Russia's aluminum giant feels the strain of sanctions, production slashed amid rising costs
Russia's aluminum industry faces a crisis as alarming news emerges from Rusal about a sudden production cut. The country's largest aluminum producer, Rusal, has announced a reduction in aluminum output by 250,000 tons. The company attributes this decision to record-high alumina prices— a crucial raw material— and deteriorating macroeconomic conditions.
Rusal, owned by prominent Russian oligarch Oleg Deripaska, who is closely tied to the Kremlin, has found itself procuring more than a third of its alumina on global markets at trading prices. This has increased its share of aluminum production costs to 50%, up from the usual 30-35%. Alumina (aluminum oxide)— a key raw material for aluminum production— is derived from bauxite and used in the electrolytic process to obtain pure aluminum. Without alumina, metal production is impossible.
Against the backdrop of sanctions imposed by the U.S. and other Western nations, Rusal has encountered a host of significant issues. In February 2023, Washington imposed 200% tariffs on Russian aluminum products, subsequently broadening sanctions to prohibit trading Russian metals on major global exchanges.
Exports, which once formed a significant part of the company's revenue, have also been hit. While Europe accounted for 47% of Rusal's exports a year ago, that figure has now shrunk to 25%. This has directly impacted the company's earnings, with a revenue decline of 13% in 2023 and a net profit drop of over sixfold.
Despite the crisis, Rusal has pledged to maintain its workforce and social programs. However, production cuts amid falling exports and high costs signal a worsening situation in Russia's aluminum sector.
Rusal's economic troubles reflect a broader crisis in Russian industry. Sanctions on the metals sector continue to undermine its stability, and the loss of access to Western markets and technologies is making recovery increasingly difficult.
Deripaska, like other Russian oligarchs, is attempting to mitigate the impact of sanctions, yet even his proximity to the Kremlin has not helped overcome the mounting challenges. Economic pressure on Russian industry is intensifying, pointing to continued recession in the face of isolation from the global economy.