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INTERVIEWS |
 Russian aluminum giant RUSAL will not sell its aluminum foil division despite an unfavorable situation on the foil market, Sergei Goryachev, RUSAL packaging business division director, said in an interview.
The business accounts for 3% of the group’s revenue or about $313 million in 2013. “Any business have to be in the condition for sale, in order to sell it more profitably”, he said adding that otherwise it is not a business, it is a hobby.
In April, trader RUSAL RTI Ltd ordered the valuation of its non-core assets at Renaissance Securities, as well as preparation of documents for its sale. The assets “for sale” included the foil business.
The main problem of RUSAL’s packaging business – which is the sole foil producer in Russia – it is the growth of Chinese impots. Additionally, the company may postpone a project in Karelia worth 200 million euros due to tight situation on the foil market, Goryachev said.
NO GOAL TO SELL
“Previously, there were some statements in the media about RUSAL’s plans to sell the foil business, Goryachev said. – But, the company currently has no such goal to sell the packaging business. The division is set for further development as a part of RUSAL, at raising the output of goods with high added value”, he highlighted.
Current situation on the global foil market does not suggest to merger and acquisition deals, as well as to setting up of new production capacities. The price disparity between China and the rest of foil producing countries creates unfavorable conditions for launch of new plants and acquisition deals in any countries except for China. The market participants are in wait-and-see attitude, Goryachev said.
The capacity of the global foil market currently amounts to about 4.2 million tonnes per year. “For the last decade, China boosted its production capacities ten times to 2.5 million tonnes annually, which covers 60% of the global market consumption. Five years ago, Chine was a net importer of foil, but now it is the net exporter and main player on the market, which defines global prices, he added.
LOSS-MAKING INDUSTRY
The main problem of the foil producers is the disbalance between prices for primary aluminum in China and the rest of the world. The difference in the aluminum market price between China and Europe (including Russia) has already reached $530 per tonne. The thing is that the Chinese government purposefully stimulates development of the processing industry in the country, Goryachev said. Chinese foil makers get VAT refund for exports of 15% in comparison with non-Chinese companies. As a result, Chinese foil makers are benefitting $500 per tonne from metal purchases as compared to plants in the EU, Russia and the U.S. At the same time, total cash cost stands at $1,000-$1,500 per tonne. “Other foil producers are forced to be guided by Chinese price level and suffer losses”, he added. “If the price difference between China and Europe remains, the European foil makers, like the U.S. foil makers, may lose its own production capacities and shift to imports”, Goryachev said adding that only four or five small foil making plants remained in the U.S., while the bigger part is being imported.
10% OF THE MARKET - ILLEGAL IMPORTS
RUSAL packaging division, which comprises Sayanal, Armenal and Urals Foil, as well as Sayana Foil, is the only producer of foil in Russia. RUSAl accounts for 40% of the local market with the annual volumes of 55,000 tonnes of foil, while the rest is imported.
“More than the half of import, which amounts to 30,000 tonnes, comes to Russia from China (35%) and Germany (24%)”, Goryachev said. “Unfortunately, one third of imports from China is transported through the Far Eastern ports under the “gray” schemes at the reduced customs value”, he also said.
Goryachev estimates the volume of illegal foil imports from China to Russia at over $20 million, while the total Russian foil market volume stands at about $220 million. The direct losses of the Russian budget from reduced custom value of foil by unfair importers is estimated at 120-130 million rubles annually, Goryachev said.
To fix the situation with illegal imports, RUSAL cooperates with the Federal Customs Service, acts as a third party on courts, and provides materials, which allow to define the fair customs value. “We look forward to the support of the government to protect the legitimate interests and hope that together we will be able to close channels of illegal foil imports”, he stated.
200 MILLION EURO PROJECT
Due to unfavorable market conditions, RUSAL’s project in Karelia on the converting the Nadvoitsy smelter into foil maker and worth 200 million euros may be postponed, Goryachev said.
The plant was producing aluminum, but it was operating at high costs due to energy tariffs, so the production of the metal, as well as at other five smelters, was suspended. RUSAL was considering the establishment of the new foil rolling mill at the industrial site with the capacity of 60,000 tonnes.
“Now we do the design work and we are in dialogue with VEB for the financing of this project . It is estimated to cost 200 million euros. But the current market situation does not allow us to say that we are able to realize it now”, he said. According to Goryachev, the difficult situation on the market today cannot get acceptable performance for payback.
SEARCH FOR NEW MARKETS
RUSAL's packaging business in the current environment "focuses on eliminating bottlenecks in production and efficiency," the head of the division said. "First of all, all of our investment projects are aimed at reducing unit costs. Cost reduction is very important for us. We are technologically lagging behind China and Europe, because our plants were built 20-40 years ago," he said. - Our competitors have invested a lot of funds in equipment in recent years. It is time now for us and for technology to strengthen, as well as to increase capacity".
RUSAL produces 90,000 tonnes of foil annually by the three companies, while in China there are plants that produce up to 300,000 tonnes.
The share of the packaging division in the total revenue of RUSAL, which is engaged in bauxite mining, alumina output and production of aluminum and alloys, is about 3% ($313 million, according to the company’s report). But it is the only downstream-unit (deep processing) in the company which creates products with high added value, the head of the division said.
"Two-thirds of our foil production is exported, mainly in the US and Europe, one third is sold in Russia. We mainly export household foil. The buyers are large companies-rewinders, which then deliver these products to major retailers such like Walmart, Metro, Auchan. The volume of our exports to America and Europe are distributed approximately 50 to 50, small deliveries are also made to the Middle East and Latin America” Goryachev said.
On the domestic market, the company is now looking for new niches and trying to master the production of new products. In 2015, RUSAL is entering a new market - a foil for the production of food containers, Goryachev said. "It's a huge market, from packaging for food on airplanes and finishing with the forms for baking, barbecue, and so on. As for the volumes, it is comparable to the household foil market," he also said.
In future, RUSAL packaging business may double sales at the expense of this new market, if the construction of new power capacities completed, the director of the division said.
In the frameworks of this work RUSAL is investing $17 million to increase the capacity of RUSAL Sayanal in Khakassia by 25% until 2016, - from 40,000 tonnes to 50,000 tonnes of foil annually, mainly by means of high-tech foil intended for the manufacture of flexible packaging.
In the Moscow Region, the company plans to run a workshop for production of multilayer packaging materials from foil on the basis of Sayan foil in 2015-2016, Goryachev also said. The advantage of this project, as compared to Sayanal, is the proximity to the end consumer of the flexible packaging.
Currently, the main purpose of the packaging division is the import substitution, technology development and cost reduction. "We can completely satisfy the demand in foil on the Russian market. Of course, the import will always exist, but our strategic goal is to take the lion's share of the domestic market ", Goryachev concluded.
End
17.12.2014 20:25
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