The Rusala megaproject in Ust-Luga may receive a discount on import duties on bauxite

Rusal’s future project to build an alumina refinery in Ust-Luga may receive government support in the form of the abolition or reduction of import duties on bauxite. Now Russia almost does not import bauxite, covering the capacity of existing alumina refineries at the expense of its deposits. However, their potential is limited, and Rusal plans to import up to 5 million tons of bauxite per year from Guinea for its future plant.

The Ministry of Industry and Trade proposes to consider the issue of optimizing import customs duties or providing tariff benefits for bauxite, according to the “road map” for implementing the development strategy of the metallurgical industry (available to Kommersant). Deputy Prime Minister Denis Manturov approved the road map last week. Rusal left Kommersant’s questions without comment.

Bauxite is needed to produce alumina, and alumina is needed to produce aluminum. Currently, the customs duty rate for imports of aluminum ores and concentrates into the EAEU is 5%. However, at the moment Russia does not import significant volumes of bauxite. According to EAEU customs statistics, in 2021 Russia imported 17 thousand tons of aluminum ores worth only $7 million. Data for 2022 have not been published.

At the end of 2022, Rusal produced 12.3 million tons of bauxite, of which the Russian assets of Bauxite Timan and SUBR account for 47% of production. Rusal’s other bauxite assets are located in Jamaica, Guinea and Guyana. At the same time, only 51% of the group’s total alumina (3 million tons) is produced in Russia; the rest was imported by the company from its foreign production facilities or purchased from the market. From 4–5 tons of bauxite, two tons of alumina are obtained, and from two tons of alumina, one ton of aluminum is obtained. Russian bauxite mines fully cover the needs of Rusal’s alumina refineries in Russia, but do not meet all of the group’s alumina needs.

At the same time, in 2022, Rusal lost control over the Nikolaev Alumina Refinery and access to raw materials from Australia due to sanctions. This led to the need to purchase large volumes from the market, which negatively affected the cost of aluminum production. According to the company’s report, the cost of sales of aluminum increased in 2022 by 30.2%, to $10.77 billion, including costs for the purchase of alumina soared by 149.3%, to $1.847 billion, due to rising prices and an increase in the volume of purchased raw materials.

To solve the problem, Rusal plans to build in the Leningrad region the largest alumina refinery in Russia with a capacity of 4.8 million tons. The first stage of the plant with a capacity of 2.4 million tons will be commissioned by the end of 2028, and the second stage with similar parameters – by 2032. The company estimated the cost of construction at 400 billion rubles. The raw material base will be bauxite from Rusal’s Guinean enterprises Compagnie Des Bauxites De Kindia and Friguia, the production of which is expected to be increased. Based on bauxite prices of $60–70 per ton, at the current duty rate on bauxite, Rusal would spend up to $15 million per year.

The need to import bauxite is explained by the low quality of ores from Russian deposits. As noted in the report of the Ministry of Natural Resources on the state and use of mineral resources, because of this, in Russia only 43% of the balance reserves of bauxite and 16% of the reserves of nepheline ores are used for the production of metallurgical grade alumina.

Bauxite prices will remain stable in the near future. Boris Krasnozhenov from Alfa Bank says that a significant increase in prices is not expected in 2024. There is currently no shortage on the global market, and large aluminum companies in China (China Hongqiao Group, Chinalco, State Power Investment Corporation) are developing their own bauxite deposits in Guinea, where production has increased this year amid supply constraints from Indonesia.

Evgeniy Zainullin