“Prices for aluminum, in contrast to copper, have reached their minimum,” Oleg Mukhamedshin, RUSAL’s director of corporate development, said ahead of LME Week in London.

“At current prices, 30-40 percent of global production is either loss-making or close to breakeven. That applies to some Chinese producers and some plants in Europe and the US,” he said.

“To sink further is not possible; there will not be a significant further fall.”

Prices for three-month aluminum on the London Metals Exchange recently hit one-year lows below $2,150 per ton, down from peaks of over $2,800 in May on fears that the West’s sovereign debt crisis could depress the world economy.

But compared with other base metals, aluminum has shown relative resilience. The three-month LME contract is down just over 10 percent so far this year, while nickel is down more than 28 percent.

As evidence of persistent physical demand in spite of financial market concerns about a downturn in demand, Mukhamedshin said physical aluminum was still selling at a healthy premium to LME cash prices.

“Everything will become clear after the meetings with traders at LME Week, but right now we do not see any radical reduction in demand,” Mukhamedshin said.

Mukhamedshin said he did not see any evidence that LME aluminum stocks were likely to rise, which confirmed his view that supply and demand were broadly in balance and that there was no fundamental reason for demand to weaken.

High exchange stocks have been one factor weighing on aluminum prices in recent years, although prices have received some support from a fall in stock levels from a May peak of 4.71 million tones. 

“What is happening in the world is linked to the risks stemming from the debt crisis in countries that are not major consumers of aluminum,” he said.

China’s supply and demand is a guidepost for aluminum, a key input for the construction business and carmakers and an essential element in production of light electronics devices such as the Apple iPad.

News out of the Chinese market in recent months has played to aluminum bulls such as RUSAL and has been characterized by annual declines in production. RUSAL says China will become a net importer of aluminum in some quarters of 2012.

Potential for China to loosen its monetary policy is another factor underpinning the case for greater stability in metals prices.

RUSAL says it maintains a significant cost advantage over Chinese producers. Smelters on both sides of the border are coping with significant increases in electricity costs, their most sensitive input, but RUSAL says it is in a better position.

RUSAL has hedged its electricity prices against a fall in aluminum by linking power prices to LME aluminum prices in long-term contracts with electricity generators near RUSAL’s Siberian production bases.

“In addition, we expect a gradual devaluation of the rouble to 36-38 to the dollar by the end of next year, which will make Russian exports more efficient,” Mukhamedshin added.

RUSAL last week signed a new deal to refinance $9.33 billion in debt to foreign creditors, the remainder of a debt that threatened to sink the company after the 2008 debt crisis.

It has $1 billion in debt to Russian creditors on its balance sheet, which is yet to be refinanced.

“That will conclude the process of refinancing, based on which we don’t have any redemption payments to make until 2013,” Mukhamedshin said.

Cash flows will be enough to cover debt payments and modernize its plants, including expanding its casthouses to produce high-value alloys and upgrading old potlines to a less costly and emissions-prone version of their older technology.

It has taken out new loans to finance construction of two new smelters in Siberia, at Boguchany and Taishet.