11.12.2023 - Aluminium Association

Today, the aluminium industry is a source of prosperity for hundreds of thousands of people and a backbone of social life in remote Russian regions, primarily Siberia.

There are many aluminium company towns across Russia.

• Russian RUSAL currently employs about 57,000. With related sectors, the industry employs about 200,000.
• Thanks to the multiplier effect, the aluminium industry creates up to six additional jobs in the Russian economy for each job in the industry. As a result, the industry provides income for over a million people.
• From 2018 to 2023, the industry’s total social investments exceeded RUB 28 billion, benefiting over 2 million people through social programmes and projects in 25+ cities and municipalities.
• The industry’s social investments provide equipment, construction, renovation and maintenance of public facilities, support for local communities and non-profit organisations, and improvements to research, educational and cultural facilities.
• Some notable social programmes of the industry’s companies are a housing construction programme for employee families in 6 cities where RUSAL operates (960 apartments were completed in 2023, another 1,000 apartments will be completed in 2024, a total of about 4,400 apartments will be built by 2030); a programme for medical centre construction and equipping (12 medical centres have been created, serving over 200,000 patients, including 7 special COVID centres, which have helped 29,000 patients); a programme to create sports and fitness centres (3 centres have been opened, and 8 more will open in 2024); grants, scholarships, and other important health and education programmes for residents.
• United company RUSAL is also heavily investing in the local infrastructure. For instance, the planned investments in the local air travel infrastructure in the Urals and Siberia regions amount to about RUB 44 billion, with about RUB 6.4 billion already invested.

The Russian aluminium sector is often mistakenly categorised as extractive, but it is a processing industry. This is because aluminium cannot be just mined, and its manufacturing involves several stages of intricate and costly processing of predominantly imported resources.

• RUSAL, one of the world’s leading aluminium manufacturers, currently operates 29 manufacturing facilities with a combined annual capacity of approximately 5.6 million tonnes of alumina and 4.5 million tonnes of aluminium.
• Around 400 businesses are involved in the processing of aluminium, supplying a diverse range of products to the automotive, construction, telecommunications, medical, and food industries, and providing about 150,000 jobs.
• Between 2011 and 2020, RUSAL will invest USD 6.5 billion in building new facilities and upgrading existing ones.
• For the first time since the 1980s, new aluminium smelters are being built in Russia from scratch. These include the Khakas aluminium smelter (2006), the Boguchany aluminium smelter (2015) and the Taishet aluminium smelter (2021), with a combined capacity of around 1.3 million tonnes.
• The aluminium industry currently orders approximately 25 million tonnes of cargo transportation and 58 billion tonnes per kilometre of cargo turnover.

There are several stages in the production and recycling of aluminium: the mining of ore, the production of alumina from the ore, the production of aluminium from the alumina, and finally the production of finished products from the aluminium.

However, high-quality ore (bauxite with a high concentration of useful components) is virtually non-existent in Russia, and no alumina manufacturing facilities have been opened in the country since 1970. Russian industry’s demand for alumina is 65% imported. Alumina must be purchased on the world market using foreign currency, which negates the benefits of exports when the rouble weakens.

The aluminium industry is geared towards exports. Despite a growing trend, the ex-USSR market, where Russia is dominant, accounted for about 33% of supplies as of the end of the first half of 2023. This is due to the still underdeveloped domestic downstream industry. Aluminium is an exchange-traded commodity, so the supplier cannot control the price.

Today, due to the actions of hostile countries and a variety of international factors, the Russian aluminium industry is under unprecedented pressure, bringing it to the brink of a serious crisis with long-term consequences.

• Up until 2022, the industry was more than 100% self-sufficient in alumina, thanks to its overseas manufacturing facilities. However, in 2022, the actions of hostile countries significantly undermined the industry’s raw material security: alumina supplies from facilities in Nikolaev, Australia, and partially in Ireland were halted, and supply channels from many traditional suppliers were blocked. As a result, the industry lost over a third of the required alumina and was forced to organise alternative supplies from Asian countries, incurring substantial financial losses as alumina prices in Asia are on average 25% higher than in previously accessible markets.
• Many of Russia’s traditional markets have been lost and operating in others has become a challenge. Specifically, the USA, UK, and Australia have imposed safeguard tariffs on Russian aluminium (270%, 35%, and 35% respectively). In the European Union, key customers have already applied "self-sanctions", refusing to buy aluminium from Russia. The 12th package of EU sanctions is coming, which may include aluminium products (wire, foil, tubes, and pipes).
• Due to the stagnation of several Western economies and slowing growth in Asia, resulting in a surplus of metal, competition has significantly intensified in global markets. The exchange prices for aluminium have been at a record low since March 2021, and local premiums have dropped to a three-year low.
• The production costs of aluminium and alumina in the industry are continually increasing. The main drivers of this increase are largely uncontrollable: rising prices for raw materials and supplies, including the purchase of more expensive alumina from China, and higher electricity costs. The industry’s manufacturing facilities are heavily reliant on imported raw material suppliers accounting for 55~60%. At the same time, the prices of almost all types of raw materials and consumables needed for production are rising at an accelerated rate. For instance, the price of anodes has increased by 90% over several years, petroleum coke, by 89%, pitch, by 93%, and calcined coke, by 68%. Electricity, which makes up 24 to 28% of the production cost, is also becoming significantly more expensive due to rising gas and coal prices. From 2020 to 2024, the projected increase is around 49%.
• The industry needs more and more investments in large-scale environmental retrofitting projects to ensure raw material supplies. Specifically, these are the RUSAL project to build a new alumina production facility in Russia (approximately RUB 400 billion), and environmental retrofitting under the President’s national Clean Air Initiative (around RUB 380 billion).

The export duties imposed by the government further increase the production costs without any compensation. Even before the new duties, the industry had low profitability, with a projected figure of around 13% by the end of 2024. Analysts estimate that the EBITDA of industry operations could decrease by another 30% following the introduction of duties, and several manufacturing facilities may become unprofitable due to low aluminium prices. In particular, the Kandalaksha, Volgograd and Novokuznetsk aluminium smelters, which have higher than industry average costs, are at risk of significant losses, according to analysts (with a total capacity of about 500,000 tonnes).