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t the beginning of the conversation Vladimir Skornyakov noted the positive dynamics of development at all production units of the Group. Results for the first seven months of this year proved that there was an increase in extraction of bauxites, production of alumina, primary aluminum, silicon. Production rates were particularly high at aluminum-processing enterprises. The Kamensk-Uralsky Metallurgical Plant increased its output of rolled stock and semi-finished products by 20% and the increment at Urals Foil amounted to 38%. Vladimir Skornyakov reminded that just five years ago this enterprise was on the brink of a shutdown. In his words, Foil was literally reanimated. He explained this miraculous rescue with the impact of the synergetic effect, i.e. as a result of joint efforts by all SUAL Group enterprises. “We assigned the best workers from all plants to restore and start up the foil rolling shop and it gave a push to the rise of the enterprise”, said Skornyakov. Of much importance, of course, was a serious improvement of the management system, introduction of new methods of organizing production, technical re-equipment, aggressive marketing policy.
"Dynamic development of the SUAL Group proves the correctness of our strategy’s priorities for the period till 2010, which we detailed three years ago in the company’s program. These priorities are to develop the raw material base, to modernize key production capacities, to build up the output of products of high process stages", continued Vladimir Skornyakov. "It goes without saying that life does not stand still and we keep correcting the program taking into account the changing situation. In this sense the two last years have been rather indicative", noted the first vice president of the SUAL Group.
Precisely during this period several large projects were completed. Skornyakov called them "system-building". Among them he mentioned, above all, putting the Sredne-Timan bauxite quarry in commercial operation. "In essence, SUAL established a new raw material base for the national aluminum industry" said Vladimir Skornyakov explaining its significance. The company completely solved the raw material problem for at least next few years and made a reserve. Skornyakov asserted that with the available equipment and infrastructure the extraction of bauxites on Timan could be raised up to 2 million tons, if necessary (last year the extraction volume amounted to about 1 million tons).
Vladimir Skornyakov also referred to the 2003 commissioning of a new series of electrolyzers at the Ural Aluminum that made it possible to build up prime metal production capacities by 35,000 tons a year. He called it one of the most important events for the SUAL Group.
Skornyakov singled out ecology as a special subject. "SUAL recognizes its responsibility for protecting the environment in the regions of its operations", stressed the first vice president of the holding. He said that the Department of ecology, protection of labour and industrial safety was set up within the company, obligations were assumed to introduce ecologically safe technologies and limit the harmful effect of production. In particular, new electrolyzers at the Ural Aluminum have a dry gas cleaning, which, in Skornyakov’s words, "complies with the toughest standards". Similar systems are being built at Bogoslovsky Aluminum and Kandalaksha Aluminum, the same project is being developed for Nadvoitsy Aluminum.
"We are seeking to realize principles of the new ecological policy through the Komi Aluminum project", said Vladimir Skornyakov meaning plans to construct a high-capacity alumina-and-aluminum complex based on the Sredne-Timan bauxite quarry. Research works are underway so as to assess impact of the future production on the region’s environment. Also, for the first time in the history of Russia’s aluminum industry the program of public hearings is being implemented in accordance with the international practice. In Skornyakov’s opinion, this will let increase significantly the efficiency of environment-protection measures.
Responding to the question, what steps the SUAL Group leadership may take so as to make the Group a world-level company, Vladimir Skornyakov expressed an opinion that today SUAL already has many features typical of the world’s leading companies. "First of all, the strategy of SUAL is based on a dynamic and balanced development of all metallurgical process stages and it singles out priority directions of upgrading efficiency of each and every enterprise integrated in the Group. Not every world company – far from it – has such a level of raw material self-sufficiency and equilibrium by volumes of consumed raw materials. Besides, we have set a task to enter international financial markets and I believe that soon the time will come, when our stock will be selling on international stock exchanges. It will significantly increase chances to attract cheaper ‘long money’ for implementing our projects".
In Skornyakov’ words, it is very important for SUAL to assert its long-standing image of a dynamic company having a big potential for development, of a company that makes it beneficial to invest money in. "To this end it would be insufficient just to switch over to the international accounting standards. We have done it already. What we need is to be more active in winning leading positions in world markets", he noted. Skornyakov said that at the same time not only the scale of production is important but also an effective management of assets, dynamics of forming corporate profits, capitalization level.
Vladimir Skornyakov pointed out that, in his opinion, modernization of the company’s plants is one of the key directions of its development. He reminded that Irkutsk Aluminum, the youngest of them, has been in operation for 40 years already, while the oldest Volkhov Aluminum was commissioned over 70 years ago. Almost all enterprises integrated in the SUAL Group were being built during WWII and in the years of restoring the country’s economy. So, it is clear that such problems as ecology did not attract much attention then. And, in Skornyakov’s words, plants’ fuming chimneys, the typical feature of industrial landscape in those years, even made people proud.
But today there are not many reasons for feeling proud. "In the last 20 years not a single electrolyzer of a new design was developed, although as far back as 1965 Russia had electrolyzers with the highest capacity in the world reaching 160 kA. After that electrolyzers with a higher capacity, 255 kA, were constructed at the Sayanogorsky Aluminum only. In other words, equipment capacities were increasing very slowly", stated Skornyakov. And only now changes in this respect start taking place. Electrolyzers of the 300 kA capacity are being tested by Rusal. According to Skornyakov, the similar works are being done by SUAL: the 300 kA experimental electrolyzers will be put in operation at the Ural Aluminum at the year’s end.
Ural Aluminum is in the vanguard of the technical modernization. The plant is testing technologies and materials, which are planned to be used, later on, at other enterprises of the holding as well. In particular, Skornyakov told about the program of cooperation with the company Energoprom. This program is aimed at developing refractory-lined materials and burnt anodes of a high quality. If these burnt anodes developed by one of the Energoprom enterprises bring good results at Ural Aluminum, SUAL will stop importing anodes. As Skornyakov explained, this corresponds to "the principle of maximum self-sufficiency" that allows companies"to maintain independence from the world market’s price fluctuations and to save considerable financial resources".
The problem of energy is a restraining factor in SUAL Group’s quest to develop production in the Urals, where Bogoslovsky Aluminum and Ural Aluminum operate. But, on the other hand, the main sources of raw materials there are close to the production facilities and that helps minimize transportation expenses. "We will install 300 kA- electrolyzers at these plants with an advanced system of gas cleaning; each of them can replace 4 or 5 old units".
There are good prospects for growth in the Irkutsk region (Eastern Siberia), where, in Skornyakov’s words, free generating capacities are available. This gives reasons for planning an expansion of Irkutsk Aluminum. The first vice president of the SUAL Group also mentioned the Kandalaksha Aluminum-2 project: the calculations there are connected to the use of capacity reserve at the Kolskaya nuclear power plant.
The company’s leaders are convinced that in any situation it is important to preserve incentives for self-development: their loss is tantamount to death. At present, one of such incentives is an increase in the output of products with high added value. As Vladimir Skornyakov said, right now SUAL produces 900,000 tons of primary aluminum but it processes no more than 12% of this amount at enterprises of the so-called fourth process stage (the Kamensk-Uralsky Metallurgical Plant and Urals Foil). The company does possess reserves for expanding these production facilities. According to Skornyakov, the design capacity of Urals Foil amounts to 20,000 tons of products a year but its output comes to only 13,000 to 14,000 tons. Twenty years ago the Kamensk-Uralsky Metallurgical Plant was making about 230,000 tons of semi-finished products of wide range, mainly, for the military industrial complex. And today it produces only 70,000 tons.
Vladimir Skornyakov agreed that prospects for using this potential depend on market conditions. But the company is actively seeking new market niches. In particular, it is mastering production of drill pipes for the oil industry. Their prototype batches have already been shipped and they are being tested jointly with one of Western oil companies. Skornyakov believed that results might be significant since the specific gravity of aluminum is almost 3 times less than that of steel but the cost is higher by just 30%. This allows to increase the total length of drilling pipes and drilling depth without changing capacity of drilling rigs. Besides, because of aluminum plasticity, wells can be drilled through easily changing angles.
The SUAL Group is trying to make sure that its products are used in new models of air planes, the most prestigious sector of the aluminum market. To this end, it is cooperating with VSMPO, the largest supplier of titanium for aircraft construction companies, including Boeing and Airbus.
Responding to the request to tell about implementing promising projects declared by SUAL, Vladimir Skornyakov said that they "are at different stages of development". As far as the Komi Aluminum project is concerned, "all preliminary calculations have been completed, building sites have been chosen: an alumina plant will be located 230 km from the quarry, aluminum production facilities will be constructed even farther, approximately 300 km away, the infrastructure has been basically prepared. As for Kandalaksha Aluminum-2, "the building site for it has been chosen" and "the negotiations on energy supplies are underway".
The first vice president said that in five years the SUAL Group’s production of primary aluminum may reach 1,300 thousand tons. With respect to alumina the task is to raise its production at the Ural Aluminum by 300,000 tons in the nearest 2 years. "And, of course, we want to ensure and, as I hope, we will ensure that our processors, the Kamensk-Uralsky Metallurgical Plant and Urals Foil, expand even more the range of products and start making not only semi-finished products but the finished ones as well", Skornyakov noted.
In conclusion of the conversation Vladimir Skornyakov expressed his opinion on prospects for the Russian aluminum industry:
"If we proceed from a likely demand for aluminum, then, the prospects for our industry’s development are not bad. Russia’ consumption of aluminum per capita is approximately 5 to 6 times lower than in leading countries and Russia is using no more than 20% of produced aluminum with the rest going for export. All these can be considered an enormous growth potential". The most important condition for this growth is that "the situation in the country should be stable, predictable, i.e. the business community should know what to expect".
Specifying the concept of stability with respect to the aluminum business Skornyakov said that, in the first place, it has to do with energy supply. "When Pechiney in its time was planning to build a plant in the Republic of South Africa, one of the key conditions was to sign an agreement on guaranteed supplies of electric power for 20 years. Such is the practice all over the world. But in Russia even mechanisms to determine tariffs are absent: they are set and reexamined periodically by the Federal energy commission. If it was possible in our country to guarantee supplies of electric power under stable or predictable tariffs, this would have removed a lot of questions". In Skornyakov’s words, the same might be said of railroad tariffs as well. He pointed out that mid-term stable tariffs would mean a good signal to banks and provide SUAL with "an opportunity for a significant consolidation since terms of recoupment for most projects of the company amount to 4 to 6 years". "SUAL has everything else: raw materials, highly professional management and qualified personnel, experience, advanced technologies and enormous desire to make our company one of the world’s leaders", Vladimir Skornyakov stressed.




Pic. 1. Share of SUAL Group in international market

Alumina, mln t/year
0 5 10 15

BPU Reynolds 1.60
Rio Tinto 1.99
SUAL Group (1) 2.04
Rusal 2.64
Kaiser (2) 2.95
Glencore 3.06
BHP Billiton 4.12
Chalco 5.57
Alcan/Pechiney 6.02
Alcoa 13.89


Primary aluminum, mln t/year

0 1 2 3 4

Century 0.52
CVG 0.54
Chalco 0.73
Rio Tinto 0.79
SUAL Group (1) 0.89
BHP Billiton 1.22
Norsk Hydro 1.47
Rusal 2.44
Alcan/Pechiney 3.29
Alcoa 3.43

Source: Brook Hunt

(1) Controlled production
(2) Undergoing Chapter 11 and in the process of selling assets



Pic. 2. Share of SUAL Group’s enterprises in Russian market

Bauxites
83 %

Alumina
63 %

Primary aluminum
26 %

Silicon
70 %



Enterprises of the SUAL Group are producing:
– about 4.4 million tons of bauxites,
– over 2 million tons of alumina,
– about 890,000 tons of primary aluminum,
– over 50,000 tons of silicon.

By results for 2003; the SevZapProm enterprises integrated in December 2002 are taken into account.




Pic. 3. Geography of sales in 20031

Europe2 – 50 %
Asia – 17 %
Russia – 27 %
U.S. – 6 %

1 Including alumina, primary aluminum and aluminum semi-finished products
2 Except Russia