United Co. Rusal PLC (0486.HK), the worlds largest aluminum producer, will cut annual output by around 7% this year, the company said Monday, paring excess global supply at a time of lackluster demand, depressed prices and rising output in China and the Persian Gulf.
Rusal will maintain the lower production through at least 2015 unless prices rise sharply, the company said after announcing that it swung to a net loss last year.
"This decision has been undertaken to maintain the companys competitive position in the global aluminum market given the current overcapacity, high power tariffs and metal prices downturn," the company said in a statement.
Rusal will cut production by around 300,000 metric tons at its "less efficient" smelters by the end of the year, and maintain output at around 3.8 million tons a year, down from 4.2 million tons in 2012, through at least 2015, company executives said in a conference call.
Rusal accounts for around 9% of global production of aluminum, which is used in industries including automobile production and construction.
The company will continue to honor supply contracts and may buy aluminum in the open market, Oleg Mukhamedshin, deputy chief executive for strategy and business development, said in the conference call.
He urged other aluminum producers to make similar cuts to help reduce the global surplus that has weighed on the market since the 2008 global financial crisis.
The challenges facing the market "require all producers to rationalize their approach," Mr. Mukhamedshin said, adding that Rusal doesnt expect other producers to announce any new major smelter projects this year.
While producers in many parts of the world will likely announce production cuts, Chinas aluminum smelters will continue to over produce, he said.
In 2012, Chinese companies produced 19.9 million tons of aluminum, an increase of 13.2% on year, according to data from the nations National Bureau of Statistics.
Aluminum is trading around $1,975 a ton on the London Metal Exchange, down 15.2% from a year earlier.
Rusal declined to give a forecast for aluminum prices this year. It attributed last years decline of nearly 16% to weak speculative interest at a time of poor market fundamentals-despite a 6% increase in global consumption to 47.4 million tons.
Rusal earlier reported that it swung to a net profit of $62 million in the fourth quarter, reversing a $974 million net loss in the same period a year earlier, thanks to reducing debt.
For all of 2012, it reported a net loss of $55 million, compared with a 2011 net profit of $237 million.