Gadžić: The world's aluminum industry is in the greatest crisis in its history

Aluminij Mostar

Aluminij d.d. Mostar CEO Mario Gadžić, in his interview for Indicator.ba, published under the title Gadžić: The world's aluminum industry is in the greatest crisis in its history, commented that the price of aluminum is out of control and how the stock price of alumina today is the highest in history.

The complete interview:

Aluminum prices on world stock exchanges have experienced a strong recovery. How does this reflect on the Aluminij business?

- The fact is that the stock market price of aluminum has recovered, but throughout the last year, this recovery was followed by a steady rise in the price of all input raw materials, which were essential for aluminum production, and which made it impossible for us to feel the positive effects of the price increase of our products. On the contrary, the alumina and the petrol coke have reached their historical peaks last year, and for example, in order to compensate for the burden of increased price of raw material, the price alumina of $ 1 USD has to be followed by an increase of aluminium price to 2 USD, which hasn’t happened. Each tons of metal produced has its own cost structure, in which mentioned raw materials, together with electricity as the most important input item of raw materials, take significant percentages. Solely the el. Energy makes up to 60% of Aluminij’s total costs, and for the last eight months, unfortunately, production prices outstrip the stock price index of our product by far, which creates a huge problem.

How well was the Aluminij’s business in the year 2017?

- Whether the Aluminij’s business will be positive or negative depends on the price of el. energy. Due to our disrupted creditworthiness, as of 2011 and the impossibility of borrowing from financial institutions due to accumulated losses, Aluminij is not able to enter into long-term procurement contracts for supply of el. energy, which is necessary for our long-term survival and business stability. So, in the second half of 2017, we were forced to buy electricity on the stock market, by short-term contracts, with no insurance instruments, and unfavourable movements in stock prices caused the Company to conclude its business year with a loss. Although, with the lowest loss since 2012, thanks to the extensive processes of restructuring the entire business we have been doing since the beginning of this administration's mandate.

What is the progress of plans for the revitalization of production to the former pre-crisis levels?

- It is difficult to talk about investments and revitalization while 85% of the total costs are related to stock market indexes and unfavorable market trends, and while you bear the burden of inherited debt and the constant bad liquidity of the Company. Our Electrolysis plant is the only one in the world that continues to operate in the market of unregulated el. Energy prices, without any support, or subsidies of the state and without its own energy source. Recall that after 2008, 45% of electrolysis outside of China and Arab countries has been shut down, with all the areas where aluminum producers did not have their own energy source or regulated electricity price. That is when China and the four Gulf countries (Qatar, Bahrain, Saudi Arabia and UAE) took over the primacy. We, as a global miracle, managed to survive in these circumstances, but we are still the victim of a misunderstanding of the country where we consume incredible 15% of total spending of el. energy, where we have the biggest single impact on GDP and in which we have had the largest single export for years (Aluminij’s exports last year exceeded KM 358 million). Aluminij is the only consumer of el. energy in B&H that is connected to the 220kV line and throughout the year, every hour, evenly consumes equal amounts of current, thus stabilizing the total power system. However, we are still not recognized as a strategically important to be protected through the creation of legislative frameworks for undisturbed growth, as developed countries have done for their primary aluminum producers. I will mention only one in a series of difficult absurdities, which is the fact that Aluminij for the regulatory bodies of B&H and the Government of FB&H annually pays approximately 22 million KM for various types of network and other fees, while at the same time exporters of el. energy (electricity companies) are fully exempt from all these charges and have these 0 KM of costs for these fees. B&H continues to look at Aluminij just as it looks at the average household, and while the state is pushing for electricity exports, we are forced to import the same at extremely high prices, yet to pay huge network charges. To sum up, the amount of these fees last year prevailed on the scale of our positive / negative business.

Will the US aluminum customs tariffs affect Aluminij and, if so, what consequences do you expect?

- We closely monitor the overall situation with this global "war", although we do not have direct business links with the US market. How much the the global aluminum industry, which is fully exposed to the stock market, is volatile, witnesses the fact that it is currently in the greatest crisis since its inception. The reason for this is that the United States measures on freezing the entire property and business of seventeen Russian companies and private individuals, including the owners of almost all aluminum and alumina producers in Russia and their companies in the world (wherever they have capital, are affected by these measures). By introducing these measures, a total blockade of export of three million tons of Russian metal to the world was created in one day, several Russian alumina factories, in a number of countries in Europe and the world, were blocked, while at the same time Brazilian authorities (due to environmental reasons) cut the production in half in an alumina factory that is among the world's largest producers of that raw material. The aluminum industry is now faced with an unprecedented global scale crisis, as in less than a month 10% of world aluminum production was blocked. Growth in prices is of control and stock market price of alumina today is the highest in history. Aluminij d.d. Mostar, on the daily basis, monitors and analyses market trends, gaining intense communication with world experts, but at present no one can even predict to what extent the stock market will severely affect the price fluctuations of our raw materials and on the movement of metal prices (LME) and every serious analyst today abstains from a serious forecast on how long this disturbance will last. The lack of 10% of the world's aluminum causes panic in the global manufacturing industry and the consequences will undoubtedly be far-reaching, especially for the automotive and construction industries, which is the road to the new world crisis.

What business results do you expect this year and are there going to be new investments?

- It is impossible to talk about possible outcomes of the business year because the past years have taught us the dangers of extremely unpredictable disorders, and as mentioned above, we now find ourselves in an even greater disruption of the world stock market indexes, and any predictions in this situation would be overwhelming. Until the global situation is unstable, and until Aluminij restructure its inherited debts and thus resolve the issue of its liquidity and creditworthiness, we can hardly expect a successful attracting of foreign investors, although we have a strategy and top plans for building and developing the metal processing industry in our backyard. Only the creation of added value, i.e. the higher degree of our metal processing, can bring better prosperity and stability to this industry and this area, open new jobs, even open the door to strategic investments in doubling our production capacities. However, this requires preconditions, where we depend on a sound approach to the state protection of domestic economics and strategic economic entities.

Aluminij Mostar
Corporate Communications