Aluminium Combines Now: While ALRO Flourishes, KAP Flounders


While seemingly very different, Romania’s ALRO and Montenegro’s KAP – Kombinat Aluminijuma Podgorica – share one key number: $570 million. For ALRO, that is the amount of investment it has received since its 2002 privatisation. For KAP, that same number represents the money the Montenegrin state lost between 2005-2013, before the smelter went bankrupt in July 2013. During Communist times, both producers belonged to the so-called Kombinat category, a designation referring to vertically integrated producers – and both tried in the early 2000s to boost their fortunes. But 15 years later, the differences between ALRO and KAP couldn’t be starker.

Despite still bearing the Kombinat qualifier in its name, the KAP is no longer a vertically integrated producer. The 1980s were KAP’s golden age, when the plant was the biggest aluminium producer in the former Yugoslavia, ahead of Slovenia’s Talum and Bosnia and Herzegovina’s Aluminij Mostar. Primary aluminium production amounted to 120 kT, and the KAP produced aluminium wire, billets and extruded profiles, plates and foil, as well as various packaging in the processing division (with a total capacity of 30 kT/y). It supplied the Yugoslav army with aluminium wheels for tanks and handles for guns, among others, but exported products to Germany and other West European markets as well. UN sanctions during the war in Yugoslavia (1992-1996) crippled production, and the processing unit never restarted production.


KAP Montenegro

By the time 2009 came around, the alumina refinery closed and now stands minimal chances to be reopened, due to its use of out-dated technology and alkali dregs left in the system, which have caused damage and require huge investments to repair. A greenfield investment in the vertical oven for calcinated alumina was built before 2009 – but it never got a chance to operate and now stands next to the alumina plant as a bygone relic.

With the alumina refinery shuttered, Montenegro’s bauxite is now exported – the Niksic bauxite mines are owned by the same company that owns KAP (Uniprom). The exports of bauxite (mostly to China) amounted to €58.9 million for the first 11 months of 2017, a 66.7% increase year-on-year. At the same time, the alumina used for KAP’s meagre production has been imported, at over US$ 500 /tonne recently.

Nowadays, KAP’s primary aluminium production is half of its 1980s levels. Total KAP’s debt and obligations amounted to €460 million when it went bankrupt. Moreover, KAP has received no investments at all (aside of a new anode plant installed at the beginning of the century) and is the only aluminium smelter in Europe still operating with out-dated Pechiney technology (AP9) dating back to 1971. The KAP was sold to local Montenegrin firm Uniprom in 2014 and currently produces some 60 kT /year of aluminium T-ingots (its only product), which is then exported to other cast houses in the region and remelted for the production of higher value products. Exports of aluminium from Montenegro amounted €52.9 million for the first 9 months of 2017, an increase of 8.4% y/y.

KAP recently signed a 3-year contract with Elektroprivreda Crne Gore for electricity supply at a cost of €38.9/MWh (plus transmission costs of €3.9/Mwh). KAP’s total monthly bill for electricity stands at € 2.4 million.

By contrast, ALRO, is the best example of the successes a Kombinat can achieve if properly managed. It is the biggest aluminium producer in Southeast Europe and one of the biggest integrated producers in Europe produced 272.5 kT of cast products in 2016, mostly slabs for rolling, aluminium alloy bars, billets and wire. Its production of ingots, smelted with no added value, decreased from 85,000 tonnes in 2002 to 8,000 tonnes in 2016, respectively a decrease of approx. 11 times between 2002 and 2016.

In its processing plant, ALRO produced over 80kT of flat rolled products in 2016. Out of that, over 32 kT were of high value added products, meant for aerospace and the auto industry. A further 25 kT came in the form of extruded products. At its Alum Tulcea alumina refinery, production reached 467 kT in 2016, all destined for ALRO’s electrolyses, while production at ALRO’s bauxite mines in Sierra Leone, in Africa, has a capacity of 1.7 Mt /year.

ALRO exports around 70% of production with sales for the first 9 months of 2017 worth around € 410 million. That means that the exports value was over over €300 million for the same period, if we take into account that exports include the highest valued products, including those for aerospace industry.

ALRO has not disclosed its electricity costs. However, the company reported that in the primary aluminium sector it has replaced DC rectifiers, resulting in savings of 30,000 MWh/year or US$1.5 million annually. It also implemented computer-assisted central supply technology, as well as gas capture and purification in gas treatment centres, which led to a reduction in direct consumption of electricity of about 1,000 kWh/t of aluminium, saving 200,000 MWh/year, or about US$10 million annually. A back of the envelope calculation shows the electricity cost is US$50/MWh, or €42 /MWh. While this is comparable to the price KAP pays, it does not include charges for renewable energy ALRO pays, amounting to around €3-4 million annually.

KAP employs currently around 500 people with an average monthly net wage of around €800. ALRO employs 2450 workers with net monthly wage of around €1450.

The main takeaway from the story of these two European smelters is that aluminium producers have no future in the long run without continuous and substantial investments. One can just imagine what KAP would have looked like, if instead of causing losses of €500-600 million, it had been on the receiving end of investments of that amount. The differences are huge and so are the benefits that the people, the company, and Montenegro could have reaped.


  • Petre Gheorghe says:

    It is true that ALRO continuously invested in its operations in the last 18 years since it was privatised and I fully agree that investments are key for the industry. However, ALRO faced difficult times starting 2011 when the combined effect of declining aluminium prices, increasing electricity costs and the cost of “green certificates” pushed them on the edge of bankruptcy. The nightmare started to fade away in 2015 when the Government finally realised that asking electricity intensive industries to pay for the green certificates would destroy them. There was a good in the lesson though – whereas before 2015 investments were focused mainly in increasing the value added products mix, the last years showed an ALRO which invests more and more in reducing its electricity consumption. The investment budget 2017-2021 of 190 mn USD targets, amongst other, the increase of scrap aluminium processing up to 100 kt per year. After the massive losses the company incurred in 2012-2015, it returned to profitability – it seems that ALRO is very comfortable at the current aluminium price levels with an estimated profit for YE 2017 of around 100 mn USD. It is however instrumental that the prices remain at these levels – as the company could not raise capital on the market it had to go for debt in order to support its operations and investment plans – they need to pay back debt of around 180 mn USD as well as paying dividends after a period of 4 years when they did not pay their shareholders a dime. It is going to be a challenge but I think they will make it, agree that the Company is very well managed.

  • Henry says:

    Has any progress been made on the plans to expand KAPs production to more than just t-ingots, as mentioned in a previous article?

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