Asian Metal: Since this September, Chinese A00 aluminum ingot prices have been fluctuating frequently and significantly and went above RMB15,000/t for a short period. The big change in China affected aluminum on LME to a large extent. As a major global aluminum producer, how do you think of the reasons? Will the high-held price get support?

Vladislav Soloviev: We see current price increase as a result of the improved global market balance and raising deficit. This was also a result of successful supply reform in China in industries like coal, steel and aluminum that led to limited production growth and higher prices. Additionally price is supported by costs push. Coal price in China increased by 2 times, alumina price increased by around 50%, transportation costs also increased.

Indeed, LME aluminium price recovered in 3Q 2016 by 3.2% to USD1,621 per tonne as compared to USD 1,571 per tonne in 2Q 2016, and the price has tested even higher levels in the recent days.

Global aluminium demand grew by 5.5% in the nine months to 30 September of 2016 year-on-year, as a result of strong demand in China, Europe, other Asia, North America and India. We have raised our forecast for the global aluminium demand to 5.5% YoY to 59.5 million tonnes in 2016, driven by Chinese growth improvement of 7.5% to 31.2 million tonnes and strong industrial activity indicators in other regions.

With that, global aluminium supply is now growing at a slower pace with strong pressure coming from increasing cost inflation. Global reported aluminium inventories also fell to 4.975 million tonnes in September, the lowest since January 2009, and to 29.9 days of consumption - significantly below the pre-crises level in August 2009 (which was 76.0 days of consumption), making aluminium the best positioned in the base metals universe.

At RUSAL, we are optimistic about the prospective as we assume the trend retains support from the global market conjuncture.

Asian Metal: Based on Asian Metal Database, China produced around 26.4 million tonnes of primary aluminum from January to October, 2016, up slightly by 1.5% YOY, while the growth speed was 12.5% during the same period of last year. What is your opinion on China’s “Supply Side” reform? Will that be helpful to the global market?

Vladislav Soloviev: The “Supply Side” reform undertaken by the Chinese Government is a great initiative, indeed, to help balance the industry which has been struggling in the past few years.

As we’ve seen, excessive aluminium capacity in China resulted in oversupply problems and sharp imbalances in a market which is the largest aluminium market in the world. Even though China does not export primary aluminium, global investor sentiment towards the industry was rather pessimistic. The steps taken by the Chinese government and by some Chinese companies to tackle the overcapacity issue have been decisive and the progress is obvious.

Aluminium capacities in China were reduced by 4.9 million tonnes per annum in since 2015. Despite the new Chinese capacity launches that have been taking place since the middle of 2015, the net rise in capacity from August 2015 to August 2016 was only 0.9 million tonnes as the majority of closed capacity is still idle and additional restarts are limited.

Our data shows that during the January-September 2016 period China’s primary aluminium production fell 2.7% YoY to 23.223 million tonnes. Whilst at the same time, consumption grew by a very healthy 7.5% year-on-year to 24.4 million tonnes for the nine months ending 30 September 2016. We’ve also seen a very strong draw-down in statistics related to stocks in China.

Chinese aluminium smelting costs continue to be under strong pressure from rising power, alumina and logistic costs. Alumina prices in China entered an upward trajectory in the beginning of this year, increasing by above 50% in October since January 2016. Steam coal prices have increased up to as much as 56% (January-October), pushing up power costs.

Now with China on its way to tackle the overcapacity issue, not only the Chinese but the global industry will also benefit.

Asian Metal: In terms of aluminum, how do you think of China’s role in the global market? Do you have any suggestions for Chinese aluminum development?

Vladislav Soloviev: China’s role in the global aluminium market today is determined by simple fact that the country secures over 50% of the global aluminium production and consumption. China is a leading player, even though China does not export primary aluminium, its role is tremendous.

Importantly, the Chinese government recognizes the measure of responsibility as it remains committed to tackling the overcapacity issue in the domestic industry, demonstrating that the initiative needs to go on in order to prevent new boosts of the problem and new market imbalances. In early October, we noted the State Council of China concluded that no new capacity will be granted to those Chinese industries currently facing oversupply. The earlier released 13th Five-Year Plan for the development of the nonferrous metals industry stresses that overcapacity in non-ferrous metals industry became a global-scale problem and new capacity should be strictly restricted.

In such conditions, we see space for growth and the industry potential in downstream and higher level processing segment development.

Aluminium production is very energy-intense, and for China an additional difficulty comes from the usage of coal as primary source of energy for aluminium industry. The Chinese Government has already taken steps to stop construction of new coal-fired power projects, at least in the provinces that have a surplus of energy. We see a transition to new sources of energy and coal-free technologies as a one more important topic on the Chinese development agenda. Moreover, China has been among the first countries to support and join the COP21 Paris Accord, with the respective national climate change commitment to decrease CO2 emissions by 60-65% per unit of GDP by 2030 from the 2005 level and increase the share of non-fossil fuels in primary energy consumption to 20%. Now after China has ratified the Paris Agreement, we think it needs to be consistent in its climate protection effort more than ever, moving from coal to cleaner and greener renewable sources of energy, and the aluminium industry needs to take one of the leading roles in this transition.

Asian Metal: Would you please give a brief introduction of Rusal’s global capacity in terms of primary aluminum and alumina? Will that have any change in the coming five years?

Vladislav Soloviev: RUSAL is a low cost, vertically integrated, low carbon aluminium producer. Our production chain includes bauxite and nepheline ore mines, alumina refineries, aluminium smelters and casting houses, foil mills and packaging production centres. In 2015, RUSAL accounted approximately for 6.7% of the world’s aluminium output and 6.9% of the world’s alumina production. Our current capacity is 3.9 million tonnes of aluminium per year, 12.1 million tonnes of alumina per year, and 22.3 million tonnes of bauxite per year. RUSAL’s operations cover over 100% of the Company’s total alumina needs and our existing bauxite resource base can support over 100 years of further operation.

In terms of capacity advantages, RUSAL has one of the lowest carbon footprints in the industry as we benefit from access to clean, renewable hydro power in Siberia, and we are constantly working to improve this even further.

Our aluminium capacity growth potential is based on the BEMO Project, RUSAL’s and Rushydro’s joint venture, which includes the 3,000 megawatt BEMO hydro power plant which began operating in 2014 and the BEMO aluminium smelter in the Krasnoyarsk region of Russia, which has a total design capacity of 588,000 tonnes of aluminium per annum. The first start-up complex has a design capacity of 147,000 tonnes per annum and is already operating in the test mode. I would mention though that aluminium produced at BEMO smelter will be mainly destined for the Russia & CIS domestic market which is currently experiencing at a very healthy growth.

On the alumina side, we have recently announced the completion of the sale of a 100% stake in our Alpart alumina refinery in Jamaica to the Chinese state industrial group JISCO. The divestment of Alpart does not affect, though, RUSAL’s 100% self-sufficiency in alumina. We are currently modernizing production of alumina at our operating refineries (Urals, Bogoslovsk and Nikolaev) which will allow us to increase alumina production at these sites by a total of 485ktpa once these projects have been completed.

Asian Metal: Over the past few years, facing the sluggish global market, many aluminum producers took kinds of actions to cut costs? How did Rusal do to cut costs? And how about the performance?

Vladislav Soloviev: Back in 2013 the prevailing economic conditions made our management team respond quickly and effectively to ensure that the impact of the downturn was eliminated. Strong focus on cost control and reduction of working capital played a significant part in ensuring RUSAL performed well in the challenging time of low prices. The most significant, though tough, step was implementation of the capacity rationalization programme and curtailment of our least efficient smelters mainly based in the European part of Russia and Urals.

Overall, we reduced our aluminium production capacity by around 650ktpa, and since 2013, our aluminium production levels have been flat at around 3.6mn tonnes per year from 4.2mn tonnes in 2012.

In addition, our focus on efficiency has been spread across all the aspects of our operation: from raw materials procurement and more efficient logistics to operational improvements at every single unit.

Since the second half of 2014, these efforts were supported by external factors such as the depreciation of the Russian Rouble and decreased in prices of purchased raw materials (especially those liked to oil prices).

As a result, RUSAL reduced its average cost of production from US$1,907 per tonne in 2013 to US$1,330 at the end of the third quarter this year, which is one of the lowest in the industry. Our EBITDA margin was 20% as at the end of the third quarter which puts RUSAL among the world’s most efficient aluminium producers.

Asian Metal: How do you think the challenges will the global aluminum market face in the coming three years? What kind of actions will Rusal take?

Vladislav Soloviev: I’d highlight two important challenges. One is a structural balance; the other one is climate change.

One the first one: in recent years we have all seen how important it is to produce as much as aluminium as it can be consumed by the market. Today, we do see an improved balance following all the capacity curtailments made both in China and elsewhere, but maintaining of this balance through the time will represent a challenge. Overcapacity in basic industries remains a global issue and still requires collective responses and cooperation.

The other challenge is the climate change. It is particularly topical for the aluminium industry due to high energy-intensity of aluminium production process associated with significant CO2 and other GHG emissions. For China, the problem is especially topical since about 90% of the aluminium production in the country is powered by coal-fired generation. Thus the transition to carbon-free energy sources seems to be on the top of climate agenda in China, that may include renewable energy technologies of wind- and solar energy generation as well as using nature friendly hydro-power.

Now that China has ratified the Paris Agreement on tackling the climate change, higher environmental standards’ observance in the country as well as carbon regulatory measures implemented by China have gained close attention, including the carbon trading schemes that will be introduced next year. As one of the world’s two largest carbon emitters and one of the world’s leading economies China is also expected to lead in solving the major global challenges, the transition to low-carbon economy and fighting the climate change among them.

Taking this chance, I would note China has demonstrated a lot of progress in increased energy efficiency, as well as it has very successfully improved the efficiency of potroom and electrolysis technologies.

According to the International Aluminium Institute, China is the most efficient aluminium producer nation as it used an average of 12,875 kWh per tonne of aluminium produced in 2015, against 13,403 kWh global average. Smelters’ energy efficiency has risen as China has replaced old smelting facilities with new ones, with bigger pot lines and bigger pots. The smelters all in all have become larger that allowed for the economy of scale and helped to lower energy consumption.

At RUSAL we believe that the future of aluminium is low carbon aluminium. RUSAL is one of the largest worldwide producers of low carbon aluminium. It is already today that 90% of RUSAL’s aluminium is produced with the use of environmentally-friendly hydropower. Transition to 100% carbon-free power is an ambitious goal of RUSAL.

RUSAL also is working on a revolutionary aluminium production technology with a potential of eliminating all GHG process emissions. As example of efficiency improvements, recently RUSAL announced launch of the first RA-550 pot of a new generation running at the Sayanogorsk aluminium smelter. We are also working to develop inert anodes, which will not have any carbon emissions.

Asian Metal: With the alumina capacity expanding in China, the demand for imported bauxite had kept rising in recent years. It is reported that Guinea will become the biggest bauxite supplier to China from 2017. Many global investors are rushing into Guinea. What is Rusal’s plan in Guinea? And how about the progress?

Vladislav Soloviev: RUSAL has been present in Guinea for 15 years and is a significant player in the bauxite industry and is one of the country’s largest private sector investors.

In Guinea RUSAL owns Compagnie des Bauxites de Kindia (CBK) and Friguia Bauxite and Alumina Complex. The Company is also developing the Dian-Dian project.

CBK is one of the world’s largest bauxite deposits which has been managed by RUSAL since 2001. CBK accounts for about 30% of the Company’s total bauxite output. CBK’s annual production capacity is 3.3 million tonnes, it employs over 1,200 people.

Friguia production complex includes a bauxite mine, an alumina refinery and a railway network. The facility is currently idle. Dian Dian is the world’s largest bauxite deposit, with the Company being the owner of rights to develop this project.

Earlier this year RUSAL and the Republic of Guinea signed an annex to the Dian-Dian Concession Agreement and an agreement on restoration of the alumina refinery Friguia and its further expansion.

According to the signed documents, Dian-Dian project will be divided into three stages. The first stage foresees the construction of a bauxite mine with a capacity of up to 3 mn tonnes per annum aimed for export until the end of 2017. The second stage foresees the expansion of the bauxite mine up to a capacity of 6 mn tonnes per annum aimed for export until 2021 and the development of the feasibility study and the environmental impact assessment of the project with the expansion of up to 9 million tons per annum with and potentially up to 12 million tons per annum. The third stage relates to the alumina production, we agreed with the Guinean government to discuss the economical reasonableness of alumina refinery construction no later than the end of 2020.

Whereas to the Friguia alumina refinery, the restoration activities will commence already in 2017. Within a certain period of time following the restart, the plant will gradually be brought to the nominal production capacity of up to 550,000-600,000 tons of alumina per annum. The Company will commence the realization of the plant expansion project up to a capacity of 1.05 million tons per annum in 2020 depending on the economic feasibility of such an expansion and the global alumina market conditions.

It is important to say, that RUSAL doesn’t limit its presence in Guinea to business. In 2006 RUSAL was awarded by the Guinean government a status of a socially oriented company. We make long term commitments to local communities and participate in building of social infrastructure in Guinea. I am especially proud to say that RUSAL played a significant role in helping Guinea to combat the Ebola virus outbreak. Not only did we stay in the country when the virus threat became very dangerous and many other foreign companies took the decision to leave, we undertook and supported various initiatives to assist Guinea in the fight against Ebola. The major contribution was the construction in record 50 days of the Centre for epidemic and microbiological research and treatment in the Kindia province. The Centre was designed and constructed by RUSAL specialists with the assistance of Russian scientists using up-to-date Russian engineering and medical equipment. All of the recommendations of the international aid organisations were taken into consideration. Over the course of the Ebola epidemic period, the Centre witnessed the best survival rate in Guinea: 62.5% of the Center’s patients diagnosed with EVD have recovered. RUSAL has invested US$10mn in implementing the Centre project. Once the disease is fully eliminated, the Centre will act as a regular medical center for the treatment of other infectious diseases.

Asian Metal: China is a major aluminum fluoride and prebaked anode supplier to Rusal. However, the production cost is rising in China. For example, compared with aluminum fluoride producers in the Middle East and Mexico, Chinese producers are losing competiveness in price. Are there any changes for Rusal’s purchase plan?

Vladislav Soloviev: RUSAL continues to source anodes from China on the basis of long-term arrangements with flexible price formulas. At the same time, we are actively developing our own anode production facilities, as well as we procure anodes from within Russia, too.

As always, RUSAL looks into new opportunities to diversify procurement options and to strengthen its competitive positions. For instance, as for aluminum fluoride, RUSAL starts to source ALF3 from the Mediterranean region, quarterly, based on annual contracts. In current market condition Chinese AlF3 exporters are hardly competitive as compared to the offers from Europe, North Africa, and moreover - even from North America.

Asian Metal: Regarding the global demand for aluminum, which field do you think will be a major growing point? And how will Rusal do in aluminum processing?

Vladislav Soloviev: Today the transportation sector is the most important driver of demand growth for aluminium for the coming years. Transportation is expected to provide the biggest growth contribution in 2016 with 1.5 million tonnes growth (half of 3 mln tonnes growth in 2016). For instance, automotive production in UK continues to see its multi-year highs, car output has been robust in January-September this year in France (7.7%), Italy (7.8%), Germany (2.4%), while in Turkey car production saw as much as 13% pick up for the period. Transportation is followed by construction and electrical/consumer durables and packaging sectors.

RUSAL’s special focus is on producing alloys for the automotive industry. Increased global automotive demand has led to our cast house investments into rolling slab and large diameter extrusion billet.

RUSAL is already a well-established supplier of the wheels makers, especially in Europe, Russia and Asia, delivering nearly all major players in this industry and targets to grow its market share from 10% to 25% within 5 years. Looking at the strong light weighting trend within the automotive industry, the focus is now non-wheel aluminium applications.

RUSAL supplies 5xxx and 6xxx series rolling slabs for application in automotive structural parts. Key body-in-white (BiW)-related investment projects are implemented at our Sayanogorsk aluminium smelter to fully dedicate one of the casting centres for 5xxx and 6xxx series automotive alloys production.

We have also developed and patented a proprietary technology to produce 5xxx series alloys with controlled grain size structure at the Bratsk Aluminium Smelter for European customers – producers of casting moulds for plastic pressure die casting.

Overall, RUSAL’s strong focus is on the higher end of the upstream business that is value-added products (VAP). The share of VAP in RUSAL total sales in 2015 was 45%, and we target to further increase the production of VAP by up to 80%, in particular, through improvements to our smelters located in Siberia.

In 2015, RUSAL developed a group of revolutionary, sparingly alloyed, aluminium-scandium alloys. Having replaced costly scandium with transition metals, they were able to produce alloys 2.5 times cheaper than existing ones, without compromising their consumer properties. These ultra-hard aluminium alloys demonstrating excellent weldability and corrosion-resistance properties. Product samples were supplied to European customers for homologation in order to replace standard alloys. Aluminium-scandium alloys have great potential in the aerospace industry and can be also applied in other transport applications.

RUSAL continues expanding its competencies in the field of wire rod production from electrical conductor grade aluminium alloys. In 2015, the Kandalaksha Aluminium Smelter mastered production of wire rod from 6000 and 8000 series alloys.

Asian Metal: How to promote a healthy and sustainable global aluminum market? Do you have any suggestions for all global aluminum producers?

Vladislav Soloviev: A sustainable market is a balanced market where producers and consumers not only work towards meeting today’s demand, but think of future generations and legacy that they will leave for these generations.

Said that, innovation is the major driving force in every economy and every industry. It is especially true for the aluminium production since our industry has to be on the front line of innovation to remain competitive versus other modern materials producers, to offer aluminium and alloys with most modern qualities and characteristics.

To achieve that, we see it crucial to work closer with the customers and end users of our products. This is the ways to understand their expectations, develop and offer aluminium and its alloys with new characteristics and state-of-the-art qualities as solution to our customers’ most innovative ideas or even develop these ideas together.

That’s what we are doing and that’s the way for the industry to develop.