* At least 500,000 tonnes, maybe more, under threat
* Two Siberian smelters running on energy reserves
* This is "only a temporary solution" - company director
* No final decision taken on output cuts
(Adds details, background, analyst comment)
By Robin Paxton and Polina Devitt
MOSCOW, Aug 18 (Reuters) - UC RUSAL could potentially lose at least 500,000 tonnes of aluminium production, equivalent to 11 percent of last year’s output, after an accident at Russia’s largest hydroelectric power plant, a company director said.
The world’s biggest aluminium producer is running the two Siberian smelters closest to the dam without interruption after securing emergency power supplies, but main owner Oleg Deripaska has held talks with government officials about potential cuts.
"We consider that no less than 500,000 tonnes of aluminium production — or maybe even more — could be under threat," Artyom Volynets, United Company RUSAL’s director of strategy and corporate development, said on Tuesday.
Twelve people were killed and 64 are missing, presumed dead, after a turbine room at the Sayano-Shushenskaya power station was flooded on Monday, causing billions of roubles of damage and cutting off power from the plant. [ID:nLI52532]
UC RUSAL, which has debts of $16.8 billion, had already pledged to cut 500,000 tonnes of aluminium production this year in a bid to reduce its costs. These cuts are separate to any potential reductions that might result from the dam accident. UC RUSAL produced 1.98 million tonnes of primary aluminium in the first half of 2009, down 10 percent from the same period last year. Full-year 2008 output was 4.4 million tonnes.
The company operates two plants in the city of Sayanogorsk, about 50 km (30 miles) from the dam. The plants have secured emergency power from the neighbouring regions of Krasnoyarsk and Kemerovo.
"We are currently relying on reserve capacities of energy, although this is only a temporary solution to the problem," Volynets said in comments relayed by UC RUSAL’s press service.
"The problem of securing long-term power supplies to the two smelters will not be resolved in the near future and there will be a serious threat of a reduction in production volumes."
Volynets estimated it could take two to three years for the Sayano-Shushenskaya power station to return to normal.
Deripaska took part in an emergency meeting on Monday chaired by Energy Minister Sergei Shmatko, during which output cuts for the autumn and winter periods — when the load on the energy system increases — were discussed. [ID:nLH586690]
UC RUSAL says no decision has yet been taken.
"Energy tariffs are likely to go up because, in winter, the government is more likely to allocate electricity to households and utilities than to industrial users," said Vladimir Zhukov, metals analyst at Nomura Research.
"This would mean a higher cost of production for RUSAL."
UC RUSAL’s cost reduction programme brought savings of $620 million in the first six months of 2009, more than half of its full-year target of $1.1 billion. Average aluminium production costs fell 27 percent between December 2008 and July 2009.
Aluminium stocks MAL-STOCKS in London Metal Exchange warehouses are at unprecedented highs in excess of 4.5 million tonnes, a result of crumbling demand from the car and construction sectors, key consumers of the metal.
Zhukov said that, while inventories remained high, output cuts would not have a significant effect on aluminium prices. But reduced production in the medium to long term could influence the market as stocks are run down, he said.
The production cuts to date have affected UC RUSAL’s Siberian plants less than those elsewhere in Russia and abroad.
UC RUSAL cut output in Siberia — which also includes its Bratsk, Krasnoyarsk and Irkutsk smelters — by only 4.5 percent in the first half of 2009, compared with 33 percent at its plants in the Ural mountains and Ukraine, Nigeria and Sweden.
UC RUSAL’s two plants nearest the dam have combined annual capacity of 817,000 tonnes.
The Sayanogorsk smelter last year produced 532,000 tonnes of aluminium, exceeding its design capacity of 520,000 tonnes, local company spokesman Vladimir Shulekin said.
The Khakassia plant, at the same site, produced at full capacity of 297,000 tonnes last year, he said. Thus combined production at the two plants last year was 829,000 tonnes.
Shulekin declined to say how much the plants were producing this year. "Our plans are flexible and can be corrected in line with the situation on the market," he said. "Just like in football, making forecasts isn’t desirable." (Editing by Sue Thomas)