Rusal, one of the worlds largest aluminum producers, has announced a reduction in aluminum output by 250,000 tons as the first stage of a capacity optimization program, citing weak domestic demand, high interest rates, and intensifying competition from cheaper Chinese imports. The company, which is majority-owned by billionaire Vladimir Potanin and controlled through EN+ Group, said the decision reflects a structural downturn across Russian metals markets that has deepened throughout 2026. Rusal is forced to purchase more than a third of its required alumina on world markets at exchange prices, placing serious pressure on production margins.
Aluminum Giant Joins Broad Industrial Pullback
The announcement from Rusal, Russias sole major aluminum producer, comes amid a widening industrial contraction that spans metals, automotive, coal, and diamond sectors. Nearly 700,000 people are employed in Russias metallurgical industry, one of the countrys key non-energy sectors accounting for almost 20% of total industrial output. Output in the metals sector fell 10.2% year-on-year in July, the steepest drop since the start of Russias invasion of Ukraine, followed by an 8.4% decline in August, according to state statistics agency Rosstat. Leading steelmakers have reported severe financial deterioration. Mechel reported losses exceeding 40 billion rubles for the first half of the year, while the Pipe Metallurgical Company posted a net loss of 3.2 billion rubles. Magnitogorsk Iron and Steel Works saw second-quarter steel output drop 18% and pig iron production fall 9%. Both MMK and Severstal recorded negative cash flows, with Severstals free cash flow turning negative at minus 21.24 billion rubles through September. Severstal CEO Alexander Shevelev compared the sectors current crisis to the turmoil of the 1990s, warning that a lack of financing could turn industrial enterprises into heaps of rusted metal. The industry has lost Western markets and roughly one-third of its export volumes compared to pre-invasion levels, shipping 20 million tons of steel abroad last year compared to 31 million tons in 2021.
Four-Day Workweeks Spread Across Factories
Major Russian manufacturers have already shifted to shorter working weeks to cut labor costs without formally laying off workers. The Gorky Automobile Plant, which employs at least 20,000 people, moved to a four-day week, as did truckmaker Kamaz with around 30,000 employees. Avtovaz, Russias biggest carmaker with some 40,000 workers, followed suit. Alrosa, the worlds largest producer of rough diamonds, cut its payroll for all staff levels not directly involved in mining by 10%, partly through shortened working weeks. In Kuzbass, one of the worlds biggest coal-producing regions, 18 out of 151 enterprises have been shuttered, with 19,000 coal workers laid off in the first half of 2025 alone. Mechel has suspended output at one of its mines and cut operations that do not make a profit.
Three-Pronged Squeeze on Russian Industry
The crisis is driven by the convergence of three forces working simultaneously against Russian producers. Western sanctions have eliminated key export markets and disrupted payment channels and logistics. The Central Banks prolonged period of high interest rates, maintained to combat inflation, has choked domestic demand and raised borrowing costs for industrial investment. And a strengthening ruble has made Russian goods less competitive on whatever export markets remain accessible. Rusal warned that it is purchasing over one-third of its required alumina on world markets at exchange prices, a cost burden that did not exist before sanctions disrupted supply chains. The company produces aluminum using hydroelectric power from Siberian smelters, giving it some natural cost advantages, but those are increasingly offset by raw material and logistics expenses. The Russian government has acknowledged the risk of bankruptcies across the metals sector and is reportedly considering a temporary moratorium on them as part of a broader support package. Proposed measures include tax relief such as a three-month deferral of excise payments on liquid steel and of mineral extraction tax on iron ore.
Global Implications for Aluminum Markets
Russia produces roughly 6% of global aluminum output, and Rusal alone accounts for a significant share of that total. Any sustained reduction in Russian aluminum output could tighten global supply, particularly for specialty alloys used in aerospace and defense applications. However, the market impact may be muted by Chinese overcapacity, which has flooded global markets with cheap aluminum and is one of the factors driving Rusal to cut production in the first place. The production cuts also carry strategic implications. Aluminum is classified as a critical material for defense manufacturing, and Russias ability to maintain industrial output directly affects its capacity to sustain the war effort. As mines close, factories shorten their workweeks, and metals producers slash output, the economic foundations supporting Moscows military campaign face growing strain.
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