November 3, 2017 / 8:02 AM / a year ago

LMEWEEK-Aluminium producer margins hit by high input costs -Rusal

* Aluminium prices have shot up 25 pct this year, lifting margins

* Margins recently have flattened as raw material costs go up

* To boost proportion of value-added sales to 60 pct by 2021

* For Reuters coverage of LME Week, click on

By Eric Onstad and Clara Denina

LONDON, Nov 3 (Reuters) - A jump in raw material costs has trimmed aluminium producers' strong margins in recent months, an executive of Russian aluminium giant Rusal said.

Head of Sales Steve Hodgson also told Reuters that Rusal's valued-added business would grow to account for 60 percent of total sales by 2021 and that U.S. sanctions on Russia have had no impact on the company.

A 25 percent rally in benchmark aluminium prices this year has boosted profits for aluminium companies, but recently this has been offset by strong gains in raw material costs such as alumina, caustic soda and carbon electrodes, he said.

"You've got significant inflation in the cost of producing aluminium," Hodgson said in an interview in London during base metals industry gathering LME Week.

"As we've seen (metal) prices rise, we've also seen margins flatten because the smelting costs are also increasing."

He declined to say how much Rusal's costs have increased ahead of third quarter results on Nov. 13.

In August, Rusal announced it would boost dividends by 20 percent for this year after core second quarter earnings soared by 48 percent.


Rusal has also lifted profits by ramping up the amount of value-added products it sells, which totalled 49.2 percent of the total in the second quarter, against 44.3 percent in the first three months of the year.

Two projects currently being commissioned which will add continuous cast alloy bars and larger diameter extrusion billets to Rusal's product mix will allow the figure to rise to 54 percent next year, Hodgson said.

"We're on a pathway to about 60 percent by 2021. That's where we see an economically justified level."

He said Rusal has not suffered from U.S. sanctions on Russia, which were tightened earlier this year because U.S. intelligence agencies concluded Russia carried out a hacking and propaganda campaign to meddle in the 2016 U.S. presidential election.

The Kremlin has repeatedly denied the allegations.

In fact, Rusal's sales in the United States were due to increase by 15-20 percent next year, Hodgson said.

He declined to comment on whether Rusal would renew a sales contract with commodity trader Glencore.

Industry sources say Glencore is Rusal's biggest customer, buying primary or commodity metal, not value-added products, but its contract expires in 2018.

"The commodity portfolio is optimised around how we can improve our own financial situation, how we can access finance through that portfolio, how we can maximise premium revenue from different regions," Hodgson said.

"If the trader community in future years is going to be part of that, that's great, if they are not, that's great as well. There are many ways of getting value from our commodity business."

On Wednesday, Rusal launched a low-carbon certification programme and new "Allow" brand in an effort to get more value from the green footprint of its smelters.

One industry source said Rusal might consider reducing the amount of metal sold through Glencore to reap premiums by selling more of its new green brand. (Additional reporting by Polina Devitt in Moscow; Editing by Susan Fenton)

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