West Hooked On Russian Aluminum Dependence Expected To Last For 3 Years, Maybe Until 2000

The West has become dependent on aluminum from Russia and will remain an import ‘junkie’ for at least the next three years, according to an industry analyst.

The U.S., Canada and Europe currently import more than 2.2 million metric tons of aluminum annually from Russia and that is expected to rise to 3.1 million tons by 1998, according to Tony Hayes of Credifinance Securities Ltd.

“The West has now become a junkie and faces the prospect of not being able to cope without Russian exports on a massive scale,” said Hayes. Russia currently exports all its aluminum production.

That shortage will continue to push up aluminum prices, and consequently the shares of major producers such as Montreal-based Alcan Aluminium Ltd. and Pittsburgh-based Aluminum Co. of America, he said.

At the London Metal Exchange, spot aluminum rose $12 Thursday to $1,824 a metric ton, or 91 cents a pound, and aluminum for delivery in three months climbed $15 to $1,832 a ton. Hayes forecast prices will double before the end of the year.

Aluminum prices have soared in the past year as production cuts and rising demand accelerated the industry’s recovery from a three-year downturn caused by the recession and increasing metal exports from the former Soviet Union.

The turnaround took hold when Russia and aluminum producers in the West agreed last year to cut primary aluminum production by up to 2 million metric tons, or 10% of the world’s annual output.

“This dependency on Russian aluminum should last until 1998 and possibly beyond 2000,” said Hayes. “As the Western aluminum industry has yet to decide when to return to full capacity, it is unlikely to announce any major expansions in the near term. Once any expansions are announced, it will take at least 18 months and as long as three years to come on stream.”

Kaiser Aluminum Corp., which operates smelters in Washington at Tacoma and Mead, is currently grappling with that question.

The company remains at only 75 percent of its production capacity in the Pacific Northwest, in part because of the continued influence of the former Soviet Union’s aluminum in the world markets.

The company’s production was originally curtailed three years ago by drought and resulting electricity shortages in the Northwest. But in the past six months enough cheap power has been made available that the smelters could return to production if and when Kaiser officials feel the world supply-demand ratio strikes the right balance.

Growing demand in the West is expected to be satisfied by imports solely from Russia. The Russian government may try to curb exports, but the bigger threat to continued Russian supply may result from breakdowns in facilities.

“Should failures take place, and there is more than a fleeting chance of that happening, then shortages and higher prices seem certain,” said Hayes.

Alcoa Chairman Paul O’Neill said Alcoa won’t consider restarting any of its previously idled aluminum smelters until inventories on the London Metal Exchange are depleted, expected by this fall.