Russia and USA to build aluminium smelter

The establishment of a joint aluminium plant in Krasnoyarsk Krai, along with the resumption of aluminium supplies, is a mutually beneficial initiative for both parties.It is challenging for Americans to compete with China's industry without access to affordable aluminium.What are the potential benefits for Russia from this project, and what are the motivations behind offering it to the United States?President Vladimir Putin has proposed the consideration of establishing a joint aluminium production plant, for instance, in Krasnoyarsk Krai. According to the president, plans for aluminium production in this region date back to Soviet times.Aluminium production requires a significant amount of energy, and in Krasnoyarsk Krai, there is an opportunity to construct a hydroelectric power station, which is a cost-effective and environmentally friendly source of energy.The project will be "capital-intensive," and according to preliminary estimates, will cost approximately $15 billion.

In addition, Russia is prepared to resume aluminium supplies to the United States, having supplied 15% of the metal's needs in 2017. If a decision is made to open the market, Putin said that Russia could sell 2 million tons to the United States.
With regard to the project, it was evidently not a priority during the Soviet period. During this time, the implementation of such a large-scale project could have been complicated by a combination of economic, political and technological factors. Firstly, the relations between the USSR and the USA during the Cold War ruled out the possibility of close industrial cooperation. Secondly, the Soviet economy was focused on domestic projects and the military-industrial complex, rather than on the export of aluminium to capitalist countries. Additionally, the establishment of a plant from the beginning necessitated substantial investments, which, within the framework of a planned economy, could have been directed towards alternative objectives, such as the advancement of energy in Siberia or the exploration of space. Technological limitations, particularly in the field of "green" energy, also played a role: in the USSR, the emphasis was placed on large hydroelectric power plants, but their integration with export-oriented production was probably not considered a priority," says Pavel Sevostyanov, Actual State Councilor of the Russian Federation, Associate Professor of the Department of Political Analysis and Socio-Psychological Processes at the Plekhanov Russian University of Economics.

"The aluminium sales market in Soviet times was concentrated in neighbouring CIS countries, which is why demand was significantly lower, and current production capacity was sufficient," adds Vladimir Chernov, an analyst at Freedom Finance Global.

The construction of a hydroelectric power station first and foremost for the aluminium plant project is entirely logical, since electricity accounts for approximately 30% of the cost of aluminium production, and a hydroelectric power station is capable of producing cheap electricity.
Vladimir Chernov, an analyst at Freedom Finance Global, comments: "The aluminium sales market in Soviet times was concentrated in neighbouring CIS countries, which is why demand was significantly lower and current production capacity was sufficient."

Prior to the cessation of aluminium supplies to the United States, Rusal was exporting more than 0.5 million tons there per year.The question of Russia's capacity to increase exports fourfold is a valid one. However, it is anticipated that Russia is capable of increasing supplies to 2 million tons, particularly in light of the introduction of the 16th package of sanctions by the European Union (which introduces a ban on the import of Russian primary aluminium). This will allow European supplies to be redirected to the United States. Some volumes could also be sourced from China.

"Deliveries to the US are more profitable for Russia in terms of profitability than for our Asian partners," says Oleg Filippov, Director of Programs at the Institute of Management of the Presidential Academy.
In his opinion, the project to create a joint venture is beneficial to Russia for both political and economic reasons, since investments in Russian industrial enterprises are the key to partnership relations between the countries.For Russia, partnership with the US is not only about investments ($15 billion), but also an opportunity to integrate into Western value chains, Sevostyanov notes.

A joint project with the US would require the lifting of sanctions against Russian aluminium, and it would be advantageous for Russia to master the high technologies that the US can bring to the project.

"For the US, it's cheap aluminium for their industry. If Trump wants to boost American industry, which he constantly says, then they will have to buy even more imported aluminium, as they don't have enough of their own.

Aluminium is a crucial material in numerous industries, including mechanical engineering, aircraft manufacturing, shipbuilding, electrical engineering, and construction.Additionally, the affordability of this aluminium could assist the United States in its competition with China, as it would reduce the cost of final aluminium products," says Oleg Filippov.
The decision by Russia to propose this project to the US, as opposed to the EU or China, can be attributed to current geopolitical considerations. Europe, which is imposing sanctions, is not the most suitable partner at this time, and China, a competitor in aluminium production (60% of global output), is unlikely to be interested in supporting Russian exports. The US, which is striving to diversify supplies, is an ideal candidate," notes Pavel Sevostyanov.At the same time, it cannot be ruled out that Russia will now be ready to build relations with American business according to such mutually beneficial schemes: if you want to receive our products at attractive prices, then invest in joint ventures on our territory and receive the jointly produced product at a favourable price. This approach is likely to enhance partnership responsibility, which could be advantageous in the event of new turbulence between the countries, for example, during a change in leadership.
"The withdrawal of foreign companies from joint projects with Russia has proven to be a beneficial development for the Russian Federation. This is because the shares of foreign shareholders were acquired at a significant discount, which creates an opportunity to establish a joint venture with the US during the period of establishing economic and political ties," says Chernov.For instance, the shares of Western oil giants in Russian projects were sold to Russian owners, but neither ExxonMobil nor Shell received a single ruble. The funds were transferred to special type C accounts, meaning they ultimately went to the state, which will decide what, if anything, Western oil companies will receive.

However, Chernov is confident that Russia will maintain its desire for complete independence and continue accelerated import substitution in the country to reduce dependence on foreign partners, because their departure was still unpleasant.