Kazakh Metallurgy Under the Control of International Corporations
Mining and metallurgy are usually identified as key industries in Kazakhstan. Metallurgical products are shipped to around 30 different countries and account for 35% of total exports. Ferrous alloys and rolled metal, together with copper alloys and refined copper are much sought after in the international market and almost all (95%) are exported. However, there is a downside to this export focus as it neither contributes to local employment nor offers higher value added end products for the home market.
The mining and metallurgical industry currently consists of extraction, concentration and processing works together with associated power plants. They are owned by several large mining and metallurgical holdings, each focusing on a specific type of mineral resource. This arrangement was instigated in the 1990s, when it was suggested that the Ministry of Nonferrous Metallurgy could be replaced by resource specific State owned corporations. Prior to privatisation the metallurgical holdings were eventually divided by metals (copper, zinc, iron, etc.) before being taken over by private enterprises. At this point world renowned corporations, such as Glencore International AG (Kazzinc), ArcelorMittal (ArcelorMittal Temirtau) and Samsung (Kazakhmys) entered the Kazakh market.
The total assets of enterprises have increased fivefold since 2000 and currently exceed 2 trillion tenge. Over the last seven years an annual average growth rate of 4.3% in ore extraction, and approximately 4% in metallurgical production has been recorded. In 2007, investments in the mining and metallurgical industries increased by 18% compared to the previous year, and amounted to $2 billion. According to the Statistics Agency, the total industrial production costs in 2007 amounted to 7,703.8 billion tenge, with the oil and gas industry being responsible for the major portion of this expenditure (3,871.8 billion tenge or 50.3%). The non-ferrous metallurgical industry formed the second largest cost (905 billion tenge, or 11.7%) with the ferrous metallurgical industry being fourth on the list (7.2%).
Iron ore extraction increased by 1.4% whilst the output of nonferrous metal ores decreased to 95.3% of the 2006 level. Ferrous metallurgical production increased by 11.4% in 2007 as a result of an increase in the manufacture of flat-rolled products, steel, cast iron, ferrous alloys, and pipes. The output of nonferrous products decreased to 97.5% due to a reduction in refined copper production which in turn resulted from the lower grade ore with a reduced copper assay. However, overall production of the mining and metallurgical industries increased by 6.8% during the first quarter of 2008, compared to the previous year, and totalled $12.5 billlion.
Ferrous metal resources in Kazakhstan are sufficient to sustain the long term development of the industry, and chromium iron ore supplies will last for 80 years. The greatest chromium iron ore extraction is being carried out in the Aktobe region where there are 260 million tonnes of approved and 700 million tonnes of explored reserves. The total chromium iron ore extracted in Kazakhstan is approximately 4 million tonnes, and owing to the high concentration of chromium in the ore (48-50%) it is dispatched directly to ferroalloy plants.
Kazakhstan ranks seventh in the world for the output of manganese ore, and has approximately 600 million tonnes of manganese ore reserves, of which 0.5 million tonnes are extracted annually. The ore is in high demand owing to its relatively high (up to 25%) manganese content and low assay of phosphorus and sulfur, which helps to cut manufacturing costs. Five mining plants are located in Karaganda Oblast, with Russian companies being the major consumers of their products.
Estimated reserves of iron ore in Kazakhstan total 16.6 billion tonnes, which represents 8% of the world reserves. In addition, 73% of the 8.8 billion tonnes of explored and ready to use resources are considered readily accessible. Most of them, including fine black iron ore, are located in skarn deposits in Northern Kazakhstan (Sokolovskoe, Sarbaiskoe, etc.). There are 6 large plants and 10 mines with an estimated output of 80 million tonnes of ore per year. Approximately 90% of the iron ore in Kazakhstan is produced by Sokolov-Sarbai Mining Production Association and Lisakovskiy Mining and Concentration Plant, both located in Kostanay Oblast, with their main consumers being iron and steel works in Russia and China.
Kazakhstan exports approximately 85% (some estimates quote 95%) of its ferrous industry products (whilst Russia exports only 55%). This can be explained by the low domestic demand from the construction industry, and to a lesser degree, from the mechanical engineering industry.
Two international corporations - ArcelorMittal and Kazchrome - are involved in the Kazakhstan ferrous industry. The majority of steel (99.5%) and cast iron (100%) products are manufactured by ArcelorMittal Temirtau, whilst most ferrous alloys (76.2%) are produced by the Aksu Ferroalloy Plant, which is affiliated with Kazchrome.
Mittal's steel grip
The ferrous industry accounts for approximately 13% of the overall industrial production of Kazakhstan where ArcelorMittal Temirtau, (formerly Ispat-Karmet), an affiliate of the international steelmaking group, has the monopoly in steel casting. Its manufacturing capacity allows an annual production of 5.5 million tonnes of molten steel and 3.9 million tonnes of rolled steel. The full scale plant specialises in various rolled products, such as sheet and profiled iron, etc. Plants in China, Russia, Iran and European countries are amongst its primary consumers.
Since 1995-96 Indian business man Lakshmi Mittal has owned the Karaganda Metallurgical Plant, 15 coal mines and railroad ports. His original purchase cost of $450 million now yields an annual profit of around $200 million. Experts believe that Mittal's ‘miracle work’ is based on reduced labour costs, since the gross payroll comprises only 18% of total production costs. In addition, numerous injuries have been recorded at the plants; since 1996 six major industrial accidents have occurred, 179 miners have died, and twice that number have been seriously injured. One can only imagine what Mr Mittal must be thinking. Perhaps he has gone along with the Kazakh proverb "ai bagyp zhurse de, ozi bilsin" ("who knows, maybe he was watching the moon").
Karaganda Oblast prosecutor Amirkhan Amanbaev notes that the corporation fails to maintain safety standards at the plants and states "The coal department's actions only seem to mitigate the effects of past accidents. However, nobody can be confident that the tragedy will not be repeated in the future". The high accident rate can be explained by the 70% depreciation in equipment at the ArcelorMittal Temirtau coal mines. The prosecutor adds that deterrent and protective measures taken at both state and departmental levels have failed to solve the problem of inadequate safety standards in the mines.
Experts forecast that if the situation does not improve as a matter of urgency, this together with the extreme attitude of the operator, could lead to the shutdown of all ArcelorMittal Temirtau mines. It seems that the Kazakh government prefers to "watch the moon" and seems to have forgotten that it should provide safety and security to protect the interests of its people, as well as attracting investors and increasing GDP.
It is worth noting that after Karmet joined the Mittal empire, the supply of products from the plant to the domestic market decreased dramatically. The unfavourable market environment in the US (high charges applied to steel imports), Europe (quotas), and South East Asia (high shipping costs) along with the loss of the Chinese market, made this monopoly holder turn to the former USSR countries.
All of a sudden the corporate management noticed that ‘the developing economies of Russia and Kazakhstan ensure profitable markets for our products’. In 2007, the manufacture of flat rolled products increased by 13% to give a total of 3.36 million tones, and supply to the internal market reached 299,000 tonnes (31% growth over the previous 11 months). In the meantime, the domestic market still has a critical need for high quality metals: monthly consumption of rolled products in 2007 increased to 58.000 tonnes compared to 40,600 tonnes in 2006.
Chromium: resources and problems
Chromium ore extraction and concentration are carried out by the international company Kazchrome comprising Donskoy Mining and Concentration Plant, Aktobe and Aksu (former Yermakovskiy) ferroalloy plants which produce chromium, manganese, and silicon ferrous alloys. Kazchrome ranks second in the world for reserves and extraction of chromium ores, and third for ferrochrome production (with an annual ferroalloy output of 1 million tonnes). The production of 3.6 million tonnes of chromite in 2007 matched the record set by the USSR in the late 1980s.
The Company’s products include ferrous alloys (ferrochrome, ferrosilicochrome, ferrosilicon, ferromanganese, ferrosilicomanganese), chromium iron ore and metallic chromium. Metall Bulletin forecasts the dominance of two countries in the world chromium production, viz. the Republic of South Africa and Kazakhstan. Because the domestic demand for ferrous alloys is modest, approximately 90% of Kazchrome’s production is exported to the US, Europe, and South East Asia.
Exported ferrochrome accounts for 72% of the Company sales and exceeds 900,000 tonnes, whilst chromium iron ore is the next highest income generator, accounting for 12% of the total sales. However, it seems that the corporation may face difficulties in maintaining the current extraction level (3.5 million tonnes) owing to the depletion of the Poiskovy mine and the general move to underground mining during 2008. According to expert estimates, Kazchrome will be unable to return to this production capacity before 2012. Another serious issue that Kazchrome is facing is the lack of qualified staff.
Nonferrous metal resources of Kazakhstan
Kazakhstan possesses ample resources of lead (the 6th largest approved reserves in the world), zinc and copper (4th in the world), bauxite (10th in the world), cobalt and cadmium (7th in the world) and bismuth (1st in the CIS). Amongst the CIS, Kazakhstan ranks 3rd in the world for gold production, and 8th in the world for gold reserves.
The non-ferrous metallurgy industry exceeds 12% of the country’s industrial production. Major ore reserves are concentrated in Eastern Kazakhstan, Karaganda, Aktobe, Pavlodar, Southern Kazakhstan and the Almaty Oblasts. The ores produced include those of copper, lead, zinc, titanium, magnesium, rare elements and rare earth metals. These resources are processed into rolled products.
The two leaders in the industry, Kazakhmys and Kazzinc, possess full-scale plants which cover all industrial aspects ranging from extraction to metallurgical processing.
A significant problem for the lead and zinc subsidiary industries is a lack of viable reserve deposits which are accessible to existing plants and some deposits remain in the ground owing to the absence of concentration and metallurgical plants. A suggested solution is the development of the Shalkiya deposit in Southern Kazakhstan where a new zinc plant could be built. In addition, production is planned for a rich deposit of karstic zinc at Shaimerden in Northern Kazakhstan and there are plans for new mines at Novoleninogorskoe, Dolinnoe and the Obruchevskoe deposits in Eastern Kazakhstan. Western Kazakhstan is contributing to the development of the copper and zinc industry by planning the construction of combined mining and metallurgical works centered on explored copper sulphide deposits (at Kundyzdy, Priorskoe, etc.)
Copper production is the leading activity in the non ferrous industry in Kazakhstan. The majority of the 90 deposits which have been explored are located in Eastern and Central Kazakhstan, the largest being the Zheskazgan deposit of cupriferous sandstone.
The production of copper bearing ores is carried out by companies affiliated to Kazakhmys and Kazzinc as well as the Aktobe Copper Company. The largest share of copper concentrate produced in Kazakhstan is used in the manufacture of refined copper although some is exported to China, Russia, and Uzbekistan. According to the US Geological Survey, the copper output of Kazakhstan amounted to 402,000 tonnes in 2005, 457,000 tonnes in 2006, and 460,000 tonnes in 2007.
Kazzinc is presently constructing a copper smelting and electrolysis plant with a capacity of 70,000 tonnes of cathodic copper per year. The plant is designed to process 285,000 tonnes of raw copper annually, of which 220,000 tonnes comes from copper concentrate produced at the plant. The remaining capacity is planned to be used for processing of man-caused waste.
The Kazakhmys corporation with its various subsidiary enterprises, such as Zheskazgantsvetmet, Balkhashtsvetmet, Vostoktsvetmet, and Karagandatsvetmet remains the largest copper producer in the country. During 2007 it was responsible for 85.5% of copper concentrate and 90% of refined copper from Kazakhstan. After a complete modernisation programme the annual output was 400,000 tonnes of copper, most of which is exported. (This represents a 2.7% share in the world copper market and a 31.7% share in the CIS market place).
It is worth noting that in 2007 copper cathode production at Kazakhmys reduced by 6.3%, from 407,000 to 381,200 tonnes. This reduction is explained by the decline in ore output and the subsequent fall in the production of copper concentrate from 433,500 to 390,000 tonnes. However, the opening of new mines increased copper output to 8.3 million tonnes during the first quarter of 2008, which exceeds the figures for the 4th quarter of 2007 by 7%.
Production capacity should be increased with the introduction of a new solvent extraction and electroextraction plant as part of the construction of the Aktogay Mining and Concentration Plant based on the Aktogay deposit in Eastern Kazakhstan (with copper resources of approximately 5 million tonnes). Fluor Australia Pty Ltd. is currently conducting a feasibility study scheduled to finish in December 2008.
It is worth noting that the Corporation adopts a strategy of excluding itself from all related production activities. For example, it abandoned the extraction of accompanying elements from the ore, particularly rhenium (during the time of the USSR, 70% was produced in Kazakhstan). The high cost of metals enables the Corporation to reduce production volume and ignore low grade ore and mixed mining. This attitude of a ‘copper lord’ (it has also obtained a zinc plant and is planning to build lead works) may satisfy the owners’ ambitions, but runs contrary to the logical development of the country’s mining and metallurgical industry.
Led Zeppelin, Kazakh style
Kazzinc is a large manufacturer of high-quality zinc, lead, gold and silver, as well as rare metals, such as selenium, tellurium, thallium, mercury, bismuth, etc. The company belongs to Glencore International AG and was founded in 1997 as a result of the merger of Eastern Kazakhstan's three main non ferrous metals companies: Ust-Kamenogorsk Lead and Zinc Plant, Leninogorsk Polymetal Plant and Zyryanovsk Lead Plant. In a production area covering five cities it currently includes a variety of entities which include 7 mines, 3 concentration works, 2 zinc plants, 1 lead plant, 1 rare earth metals plant and 3 power plants (2 hydroelectric stations and 1 thermal station).
The annual output for Kazzinc is approximately 100,000 tonnes of lead, 280,000 tonnes of zinc, 7-8 tonnes of gold, 200 tonnes of silver, and minor quantities of rare metals. Company products are in high demand in the US, Spain, Italy, Germany, and Canada and the contribution to Company profits are as follows:
Zinc: 41%, Copper: 25%, Gold: 16%, Silver: 10%, Lead: 8%.
According to customs statistics, the production of unprocessed lead increased by 0.9% in 2007 and totalled 117,060 tonnes. In addition, Kazzinc produced the largest share (approximately 58%) of lead concentrate for the country.
Lead concentrate is exported mainly to Uzbekistan, Russia, and China, with the total export to these countries in 2006 and 2007 amounting to 165,000 and 238,000 tonnes respectively. Zinc metal is produced at three zinc plants, two are subsidiaries of Kazzinc (in Ust-Kamenogorsk and Ridder) and one belongs to Kazakhmys (in Balkhash). The zinc metal production share for Kazzinc in Kazakhstan is 87%.
The output of unprocessed zinc in Kazakhstan decreased by 1.8% in 2007 and amounted to 358,163,000 tonnes. It is mainly exported to the Netherlands, Turkey, Italy, Ukraine, and China with a small quantity being used internally, primarily for the manufacture of zinc-coated rolled products at ArcelorMittal Temirtau.
Looking to the future
Over twenty bauxite deposits have been discovered in Kazakhstan, ten of which have been developed. Torgay Bauxite Mining Department is exploring the East Torgay reserves (in Arkalyk, Severnoe, Nizhnee-Ashutskoe, Verkhnee-Ashutskoe, Ushtobe) whilst Krasnooktyabrsk Bauxite Mining Department is developing the West Torgay deposits (in Belinsk, Krasnooktyabrsk, Krasnogorsk, Ayatskoe, Uvalinskoe). The raw bauxites are processed at the Pavlodar Aluminium Plant. These enterprises are owned by Alyuminium of Kazakhstan which in turn is a subsidiary of the Eurasian Natural Resources Corporation along with Kazchrome. Alyuminium of Kazakhstan exports 1.5 million tonnes of aluminum oxide to Russia and Tajikistan each year.
In addition, Alyuminium of Kazakhstan is currently building the Kazakhstan Electrolysis Plant with a capacity of 250,000 tonnes of aluminum per year. Last December saw the introduction of the first phase of the development in Pavlodar, with an annual production potential of 62,500 tonnes of primary aluminum. The plant is expected to produce 125,000 tonnes of aluminum by the end of 2008, and will be running at its full capacity after completion of the second phase in 2011.
Kazakhstan’s internal demand for primary aluminum is relatively low (60,000-80,000 tonnes per year) owing to a lack of industrial facilities which require large supplies of the raw material. However, the final products are much more valuable than primary aluminum and are in constant demand in the world market. It follows that Kazakhstan may well benefit if production of rolled stock and other aluminum products is initiated.
For interested parties
Following analysis of Government decisions on industrial policy, it is clear that these decisions are often made under pressure from large corporations in the natural resources sector. As a result, the mining and metallurgical industries of Kazakhstan are encountering a large number of significant problems:
1.It is clear that replacement of mineral resources traditionally fails to keep up with increasing mining activities.
2. Only high grade ores are extracted to maximise profits, which results in fast depletion of resources. For example, during the extraction of complex ores a quantity of valuable elements simply goes to mine dumps, which means that numerous research findings on ore separation is wasted and are gathering dust. Only base metal output tends to increase.
3. Kazakhstan plants continue to produce fine metals, and even though new enterprises are launched, they tend to be more mining and metallurgical works without any capability to produce alloys or products of the 5th or 6th stages of the manufacturing process.
4. In the past there has been little investment in the modernisation of mining and metallurgical works, so current operational projects tend to lag behind their foreign counterparts.
5. An obvious problem is reduced transparency and limited access to information concerning the mining and metallurgical industries, particularly with regard to economic figures and product net costs.
6. Foreign investors often fail to meet the high environmental standards they claim to comply with. Insignificant fines for environment pollution are absorbed into the national budget and are rarely used to solve environmental problems. Moreover, the existing technological practices damage ecosystems in the regions.
7. The industry lacks an up to date system for staff training and retraining which would ensure a higher technological level of production.
This list could be continued
It is suggested that the Government takes over the stock of existing enterprises, strengthens control over them, and reinstates a direct connection between them and research institutes and educational establishments. A recent official statement on the planned establishment of a State owned metallurgical corporation indicates that the Government of Kazakhstan is likely to come to the same conclusion.
By Sergey Smirnov
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