Azerbaijan's aluminum industry ready-to-go: Export-oriented JV in Ganja Review by Caliber.Az

The ongoing global energy crisis since last year has caused serious damage to the segment of highly energy-intensive non-ferrous metallurgy in Europe and the United States, where production is declining and aluminum prices are rising. A new outbreak of coronavirus in China in the spring of 2022 and the threat of a global recession have also reduced demand for aluminum. However, since mid-July, prices have been rising again on the world market, where, among other things, anti-Russian sanctions have also affected, depriving the Russian Federation of access to Western sales markets, as well as blocking the flow of imported raw materials - bauxite. The current situation is beneficial to Azerbaijan, which is increasing aluminum exports and has just recently signed a contract with the German Achenbach Alpha GmbH on the establishment of a Joint Venture in Ganja for the production of rolled aluminum.

Aluminum is the world's third most common chemical element after oxygen and silicon and the main metal in non-ferrous metallurgy in terms of both production and consumption. Construction and aviation, automotive and ship-building, power engineering, electrical engineering and electronics, food and pharmaceutical industry are some of the industries that cannot be imagined without the use of rolled aluminum. However, aluminum production is still one of the most energy-intensive industries, which, given the current prices for gas and electricity, is very expensive. In addition, the EU and US climate agenda requires tougher environmental standards for the "dirty" industry and a transition to "green" energy sources, which is not the most suitable environment for the development of aluminum production. Today, US and European industry is forced to give up high energy costs, and according to Bloomberg, steel, chemical, and aluminum plants have been hit hardest by rising energy prices.

Already in the first quarter of 2022, the global average cost of aluminum production was $2181 per ton, and given the low exchange prices, many aluminum smelters began operating at a loss. Recently the second largest aluminum smelter in the US was forced to lay off about 600 employees due to high energy bills. Since the end of last year, production at aluminum smelters in the European Union has also been reduced. Among the hardest hit was the Russian aluminum industry, which lost large markets in Western countries because of the sanctions, and such giants as "Rusal" lost the opportunity to import bauxite and alumina from Australia and from the Ukrainian aluminum smelter in Mykolaiv. It is expected that "Rusal" will soon be forced to shut down its Novokuznetsk or Kandalaksha aluminum smelters.

It is noteworthy that at the beginning of this year the situation was just the opposite, there was unprecedented growth in demand for rolled aluminum: the exchange price of aluminum in early February 2022 exceeded $3230 per ton, which was the highest value since mid-2008. Such high prices for the metal were until March due to fears of supply disruptions from the Russian Federation during the first month of the war in Ukraine. However, a new outbreak of coronavirus in China, which began in April, led to a tightening of quarantine measures, and this resulted in a decline in global aluminum quotations. Moreover, the Chinese factor promised to become a trigger for an even bigger global recession. As a result, aluminum prices continued a steep slide in April-June, even despite the considerable reduction of stocks.

After almost three months of decline, aluminum prices returned to growth on July 19 amid China's plans to ease pandemic restrictions, a tangible reduction in supplies from Russia, and increasingly lower expectations of a global economic slowdown. The current price on London Metal Exchange (LME) was $2404 per ton of aluminum, while contracts for August delivery rose to $2662 per ton.

The high market volatility makes it difficult to predict what prices for rolled aluminum will be by the end of the year. However, taking into account the energy crisis, plant closings in the USA and the EU, and considerable reduction of supply from Russia, which is under sanctions, a sharp drop in prices for this popular metal is unlikely.

The favorable situation in world markets, the presence of significant gas reserves in Azerbaijan, and as a consequence, the production of relatively inexpensive electricity, as well as other circumstances as never before favor our country, which has recently intensified efforts to modernize the aluminum industrial complex.

"Against the background of the events in Ukraine, energy prices are rising, which means good revenues for Azerbaijan and further development of business and attraction of foreign investment. In particular, German business in cooperation with British investors plans to invest in the construction of a new aluminum plant in Azerbaijan. It is expected that the total investments in this project will be the largest in the non-oil segment," executive director of the German-Azerbaijani Chamber of Commerce Tobias Baumann said recently.

The implementation of this initiative has already begun. In particular, on Monday, the Azerbaijan Industrial Corporation (ASK), Azeraluminium LLC, and German company Achenbach Alpha GmbH signed a contract on the establishment of a joint venture (JV) and the construction of a plant for the production of aluminum rolling. According to the information provided by Andre Barten, President and CEO of Achenbach Buschhütten GmbH, it is planned to increase production up to 105,000 tons of aluminum products per year during the two phases of the project. The total investment cost of the project is estimated at $451.2 million, with $132 million invested in the first phase. Azerbaijani Economy Minister Mikail Jabbarov, who took part in the signing ceremony on the JV agreement, said that the implementation of the industrial project in Ganja will boost the export of competitive aluminum products to Europe, the United States, and other countries.

Here, it should be noted that the construction of a plant for the production of aluminum rolling is not the only endeavor planned to modernize the other components of the aluminum complex, which is part of Azeraluminium LLC. In particular, previously announced plans of ASK, under the management of which enterprises of the country's aluminum complex were transferred, included reconstruction and modernization work on the Ganja Alumina Refinery. On the eve it was reported that ASK selects a contractor for a feasibility study of the project on the resumption of Ganja Alumina Refinery. These works are planned to be realized in three stages: in the first stage - to prepare mothballed equipment for operation, restore communications, in the second - together with German partners to set up modern production of rolled products, and in the end to introduce new technologies to ensure the granularity of alumina and bring production to full capacity. The implementation of the above projects will make it possible to produce about 400 thousand tons of alumina per year. The alumina raw material will be divided between Azeraluminium and the German-Azerbaijani joint venture, and the rest of the production will be sold on foreign markets.

In the future, the establishment of alunite mining in the Dashkesan region, as well as the introduction of modern acid-free technology for the processing of this mineral is in high demand. In this case, the republic will get rid of the need to import very expensive bauxite, obtaining valuable alumina from local alunite, which will significantly reduce the cost of aluminum production in Azerbaijan.

Meanwhile, within the framework of a modernization program Azeraluminium is buying the necessary components for production and increasing exports. Recently, by order of Azeraluminium, the first consignment of anode blocks was delivered to Azerbaijan from China, and in total, in the current year, it is planned to deliver 30 thousand anode blocks. At the same time, thanks to favorable market conditions, in January-May 2022 Azeraluminium exported various rolled products and other products in the amount of $86.6 million, which, according to the Centre of Analysis of Economic Reforms and Communications, is 81% more than the same period last year.