OREANDA-NEWS. June 28, 2010. Oleg Deripaska, the Russian billionaire who controls the largest aluminum producer, said 70 percent of smelters globally are unprofitable after the price slumped, and a deficit may occur due to forced shutdowns.

Producers may shut 2 to 3 million metric tons of capacity in the second and third quarters, which may lead to a "deficit of physical supply," said Deripaska, chief executive officer of United Co. Rusal, in an interview.

Aluminum prices have slumped 20 percent during the past two months in London on concern that the European debt crisis and China's measures to curb its property market will hurt demand and derail the global economic recovery. Prices in China, the largest consumer of the metal, have dropped below the cost of oduction, Aluminum Corp. of China Ltd. said yesterday.

 "It's a climate of short sell," said Deripaska. "It's he hedge funds and others just playing their games. We can see hysical demand is very strong."

Aluminum for three-month delivery rose 0.9 percent to 1,938 a ton at 12:07 a.m. in London. Prices closed at USD 1,867.50 a ton on June 7, the lowest level in eight months. Rusal said in April it expects aluminum to average at more than USD 2,000 a ton during 2010.

Investor concerns about the euro, which has contributed to tumbling commodity prices, is unjustified, Deripaska said. A weaker euro will help manufacturing in Germany, Italy, France and Eastern Europe, bolstering demand for aluminum with it, Deripaska said.

 Exchange-Traded Funds

The fall in the price of aluminum is 60 percent because of financial investors, he said. It jars with a seven-year high for premiums on top of the London Metal Exchange aluminum price that clients pay for delivery of the metal, Deripaska said.

The premiums for the metal over the LME price make it more attractive to sell aluminum to consumers than to investors in exchange-traded funds, he said. The pricing situation may change within the next six months, Deripaska said.

Rusal, which has USD 12 billion of net debt, is likely to earn dividends of about USD 333 million from its 25 percent stake in OAO GMK Norilsk Nickel, Russia's biggest mining company, after the board approved the payout last month. Norilsk shareholders will meet later this month to vote on the payout and Rusal plans to use the funds to repay creditors, Deripaska said.