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. Last Updated: 07/27/2016

Aluminum's Back, Investment's Not

Russia's aluminum industry has roared back to life with strong 1996 output figures and forecasts of small growth, but analysts say no new investments which could fundamentally reshape the sector are on the horizon.


"The situation for the Russian aluminum industry is quite stable and healthy," said a London-based spokesman for Trans-World Commodities, which controls major stakes in key Russian smelters.


The Kontsern Alyuminiy producers' group put 1996 Russian primary aluminum output at 2.87 million tons, up from earlier estimates of 2.79 million and above 1995's 2.67 million.


It said output in Russia, one of the world's top producers with 15 percent of global output, would rise 1.5 percent to 2.0 percent in 1997, but it had not yet compiled export data.


Russia's total primary aluminum capacity -- some producers still idle after a two-year global output-cutting deal expired in spring 1996 -- is about 3.20 million tons.


Russia is one of the least transparent of world producers, and sensitive markets are keen to know of plans to increase or improve production.


"There was a generally held view in early 1996 that output would fall back because of alumina shortages," said Nigel Kieser, mining analyst at Paribas Capital Markets in London.


But he said Western trading houses became more active in Russia last year to smooth out raw materials supply problems and that the 1996 output figure was strong but not surprising.


While output may inch up this year, big infrastructural changes are not yet on the horizon -- in spite of the fact that smelters plan strategic alliances with each other and that Western commodities houses are major shareholders in some plants.


"I don't see any serious investments in modernization in Russian aluminum in 1997," said a senior source at Alusuisse-Lonza Holding AG, citing fears over shareholder rights that scare deep-pocketed investors.


Russian smelters spent 1996 complaining about rail tariff and production costs and can still only dream of the integration and long-term energy contracts that Western smelters have.


While these two items are still major factors dividing the Russian industry into the profitable Siberian smelters and loss-making plants in Western Russia, other concerns will come to the fore in 1997.


"Companies are going to focus on the raw materials question a lot -- on how to get alumina," said the Alusuisse source.


Seventy percent of the region's alumina, the raw material used to make aluminum, is in former Soviet countries like Kazakhstan, Ukraine and Tajikistan, and the old planned-economy Soviet-era links that once guaranteed steady supplies have disintegrated.


Russia has only two functioning alumina plants which meet less than one-third of demand, and smelters are hungrily eyeing Kazakhstan's Pavlodar and Ukraine's Nikolayevsky alumina plants.


Scarce raw materials are the Achilles' heel of Russia's big southern Siberian smelters, which account for about 90 percent of Russian primary aluminum output and are fuelled by vast amounts of electricity generated by Siberia's mighty rivers.