Novelties in Smelting Sector

Novelties in Smelting Sector


Heeding complaints from metallurgical companies about their hard life, the Russian government cancelled export duties on alloys for the aluminum industry but left them unchanged for unprocessed metal.

Last week the sub-commission on customs-tariff and non-tariff regulation, protective measures in foreign trade of the government commission on economic development and integration announced its final decision. It made it clear that the officials took into account the position of the industrial companies as they weighed the pros and cons. Actually, it was the business sector’s initiative. As wrote earlier, the safeguard tariffs were introduced on August 1 of this year. The measure had to decrease prices for domestic construction materials. Large metallurgical companies instantly claimed they were the victims and announced the impending disruption of production plans.

For example, RUSAL [the world's second-largest aluminum company by primary production output] announced the possible mothballing of several assets and another postponement of the launch of the Taishet aluminum smelter (TAZ). It is now the holding's key ongoing project. The plant commissioning is scheduled for the fourth quarter of this year. It has been under construction for 13 years. To date, about $1.6 billion have been invested in its construction. The capacity of the first stage of the plant will amount to 428,500 tonnes of aluminum per year. The second phase of the Taishet anode plant planned for 2023 is also in question. The decision of the Ministry of Industry and Trade made in October brought these plans back to life.

“This will stabilize the work of small and medium-sized enterprises of secondary metallurgy, as well as create the necessary conditions to complete the construction of the Taishet plant and implement the environmental modernization program of Bratsk, Irkutsk, Krasnoyarsk, and Novokuznetsk plants,” said Denis Manturov, head of the Ministry of Industry and Trade.

The duty on unprocessed (unalloyed) aluminum remains at the current level of 15%. At the Krasnoyarsk Economic Forum this spring, Russian Aluminum CEO Yevgeny Nikitin said that the company planned to restructure practically the entire industry. Modernization entails the transition of half of the RUSAL facilities in Siberia from the outdated Soderberg technology to anode baking. The process will take the next decade.

“It will completely change the aluminum industry in Russia. We will get an effect in terms of the environment. Emissions of total fluorides, resinous substances, including benzopyrene, will be reduced by a factor of 10. This is a very large-scale project, and the company has never had such projects in its history. It will provide about 10,000 jobs during the modernization period directly at the construction sites, about 7,000 jobs at allied equipment and metal structure manufacturing plants, and about 1,200 jobs during construction of the anode plants,” said Nikitin.

The baked anodes will be produced in the Irkutsk region. All of the aluminum smelters named in the program will dismantle their shops that use the old technology and build new ones with a total capacity of 1.4 million tonnes of metal per year. These works are already underway.

“Almost all of our aluminum industry is export-oriented. It is necessary to give up the surplus appropriation system and withdrawal of excess profits. We should work out programs for modernization of the industry together with business and put companies under a legal obligation to invest their super-profits in development. Lending support to business in the competition in the global markets in the medium and long term will bear fruit, including an increase in tax payments,” said Andrey Tenishev, Head of the Department of Competition Law at the Russian Presidential Academy of National Economy and Public Administration (RANEPA.)

However, based on publicly available information, it is obvious that the aluminum producers were already on the rise. RUSAL's shares have more than doubled in price since the beginning of the year alone, say analysts. The stock prices are rising faster than the aluminum itself which is expected to peak only next year. The positive dynamics of metal are ensured by shortages in the market and reduction of its production in China. Since the beginning of the year, aluminum prices have gone up by about 60%. RUSAL's subjective advantages should be added to these factors, namely complete self-sufficiency in its key raw materials such as bauxite and alumina, as well as cheap electricity. It should be recalled that Oleg Deripaska controls the Krasnoyarsk, Irkutsk, Bratsk, and Ust-Ilimsk hydroelectric power plants.

“American authorities lifted sanctions on RUSAL in January 2019. For this reason, the value of the company's shares rose significantly. In addition, RUSAL owns a 25.5 percent stake in the capital of Nornickel, which provides a remarkable inflow of funds in the form of dividends and share buyback program, allowing to significantly reduce the debt burden,” said Sinara Investbank’s representatives.

“Aluminum prices reached a multi-year high in the last few weeks. In the first eight months of 2021, the supply of aluminum alloys to foreign markets increased 3.6 times compared to the same period last year. The government considers this measure as a way to support RUSAL's investment projects to develop its aluminum production capacity and prepare it for the introduction of a carbon tax in the EU.

Nevertheless, it is unlikely that the cancellation of the duty will have a significant impact on the industry. Firstly, high prices will already provide RUSAL with a significant level of profitability in the fourth quarter. Secondly, the export duties imposed in August are limited to the current year. We believe aluminum prices are very likely to remain very high in 2022, given China's attempts to achieve lower emission levels. It is important to add that aluminum production accounts for about 75% of emissions in all of China's non-ferrous metals industry. Therefore, the trend of restraining the metal output might continue next year, which will be partially compensated by the launch of new facilities, using hydropower instead of coal generation as electricity. Under these conditions, Russia's aluminum industry will be a beneficiary of higher prices and might also pursue capacity expansion plans in the future,” Daniil Karimov, managing director of Otkritie Research's industry expert examination department, told

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