Rising geopolitical tensions since February 2022 have significantly increased volatility in commodity and FX markets.”.

These tensions were caused by the Russian offensive in Ukraine, launched on February 24, and the international sanctions against Moscow that followed “have negatively affected the activities of Russian companies in various sectors of the economy, which has led to a decrease in demand for aluminum in Russia“, says the press release.

Procurement problems and project delays

Australia’s export ban on alumina, from which the aluminum is then extracted, and the cessation of production at the alumina refinery in Mykolaiv, Ukraine, “Have negatively impacted supplies of raw materials for aluminum production and led to an increase in spending”he says.

For her part “Investment projects and modernization programs for production facilities could be postponed due to supply difficulties”he adds.

Finally, these results are in line with the forecasts made by both the manufacturer and analysts last March.

A week after the start of the invasion of Ukraine, Rusal, which had just announced that it would triple its profits to $2.9 billion in 2021, thanks in particular to the rise in non-metallic iron prices, explained in a press release how it sees the future of the company in this war situation saw:

“The company may encounter difficulties in supplying equipment, which may lead to the postponement of investment projects,” summed up the Russian industrialist.

Meanwhile, BCS analysts said in a note that high aluminum prices, up 26% year-to-date, should at least partially offset Rusal’s current operational challenges.

Rusal needs to ‘rebuild its supply chain’

Due to European bans, a large number of Russian economic operators are facing serious problems in the supply of equipment and spare parts.

They are also struggling to import or export as international logistics and financial chains have been partially paralyzed by retaliatory measures imposed by Europe and the United States.

Today the Russian group declares that these difficulties compel them “to rebuild its supply chain”.

(with AFP and Reuters)