SMELTING INDUSTRY IN EX-USSR LURES ALUMINA PRODUCERS

SMELTING INDUSTRY IN EX-USSR LURES ALUMINA PRODUCERS

Alumina producers are likely in the future to become more involved with the smelting industry of the former Soviet Union, said Asia-Pacific industry sources. Alumina from bauxite is used to make aluminum.

The involvement could range from port development on the Russian Pacific coast to upgrading smelter facilities in the Commonwealth of Independent States."It will be the main strategic game for the 1990s," said Lee McClintock, commercial manager of marketing at Alcoa of Australia.

"We are closely watching developments in the CIS," said John McLean, vice president and general manager of Reynolds Australia Ltd. "The potential for problems and for profits is enormous."

Last year's dramatic increase in aluminum exports from the former Soviet Union to between 700,000 and 1 million metric tons has been widely credited with helping to sink the London Metal Exchange's 1991 average 3-month price to $1,332 a ton from $1,638 in 1990.

With the demise of Raznoimport, which previously monopolized the Soviet aluminum industry's raw materials imports and metals exports, the smelters are no longer "toll-slaves," said Mr. McClintock after recently returning from the CIS. Under the Soviet Union, the system revolved around Moscow, he said. For the most part, supply lines and transport systems were set up connecting the western part of the country to eastern Europe. Most of the former U.S.S.R.'s aluminum plants are, however, located in the east, creating built- in operating inefficiencies, he said.

Six of the Commonwealth's 14 aluminum smelters, including the two biggest at Krasnoyarsk and Bratsk, are located in eastern Siberia. Russia normally purchases around 1.5 million tons of imported alumina annually. So far this year, uncertain financing has limited contract commitments to around 500,000 tons Japanese traders said. In addition, the former U.S.S.R.'s ports, which have never been very efficient, are worse off than ever due to the current economic and political chaos, said Alcoa's Mr. McClintock. Batumi, the best- equipped port in the Black Sea for alumina unloading, is in Georgia, which is not even a member of the Commonwealth.

Other major bulk unloading facilities on the Baltic Sea are iced over during the winter.

Railroad systems also have deteriorated with the breakup of the Soviet Union, he noted. "Railroads are one industry that really needs central coordination."

The two largest domestic alumina refineries are in Russia and Ukraine. The Nikolaev Alumina Plant in Ukraine is reported to be negotiating a supply contract with Jamaica Bauxite Mining.

"It is effectively impossible for smelters to get alumina without (it going) through Russia first," he said.

The region's aluminum industries are "quickly coming into the world orbit," he said.

Their cost competitiveness, which helped 1991's massive surge in exports, has been the result of energy and to some extent alumina needs priced in rubles.

Domestic alumina producers are, however, increasingly "less likely to sell in rubles," as are traditional import sources Hungary and Yugoslavia, Mr. McClintock said.