United Company RUSAL Plc: Second Quarter 2017 Trading Update

Regulatory News:

United Company Rusal Plc (Paris:RUSAL) (Paris:RUAL):

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UNITED COMPANY RUSAL PLC
(Incorporated under the laws of Jersey with limited liability)
(Stock Code: 486)

SECOND QUARTER 2017 TRADING UPDATE

This announcement is made by United Company RUSAL Plc ("UC RUSAL” or the "Company”) pursuant to Rule 13.09 of the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, the Inside Information Provisions under Part XIVA of the Securities and Futures Ordinance (Cap. 571, Laws of Hong Kong) and applicable French laws and regulations.

Shareholders and potential investors are advised to exercise caution when dealing in the securities of UC RUSAL.

UC RUSAL announces its operating results for the second quarter ("2Q17”) 2017¹.

Aluminium

• Aluminium production² in 2Q17 totaled 921 thousand tonnes (+1.2% QoQ), with Siberian smelters representing 94% of total aluminium output. The total production dynamics is largely explained by the number of calendar days in the periods (91 days in 2Q17 and 90 days in 1Q17). Smelters utilization remained on average at a high of 95%.
• In 2Q17 aluminium sales totaled 1,002 thousand tonnes (+1.7% QoQ).

• In 2Q17 sales of value added products (VAP³) increased strongly QoQ by 13.1% to 493 thousand tonnes from 436 thousand tonnes in 1Q17. As a result the share of sales of VAP in total sales grew to 49.2% in 2Q17 in comparison with 44.3% in 1Q17. The strong growth of VAP sales is in line with Company’s strategy of increasing the share of respective product mix and it was achieved due to continuous upgrades in relevant capacities and achieved productivity gains.
• In 2Q17 the average aluminium realized price⁴ increased by 7.1% QoQ to USD2,087/t. The increase was driven by positive dynamics in London Metal Exchange ("LME”) QP⁵ component (+6.5% QoQ to USD1,913/t) and average realized premium component growth (+13.7% QoQ to USD174/t).

Alumina

• In 2Q17, total alumina production increased by 2.1% QoQ, totaling 1,928 thousand tonnes. Russian operations accounted for 36% of total output. Production volumes at refineries were largely in line with production plans. Seasonal repair works performed at Windalco, Auginish and Bogoslovsk were offset by production performance at Achinsk and Urals.
• Capacity upgrades which were completed at Nikolaev and Urals refineries were largely behind the YoY production increase at refineries in 2Q17.

Bauxite and nepheline ore

• In 2Q17, bauxite output totaled 3,090 thousand tonnes (+7.7% QoQ). Nepheline output increased by 5.2% QoQ to 1,111 thousand tonnes due to seasonal factor. Production volumes at Timan and Kia Shaltyr (nepheline ore⁶) increased by 22.7% and 5.2% QoQ to meet the production plan needs of the Urals and Achinsk alumina refineries and seasonal factor respectively. Kindia production volumes increased by 4.6% QoQ in 2Q17 which is largely explained by repairs and purchasing of rolling stock. Bauxite Company of Guyana production decreased by 2.4% QoQ.

Market overview⁷

• The LME aluminium price reached USD1,962/t in April 2017, its highest level since December 2014 and since then has fluctuated around USD1,900/t during 1H2017. Price growth is attributed to the robust demand for aluminium during the period, market expectations of supply disruptions in China coupled with significant production cost inflation.
• The world economy witnessed broad based growth in 1H17, with an increase in business activity, particularly in the developed economies. The main drivers for demand for aluminium were the growth of consumer spending particularly for cars, durable goods sales and also fixed asset investments. Global PMI remains strongly above 52.6 level with EU and Japan leading the way with 57.4 and 52.4 respectively and the US ISM index was strongly at 52 level.
• The Chinese economy continued to show strong growth through 1H2017. The official PMI reached 51.7 in June 2017 and Caixin showed 50.4 level. At the same time industrial production grew 7.6% in June YoY and GDP in 2Q2017 went up 6.9% YoY.
• The reported inventories of aluminium have declined further to 3.1 mn tonnes as at the end of June 2017 (7.5% down from inventories level at end of April 2017). The days of consumption decreased to 37 days from 110 days in 2015 and continue to decline at a steady rate.
• UC RUSAL estimates that in 1H2017 global aluminum demand grew by 5.7% YoY to 31.7 mn tonnes. Global supply in 1H2017 was up by 11.5% to 31.8 mn tonnes, leaving the aluminum market roughly balanced.
• Based on CRU estimates, aluminium demand in the world ex-China rose by a strong 3.5% in 1H2017 YoY to 14.7 mn tonnes while production (including eight non-reporting countries) increased by 2.3% YoY to 13.5 mn tonnes. This left the ROW (rest of the world) aluminium market with approximately 1.1 mn tonnes in deficit in 1H2017.

• According to UC RUSAL’s estimates, demand in China grew by 7.5% in 1H2017 YoY to 17.0 mn tonnes, implying that the Chinese market was oversupplied by c.1.2 mn tonnes during this period. This was a result of domestic production growing on the back of new capacity additions through 4Q2016 as well as restart of production.

• Nevertheless, the announcement by the Chinese regulator regarding winter capacity cuts is expected to result in an annualized production loss of 1.2 mn tonnes, according to UC RUSAL estimates. When considering the expected curtailments of the so-called "illegal capacities”, UC RUSAL expects that the Chinese aluminium market balance will improve in 2H2017 leading to much tighter market situation in 2018. As of the date of this announcement, according to SMM, around 1.8 mn tonnes of illegal operating capacity and 2 mn tonnes of projects under construction have been closed and UC RUSAL expects another 2-3 mn tonnes of operating capacity to be closed by the end of this year.
• In addition, the continued aluminium cost push in China, mainly driven by surge in carbon materials prices, provides further support for growth of domestic aluminum prices amid the backdrop of expected winter cuts. Thus, even historically low cost producing regions like Xinjiang and Inner-Mongolia experienced average growth of producing costs including transportation cost up to the level of RMB13,000/t as at the end of June 2017 as compared to their level of RMB12,400/t on average through 2016.

GROUP SALES DATA

ALUMINIUM PRODUCTION

  Foil  and  packaging  production results

  Other aluminium  products  output  and  silicon output

  ALUMINA PRODUCTION

  BAUXITE MINING

Nepheline ore production¹²

  JOINT  VENTURE  OPERATING RESULTS

27 July 2017

As at the date of this announcement, the executive Directors are Mr. Oleg Deripaska, Mr. Vladislav Soloviev and Mr. Siegfried Wolf, the non-executive Directors are Mr. Maxim Sokov, Mr. Dmitry Afanasiev, Mr. Ivan Glasenberg, Mr. Maksim Goldman, Ms. Gulzhan Moldazhanova, Mr. Daniel Lesin Wolfe, Ms. Olga Mashkovskaya, Ms. Ekaterina Nikitina and Mr. Marco Musetti, and the independent non-executive Directors are Mr. Matthias Warnig (Chairman), Mr. Philip Lader, Dr. Elsie Leung Oi-sie, Mr. Mark Garber, Mr. Dmitry Vasiliev and Mr. Bernard Zonneveld.

All announcements and press releases published by the Company are available on its website under the links http://www.rusal.ru/en/investors/info.aspx, http://rusal.ru/investors/info/moex/ and http://www.rusal.ru/en/press-center/press-releases.aspx, respectively.

¹ Operating data is based on preliminary data and may be updated in the 2Q17 financial results.
² Aluminium production represented by salable products output (the number includes all facilities excluding Volgograd remelting).
³ VAP includes alloyed ingots, slabs, billets, wire rod, high and special purity aluminium.
⁴ The realised price includes three components: LME component, commodity premium and VAP upcharge.
⁵ QP (quotation period) prices differs from the real time LME quotes due to a time lag between LME quotes and sales recognition and due to contract formula speciality.
⁶ Kiya Shaltyr Nepheline ore is used as a feedstock for alumina production at Achinsk alumina refinery.
⁷ Unless otherwise stated data for the "Market overview” section is sourced from Bloomberg, CRU, CNIA, IAI and Antaike.
⁸ Unless stated otherwise the production data throughout the report is presented on equity-adjusted basis (for exceptions please refer to the data of the Boguchansky smelter and Boguchanskaya HPP). Production volumes are calculated based on the pro rata share of the Company’s (and its subsidiaries’) ownership.
⁹ Does not include remelting of the metal from other UC RUSAL smelters.
¹⁰ Here and further "total production” may not be equal to the arithmetic addition of the numbers above presented in the table. The differences arise due to the rounding of exact numbers (including decimals).
¹¹ The Alpart was sold to an external party (see UC RUSAL’s announcement dated 19 July 2016). The results of Alpart are excluded from UC RUSAL Consolidated Financial Statements from 3Q 2016.
¹² Nepheline ore used as a feedstock for alumina production at the Achinsk alumina refinery.
¹³ Boguchanskaya HPP data is represented by 100% of energy generated (not on an ownership pro rata basis).
¹⁴ Boguchansky aluminium smelter data is represented by 100% of volumes produced (not on an ownership pro rata basis).

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