Rising costs knock 67% off Rusal profits

Image caption Prices of raw materials, power and labour have been pushing up aluminium prices

The world's biggest aluminium producer Rusal has reported a bigger-than-expected fall in three-month profits.

The Russian company reported pre-tax profits of $427m (£261m) for the period from April to June, down from $1.28bn in the same period last year.

Rising costs and the stronger rouble have outweighed price rises and increased production at Rusal.

But the shares have risen by 4.5% in Hong Kong, regaining some of the 33% they had lost so far this year.

Part of the fall in profits was due to the revaluation of the company's share in the profits of Norilsk Nickel.

Rusal's stake in Norilsk is the subject of a long-standing dispute between two of Russia's richest tycoons: Oleg Deripeska and Vladimir Potanin.

Rusal said on Friday it had received an offer from Norilsk to buy back most of its 25% stake, but Rusal is expected to reject the offer.

The strength of the rouble is a particular problem for Rusal because most of its sales are in US dollars.

It makes it particularly difficult for the company to compete with its main rival, Alcoa.

"The rising oil prices and weakness of the US dollar against local currencies has fuelled the rising price of raw materials and consequently driven the cost of production across the aluminium industry upwards," said the company's chief executive Oleg Deripaska.

"As a result, the global aluminium industry is suffering from lower profitability compared to other metals producers."

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