Rusal sees greenshoots starting in aluminium market

By Sonali Paul

MELBOURNE, May 13 (Reuters) –  Rusal narrowed its loss from the previous quarter even as aluminium prices sank to five-year lows, which analysts said was a good sign that earnings may be near the bottom.

"Sequentially it's a major improvement on reducing the net loss. That to me is much more significant than comparing it against consensus numbers," said an analyst, pointing to difficulties in forecasting Rusal's profit. The analyst declined to be named ahead of publishing a note to clients.

Sagging earnings have forced the world's biggest aluminium producer to refinance $3.6 billion in syndicated debt. It said on Monday it was close to sealing a deal with all its lenders which it needs to complete by July to avoid going into default.

Shares in Rusal, which has its primary listing in Hong Kong and secondary listings in Paris and Moscow, added 2.9 percent in early trade on Tuesday. The stock has jumped 57 percent this year, well ahead of a modest fall in the benchmark Hang Seng Index.

Rusal reported a recurring net loss of $169 million for the March quarter, down from a revised profit of $49 million a year earlier, but an improvement on a $301 million loss in the previous quarter. Recurring net profit is adjusted net profit plus the company's share in Norilsk Nickel earnings.

Five analysts on average had expected a recurring net profit of $24 million, but those forecasts were in a wide range, reflecting different ways of adjusting for one-off items.

Rusal said cuts to global capacity to ease a market glut were helping to offset production growth in China where more efficient smelters are replacing older ones that do not meet government standards.

That, combined with strong demand growth and tight metal supply due to stocks being held back from delivery at London Metal Exchange (LME) warehouses, had helped to boost physical premiums for aluminium to record highs in the March quarter.

"While it is too soon to say the aluminium market has fully turned the corner, we are seeing positive trends, such as robust consumption growth, which is being supplemented by the ongoing optimization of production capacity around the globe," Rusal Chief Executive Oleg Deripaska said in a statement.

Rusal expects global aluminium consumption to grow 6 percent in 2014 over the previous year, led by 10 percent growth in Chinese demand.

On the capacity side, Rusal expects 1.5-1.6 million tonnes of capacity outside China to be cut in 2014, while it sees Chinese production growth in balance with demand growth there.

Rusal cut its own production by 12 percent to 883,000 tonnes in the first quarter from a year earlier.

Rusal's adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) fell to $173 million from $246 million a year earlier.

However adjusted earnings rose 71 percent from $101 million in the December quarter as the premiums it earned over LME prices surged, production costs were reined in by nearly 7 percent and the Russian rouble weakened.