by Chris Hackett and Don Dwight
The primary aluminum output from the Former Soviet Union (FSU) represents 20% of world production; until recently, the aluminum industry in the FSU was isolated from the world aluminum market and not considered a major factor in the world aluminum industry. As a result, there are a number of interesting business opportunities which are growing from the combination of Russiaís competitive advantages in aluminum production with the world aluminum market. This article will outline some of these opportunities and then detail a specific opportunity we are currently addressing.

Historical Perspective

Before 1991, almost all of the aluminum produced in the FSU was consumed by the Soviet military-industrial complex. After the break-up of the Soviet Union and resolution of the cold war, military consumption of aluminum in the FSU collapsed; with aluminum being one of the few products the FSU countries could sell on the world market, exports grew rapidly.

Russiaís aluminum industry features a number of sustainable competitive advantages which contribute to itís ability to compete in the world market. Among these advantages are:

• Remotely located hydro electric power.
• Fully amortized, scale aluminum reduction facilities (several built in the last 25 years).
• A well educated, motivated labor force.

As a result of these advantages, several Russian aluminum smelters compete as low cost producers. Having said this, there are still many interesting areas for improvement which will benefit all parties involved i.e. western companies, the Russian aluminum producers and the world aluminum market.

Opportunities

Opportunities in the Russian aluminum industry may be grouped in two broad segments: 1) Product Development / Marketing and 2) Production Efficiencies.

1. Product Development / Marketing

By product development / marketing we mean realigning the Russian aluminum industry toward consumer products. As mentioned above, the Russian aluminum industry has historically been oriented to military production; little attention was given to production for the 150 million Russians (250 million people in the counties of the FSU). Annual per capita aluminum consumption in Russia estimates range from 2 to 7 kilograms, while annual per capita aluminum consumption in the U.S.A. is 30 kilograms¹. This means that Americans consume up to 15 times as much aluminum as Russians; the implication is that there are incredible opportunities within Russia to sell products made of aluminum. These opportunities are easy to identify simply by looking at the major uses of aluminum in Japan, Europe and North America:

• Cars / Trucks (wheels, engine parts, suspension components, etc.)
• Packaging (beverage cans, foils, etc.)
• Building Products (window frames, doors, siding, etc.).

2. Production Efficiencies

As mentioned above, several Russian smelters enjoy a low cost position, yet even these smelters have large opportunities to improve production efficiency, resulting in an even lower cost positions. Most Russian primary smelters we have worked in lag western smelters by all efficiency measures. Examples of areas which offer substantial production improvement opportunities are:

Area of Plant	Opportunity for Savings
Calcining operations	Yield management, fuel consumption.
Cast house	Optimal metal mixing, yield management, alloy production.
Pollution control	Fluoride emissions / cost for fluoride.
Pot room management	Carbon factor, electrical consumption, cathode life, metal purity.
Anode paste production (pre-baked anode production)	Better paste consistency / quality will improve carbon factor and current efficiency.

While many Russian plants enjoy substantial competitive advantages accruing from power costs and fully amortized plants, closing the efficiency gaps will result in a significant increase in earnings. In addition, improved efficiency will also reduce polluting effluents. (e.g. Reducing fluoride emissions reduces fluoride costs, extending cathode life reduces spent pot lining, etc.). To appreciate the magnitude of the Russian opportunity, the following is a description of a production opportunity we are currently developing in Russia.

Anatomy of an opportunity: Cathode Life Improvement

Several of the largest aluminum smelters in the FSU, including Bratsk, Krasnoyarsk, Irkutsk and Novakuznets, use reduction cells based on vertical stud S¯derberg technology. The reduction cells used at these plants were developed by VAMI, a Russian engineering and technology institute. One of the most popular S¯derberg cathode designs in Russia today is the VAMI C-8; there are over 4,800 C-8 cathodes currently in operation in Russia.

The average life of C-8 cathodes is 1,200 days; our work at the Irkutsk Aluminum Smelter over the last three years indicates that the C-8 cathode design is basically sound. We estimate that the C-8 operating life could be stretched to over 2,000 days (and maybe as far as 3,000 days) by implementing some minor changes to cathode construction combined with new start-up procedures and operating practices (please see below).

The average cost to rebuild a C-8 cathode in Russia today is about $25,000. The C-8 design is able to produce about 1.1 metric ton of aluminum per day; if we amortize the cathode cost over 1,320 metric tons (1,200 days), we come to a cost of $20 per ton of aluminum. If, instead, we are able to extended the cathode life to 2,000 days, we reduce the cathode cost to $12 per ton, a 40% cost reduction in cathode cost. A large plant like Bratsk could save nearly $7 million annually by extending their average pot lief to 2,000 days. Applying an earnings multiple of five (the average stock P/E in the U.S. is 17), a cathode life improvement program would create over $35 million worth of value to Bratsk shareholders. And this analysis omits the benefits that accrue from the higher current efficiency resulting from extended pot life. (Pots are less efficient during start-up and failure, thus decreasing current efficiency and metal quality while increasing carbon factor). This analysis also excludes waste disposal costs, which have become a major cost factor and liability to Western smelters; as waste disposal becomes more costly in Russia, the economic benefits of extended cathode life will improve even further.

The environmental impact of increased cathode life is equally impressive. Each C-8 cathode contains about 40 tons of material which is considered hazardous waste and must be disposed of appropriately. Increasing cathode life to just 2,000 days reduces spent pot lining from 2,200 tons per pot line year to 1,350 per pot line year assuming 180 pots per pot line; a reduction of 40%. Other environmental benefits include lower fluoride emissions as a result of fewer pot start-ups and lower PAH emissions due to overall improvement in current efficiency.

Causes of early cathode failure and solutions

Data we have collected show that 30% of C-8 failures occur through the side-wall and 70% through the bottom of the pot. The literature describes several factors which contribute to early cathode failure, these include:

• Start-up procedures
• Pot operations
• Cathode design
• Workmanship during cathode construction
• aterials of construction

We have analyzed a number of C-8 cathode failures at the Irkutsk smelter over the course of two years; our work indicates that the C-8 design is sound but does suffer from a few correctable flaws. In addition, there are operational procedures and construction procedures which are contributing to the exceptionally short life of the C-8 cells. The following are the primary causes for short cell life for the C-8; we have assigned a weighting to each factor to indicate its importance. These weightings were developed from cathode autopsies.

Start-up Procedures
… Thermal shock during start-up	15%
… Lack of pot control (overheating) during early pot operation	15%
Design Flaws
… Peripheral seam design in C-8 cathode	20%
… Upper side wall design	20%
Construction Procedures
… Collector bar installation procedure	20%
Pot Room Operating Procedures
… Lack of stable operation during pot life	10%

Based on this analysis, we have designed a pot life improvement program to address each of these issues. The following is a brief explanation of our solution to these problems.

We have developed a new start-up procedure together with equipment designed to provide controlled baking of the cathode prior to cut-in. The cathode is baked for 75 hours using a specially designed burner system; during this time, the temperature is monitored by a thermal couple buried in the cathode shell. The rate of temperature increase is carefully monitored and controlled, not to exceed 10 degrees C per hour. The rate of temperature increase is particularly sensitive from 350 degrees C to 600 degrees C.

We have made minor changes to the cathode design including adding a pre-baked carbon block to the peripheral seam and silicon carbide block to the upper side wall. (Oxidation of the upper side-wall causes about 30% of C-8 side wall failures). We also increased the thickness of steel used for the deck plate and made the shell walls out of a single steel plate, instead of the overlapping design used in many Russian smelters; this modification reduces side-wall deflection. Other cathode modifications include:

• Addition of barriers to protect the bottom insulation and slow the penetration-rate of bath constituents.
  
  
• Use of mortars during installation of bottom bricks to eliminate voids in the lining.
  
  
• Use of carboneous cement to glue carbon block together during installation in the cathode wall. This keeps joints from becoming avenues for bath and metal.
  
  
• The use of mortars to bond side block tightly to the cathode shell; this facilitates uniform heat transfer through the side wall.
  

Our research shows that roughly 20% of C-8 failures result from cracks in the cathode block surrounding the collector bars. We detected hairline cracks in the cathode blocks during the installation of the collector bars. (These cracks are visible for a short period after pouring cast iron onto the collector bars to seal them in the cathode blocks). These cracks later provide avenues for aluminum seepage and subsequent attack of the collector bar, which culminates in bottom failures. We designed a collector bar pre-heating system which is used to warm the collector bars before the iron is poured; this technique solves the problem.

While none of these measures is revolutionary, they can be economically implemented in Russian smelters. Together they solve the problems that cause 90% of the early failures of the C-8 cathode. Implementing theses changes makes a profound environmental impact while increasing the profitability and value of the aluminum plant.

The cathode life improvement project is just one of the many opportunities existent today in the Russian metals industry. While many Western companies are looking for a quick profit in Russia, and many Russian companies are looking for panaceas, our experience has been that opportunities exist and are best developed by adhering to the fundamentals. A strategy of applying sound technical and financial solutions to the Russian opportunities we see today is proving to be a sustainable way of creating value for all parities.

¹ The Aluminum Statistical Review and industry interviews.


Christ Hackett is the technology director of Access Industries' acquisition group. He developed the upgrade plan for the Irkutsk Aluminum smelter (250,000 tons annual capacity) and has led the upgrade of that plant. He has participated in several other acquisitions of aluminum related assets in Russia, including: SUBR, a bauxite mine; Sib-VAMI, a metallurgical engineering firm; and UAZ, an aluminum oxide refinery, aluminum smelter and silicon smelter. Chris earned an MBA from Harvard University in 1990 and a BA from Albion College in 1982.

Don Dwight has worked in the aluminum industry for over 30 years. He is currently the Director of Cathode Improvement Research for North American Technical Services. He earned a BS in Chemical Engineering from the University of Massachusetts. He spent 30 years with the Aluminum Company of America in several technical and management positions including electrode superintendent and pot room superintendent. Most recently, he directed ALCOAís cathode block manufacturing and testing operations. Retiring in January of 1994, he consults to the aluminum industry. Don Dwight may be reached at North American Technical Services, 730 Fifth Avenue Suite 404, NY, NY 10019, Phone: 212-262-8433, Fax: 212-262-8438.

© Christopher J. Hackett, 1995