Steel Guru
Rusal loses aluminum plant in Ukraine
Edited by : AL CIRCLE
2 min read
The government of Ukraine has seized the only alumina plant in the country from nominal owner Rusal the world's biggest aluminum producer but while Rusal is fighting to regain control of the smelter, the only impact this could have on the company's rivals is negative.
The Zaporozhye Alumina and Aluminium Complex goes back to the 1930s and even with a hydroelectric plant attached to it is extremely inefficient when it comes to power usage. Rusal used to crush bauxite into about 227,000 tonnes of alumina a year at the plant then further refine it into 113,000 tonnes of pure aluminum.
However, demand for aluminum cratered in the 2008 recession taking prices all the way from USD 3,000 per tonne to barely USD 1,300. Given those fundamentals, Rusal shut the plant down and left it empty ever since while it concentrated on more modern and energy conscious facilities.
So even though Kiev has now taken the plant into receivership effectively re-nationalizing it after spinning it out in 2001 it is not like Rusal is losing any revenue here and competitors are not getting any kind of price advantage or chance to steal alienated customers.
Along with India, China is still the main problem as state run Chalco ramps up production capacity. Western operators like Alcoa and Rio Tinto meanwhile are struggling to shut down smelters and shift to more profitable operations. As it stands, China is tracking to become a net exporter of aluminum soon as domestic supply needs nearly half the world's industrial demand are met.
It's also possible that Ukraine will try to get the plant running again as a state run enterprise. Traders who know what this entails can only shudder at the prospect of bureaucrats with little concern for profitability dumping an extra 110,000 tonnes of finished aluminum a year on an already saturated global market to claim the revenue and put people to work
Rusal and its rivals would lose in that event but let's not get too far ahead of ourselves. Management at Rusal have promised to fight the seizure, which centers around Ukraine's claims that the smelter has defaulted on a USD 75 million debt owed to a state run bank.
The Zaporozhye Alumina and Aluminium Complex goes back to the 1930s and even with a hydroelectric plant attached to it is extremely inefficient when it comes to power usage. Rusal used to crush bauxite into about 227,000 tonnes of alumina a year at the plant then further refine it into 113,000 tonnes of pure aluminum.
However, demand for aluminum cratered in the 2008 recession taking prices all the way from USD 3,000 per tonne to barely USD 1,300. Given those fundamentals, Rusal shut the plant down and left it empty ever since while it concentrated on more modern and energy conscious facilities.
So even though Kiev has now taken the plant into receivership effectively re-nationalizing it after spinning it out in 2001 it is not like Rusal is losing any revenue here and competitors are not getting any kind of price advantage or chance to steal alienated customers.
Along with India, China is still the main problem as state run Chalco ramps up production capacity. Western operators like Alcoa and Rio Tinto meanwhile are struggling to shut down smelters and shift to more profitable operations. As it stands, China is tracking to become a net exporter of aluminum soon as domestic supply needs nearly half the world's industrial demand are met.
It's also possible that Ukraine will try to get the plant running again as a state run enterprise. Traders who know what this entails can only shudder at the prospect of bureaucrats with little concern for profitability dumping an extra 110,000 tonnes of finished aluminum a year on an already saturated global market to claim the revenue and put people to work
Rusal and its rivals would lose in that event but let's not get too far ahead of ourselves. Management at Rusal have promised to fight the seizure, which centers around Ukraine's claims that the smelter has defaulted on a USD 75 million debt owed to a state run bank.
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