Russian aluminum giant Rusal has reported a staggering 75% decline in its net profit for the first half of the year, largely due to escalating production costs caused by a combination of factors. The company, known as one of the world's leading aluminum producers, faced challenges including dwindling raw material resources, elevated inflationary pressures, and the ongoing impact of international sanctions imposed on Russia.
In a statement released on August 11, Rusal disclosed that its net profit for the six months ending June 30 plummeted to $420 mn, down significantly from the $1.68 bn recorded during the same period the previous year. The company cited several critical factors for this dramatic decline.
"This year, the issues of dwindling raw material resources, global inflation, and the international sanctions standoff persist. All of these negatively affect production costs," the statement read.
The company further highlighted the broader economic implications of these challenges, stating that;
"slowing growth in several economic sectors affects the overall dynamics of metal consumption."
This suggests that the difficulties faced by Rusal are reflective of a larger economic trend.
Rusal has not been directly targeted by sanctions; however, it has experienced a surge in production costs due to the fallout from the Ukraine conflict. The total cost of sales for the first half of the year stood at $5.22 bn, a notable increase from the previous year's $4.76 bn. Particularly, the costs associated with alumina sales soared by around 55%, reaching $1.05 bn.
In terms of revenue, Europe, which was Rusal's primary revenue-contributing region in the first half of the previous year, saw a significant decline. Revenue from Europe dropped to $1.87 bn for the six months ending June 30, down from the previous year's $2.87 bn. However, revenue from Asia experienced a notable increase, jumping by 22.4% to $1.98 bn. Despite this, Rusal's total revenue experienced a 17% dip, amounting to $5.95 bn.
Rusal's operations are not confined to Russia alone; the company also operates in Guinea, Jamaica, Ireland, and Sweden. On a more optimistic note, Rusal expressed confidence in China's aluminum capacity.
"China's operating aluminum capacity is likely to increase further, with smelters in Yunnan resuming production once the dry season is over and power supply restrictions are eased," the company stated.
Rusal's adjusted net profit witnessed a substantial decline to $315 mn, marking a more than 50% decrease. Similarly, its adjusted earnings before interest, tax, depreciation, and amortisation (EBITDA) plummeted by a staggering 84%, reaching $290 mn.
Despite the challenging circumstances, Rusal managed to slightly increase its sales of primary aluminum and alloys, reporting sales of 1.94 mn metric tons, compared to last year's 1.76 mn metric tons. The production also experienced a marginal rise, reaching 1.91 mn tons.
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