Rio Tinto to increase aluminium output in 2016 despite global surplus

LONDON (Reuters) - Global miner Rio Tinto (RIO.L) plans to boost aluminium production next year by about 10 percent due to productivity improvements, it said on Tuesday, despite a global surplus weighing on prices.

Hard-hit prices will remain under pressure until loss-making producers slash output, Rio said.

Rio (RIO.AX), one of the world's biggest producers of the metal used in transport and packaging, told a presentation in London that it targeted output of 3.6 million tonnes in 2016.

"Just what the world needs, more aluminium," said analyst David Gagliano of BMO Capital Markets in a note.

Benchmark aluminium prices (CMAL3) on the London Metal Exchange has shed about a fifth this year, sinking to the lowest levels in over six years, mainly hit by over-production in top producing country China.

Gagliano said Rio's plans to increase output was more than expected, prompting him to boost his estimate of the global aluminium surplus next year by 160,000 tonnes to 1.1 million tonnes.

Rio does not expect a speedy recovery of the market, said Gervais Jacques, managing director of aluminium sales and marketing.

At current prices, about half of all aluminium capacity is loss-making, so more shutdowns and closures are expected from high-cost producers, he said.

"Until this happens, prices will remain under pressure," Jacques said. "But industry players are reluctant to carry through their intentions and governments are quick to provide subsidies to players under stress."

Rio Tinto, a low-cost producer, has slashed costs in its aluminium division by $1.1 billion since 2013 and is targeting an additional $300 million for 2016, said Alf Barrios, chief executive of Rio Tinto Aluminium.

"I will not tolerate any free cash flow negative smelters in my portfolio," he said.

At current aluminium prices, all Rio smelters are due to be cash positive next year, he added.

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