Igor Prokopov
President, Association of Aluminum Producers of Russia

    Russians love to celebrate, so they use all kinds of symbolic events to this end. Maintaining the tradition the country marked this May the seventieth anniversary of the national aluminum industry. In the Soviet years this metal sector was considered one of the most important. The high-capacity aircraft industry, enterprises of the military industrial complex and shipbuilding industry in the former Soviet Union were the principal consumers of its products. However, with the start of reforms in the 1990s exactly these very sectors of the national economy experienced catastrophic reductions of production volumes, many enterprises were either closed down or converted. As a result, the country, which only recently consumed enormous amounts of �the winged metal� (as aluminum was usually called by reporters, who stressed this way its primary destination), slid down to the level of developing markets. According to the Association of Aluminum Producers of Russia (Aluminum NCP), Russia’s consumption of aluminum products tumbled from 1.9 million tons in 1990 (or 13 kg per capita) to 300,000 tons in 1998 (less than 2 kg per capita). The downfall stopped in 1999. In 2001 its intake in the domestic market amounted to about 400,000 tons.
President of Aluminum NPC Igor Prokopov offers Eurasian Metal’s readers the following marketing analysis prepared by the Association.
The aluminum industry is one of a few sectors of the Russian economy, which managed to not only retain but to build up its production potential. Results of production activities by aluminum enterprises show a positive dynamics considerably surpassing basic indicators typical for the times of the planned economy. For example, the level of primary aluminum production in 2001 exceeded the level of 1990 by 13 %. Capacities for producing bauxites and alumina are loaded to the full. There is a considerable improvement of technological indicators, which production costs and product quality depend on. Discharges of toxic substances were cut down by 40 % altogether.
The product structure of Russian aluminum enterprises is dominated by primary aluminum (its share of export shipments accounts for about 72 %) and this makes the aluminum business highly sensitive to price situation. The limited capacity of the domestic market does not permit to expand manufacturing of aluminum rolled products, semi- and finished products in sufficient proportion. Therefore, it is not possible to ensure a high added value of products. Nevertheless, both Russian companies, Russian Aluminum and SUAL-Holding, keep making efforts to develop the fourth process stage. In a short period of time they achieved formidable results.
Russian Aluminum incorporated rolling enterprises Belokalitvinskoye obyedinenie, Mosmetallokonstruktsia and Armenal. The construction of foil rolling facilities
was completed in the city of Sayanogorsk. The production of cans for beverages (Rostar) was set going in the city of Dmitrov. Facilities to manufacture aluminum construction structures and household goods were built in the city of Samara.
As for SUAL-Holding, it is busy with restoring a foil rolling complex and setting production of aluminum plates and dishes in the Urals. The company is also developing the output of cable products at the Irkutsk and Kirsinsk (the Kirov region) mills.
The structure of aluminum sales in the Russian market in 2001 did not practically change as compared with the one that existed from 1995 to1997. The exception is the container/package sector where the demand is growing due to the increasing share of foil and cans for beverages. Before 1999 these products were not manufactured in Russia at all.
So, what are the prospects for developing aluminum consumption in Russia?
There are two basic factors influencing dynamics of the domestic market:
– upsurge of the country’s economy, expansion of industrial production, gradual improvement of the population’s material well-being and, accordingly, rise of consumer demand;
– energetic activities of aluminum enterprises expanding their presence in the market by pressing out other materials, such as steel, glass, plastics.
Developing the domestic market of aluminum products to consumption volumes close to those before 1991 (over 1.5 million tons a year) would permit to increase companies’ annual profit by almost $1 billion and provide more than 100,000 additional jobs. At the same time the influence of the world market conditions on the Russian aluminum business would significantly decrease.
Proceeding from these considerations it becomes possible to outline a number of strategic tasks that Russian companies have to accomplish.
First and foremost, it is necessary to withstand competition from imported goods in the domestic market. And this is connected not only with quality and range of products but also with applying modern logistics schemes and working out preferable contract terms of shipments.
Currently, the share of imported aluminum products accounts for about 30 % of the country’s total volume of aluminum consumption. This share jumps to around 50 %, if aluminum used in other imported consumer goods (cars, household appliances, packaged food products) is taken into account. So as to expand the presence in the market, Russian producers should master the same technique that their colleagues in the West are using. In particular, they better set facilities for making products from aluminum bars in the immediate proximity to consumers, develop the network of distributor firms provided with production facilities for cutting, handling and packaging small lots as well as make considerable investments in advertising aluminum.

The following segments of the aluminum products’ market in Russia seem to be the most promising ones:
Container/package. There were about sixteen cans for beverages per capita produced in Russia in 2001 (West European countries consume 80 cans per capita a year, for the U.S. the figure amounts to 400 cans). Taking into account the potential demand, the annual volume of aluminum used for this purpose may reach about 500,000 tons. Obviously, it will take a considerable amount of time to achieve such a volume.

MYKHALUM. The storage site for cold-rolled coils produced at the Achenbach mill

Automotive industry. Less than 40 kilograms of aluminum are used for making a car in Russia, which produced about one million of them in 2001. The figure for cars being made in the U.S., Japan and Europe amounts to about 100 kilograms and it is to increase up to 250 kilograms in the nearest 10 years. Under the program to develop the automotive industry adopted by the Russian government a significant growth of aluminum consumption in this sector can be expected.
Construction. Last year the level of aluminum used in construction was estimated at around 0.2 kilogram per capita, while in the world’s developed countries it equals 6 kilograms. There are prospects for using up to 800,000 tons of aluminum a year to meet Russia’s construction needs.
Railroad car building. The Russian ministry of railways, which operates one of the most extensive railroad networks, needs around 10,000 cars annually. But at present no cars are made from aluminum in Russia. So, it is easy to imagine the enormous potential of this sector.