China signaled it's prepared to curb aluminum production to try to stem oversupply as part of an agreement with Russia.
The Sino-Russian protocol on energy cooperation, signed Nov. 16 by Russian Deputy Prime Minister Arkady Dvorkovich and Chinese Vice Premier Zhang Gaoli, includes a section on bringing aluminum output into line with demand, according to a copy of the document obtained by Bloomberg News. It also supports tie-ups between Russia's United Co. Rusal and Aluminum Corp. of China Ltd., or Chalco, on developing mining and new alloys, the document shows.
"China is finally ready to review its policy in aluminum and help to stabilize the market after the price declined to the level where all of its aluminum producers are working below break-even," Rusal's Deputy Chief Executive Officer Oleg Mukhamedshin said in a phone interview from Moscow. It's "mega news for the industry," he said.
A flood of aluminum exports from China has depressed international markets this year, sending prices to the lowest since 2009 and forcing smelters around the world to reduce production. Rusal may move forward in December with plans to cut its output by 200,000 metric tons while its Kubal smelter in Sweden may be idled, the company said this week.
The protocol between the two governments includes a "recommendation for optimization of aluminum production in line with demand by Chinese and Russian aluminum industries in order to avoid inefficient use of energy resources," Mukhamedshin said.
The Chinese State Council Information Office didn't immediately reply to requests for comment. Aliya Samigullina, a spokeswoman for Dvorkovich, confirmed the signing of the protocol and referred to a Nov. 16 government statement on the meeting with China that said the parties welcomed talks to develop aluminum projects.
Russia may offer to build new domestic smelting capacity to supply China as its production is cleaner and more commercially viable than that of the Asian country, Mukhamedshin said.
"That won't happen now, only in at least three years, when the market will be stabilized and the oversupply issue solved," he said. Rusal and Chalco are working on developing new alloys, which may be sold to China, and they may consider joint projects in bauxite and alumina, Mukhamedshin said.
Chinese exports of semi-finished aluminum totaled about 300,000 tons in October, similar to levels at the start of 2014, according to Rusal. That compares with exports that peaked at almost 500,000 tons in December, a Rusal presentation published this month shows.
Exports of so-called fake semis, or primary aluminum lightly processed to qualify for a 13 percent tax rebate, fell significantly after the issue "had obtained serious attention from the Chinese authorities," Mukhamedshin said.