FULL-CYCLE METAL INDUSTRY

One of the priorities of the strategy towards Azerbaijan's fresh industrialization is to create a full-cycle metal complex. In the near future, this objective is to be handled by the closed-type joint-stock company "Azerbaijan Steel Production Complex" (ASPC). It is noteworthy that despite the almost two-year global crisis, which has triggered a tangible decline in several fields of the domestic economy, private investors are increasing the capitalization of the metal industry.

Experts believe that the main problem faced by our steel plants is that metal plants are disconnected and there is lack of a complete industrial chain for the processing of raw ore. Due to this, secondary ferrous metals remain the main source of raw material for the steel plants. Moreover, the depletion of scrap metal resources in this country and the rise in the price of imported raw material have repeatedly disrupted the timetable of works and even caused temporary halts in the operation of the steel plants. Ridding the industry of this problem is only possible if an entire technological chain is established, in particular, by means of creating capacities to process local ore into iron concentrate, and by re-equipping metallurgical complexes with technology to handle new raw material.

"Over the past few years this country has significantly speeded up work to modernize and develop the domestic metal industry. Azerbaijan has everything necessary for an effective development of the industry - we have a capacious raw-material base and sufficient energy capacity, and trained people available," Azerbaijani President Ilham Aliyev said. The president said that fundamental objectives to modernize and develop the industry are to be tackled by the closed-type joint-stock company ASPC and the Dashkesan field and the ore-dressing and processing open-type joint-stock company Dashkesan Filizsaflashdirma, both of which have been incorporated into ASPC. The government holds all shares in all these companies. In particular, ASPC is to design and build a metal complex and subsequently manage the entire chain of facilities in Ganca and Dashkesan District.

This project has been implemented for over two years now and will have two phases. Phase one envisages the modernization of open-type joint-stock company Dashkesan Filizsaflashdirma with a gradual build-up of its capacity to 120,000 t of ore per month. Moreover, no shortage of raw material is expected. According to estimates, the recoverable reserves of iron ore in Dashkesan are as high as 270m t with a 40-per-cent iron content. The next steps will be to create capacities to process ore into pellets (high-grade concentrate) and to build a consistent reduction plant and a steel plant that will melt iron concentrate using electric arc furnaces and, from the resulting steel, it will make pipes, construction fittings and u-channels, as well as other kinds of shaped metal output.

Over the past period, the government has approved the charter and structure of the closed-type joint-stock company ASPC. In order to reduce the cost of the project, it has also been decided to exempt from VAT until 1 January 2019 all imported equipment used to build plants for the closed-type joint-stock company. Leading specialized international companies are invited to participate in this project, including well-known equipment manufacturers - SMS Group, Primetals, Kobe Steel, Nippon Steel, Midrex etc. The main condition for the designers is to make sure that the investment project is as short as possible: it should pay back within four years.

According to experts' forecasts, ensuring a quick payback of the project is quite a feasible thing, taking into account that annual total domestic demand for steel products was estimated at between 900 million dollars (in 2015) and 1.3 billion dollars in the pre-crisis period. The potential market niche is about 0.8m t of ready output per year: annually, Azerbaijan imports 0.5m t of construction metal products and 0.3m t of metal structures for other purposes.

At the same time, the global crisis that has been under way for two years now has had a very negative impact on commodity prices. During this period, a 2.5-fold decline has been recorded in world prices of metal and, moreover, forecasts say that a 20-per-cent decline in global prices of steel products is possible by the end of 2016. This circumstance, certainly, reduces the investment attractiveness of metal projects being implemented in our country. Nevertheless, the Azerbaijani government continues to finance this work. For example, by May 2016, about 76 per cent of the money envisaged in the state budget for the capitalization of "Azerbaijan Steel Production Complex" has been made available.

"Prices for the output of the ferrous metal industry change in a more dramatic manner, and competition in the global metal market is much tougher than even in the oil and gas segment. To cope with pressure from major foreign companies, to ensure a stable sales market and to achieve sustainable financial opportunities for the development of the sector, it would be appropriate to manage plants in the ferrous and non-ferrous metal industries through a single agency, for example by creating a special state-owned company or a closed-type joint-stock company called Azermetal," says Rasid Fataliyev, a deputy head of the oil and chemistry department within the Azerbaijani Cabinet of Ministers.

Incidentally, the government had chosen a similar option in order to optimize the processes of exploration and production of precious metals in contract areas, to which end closed-type joint-stock company AzerGold was established in February 2015. Today, however, it is not quite clear to what extent the creation of a coordinating body in the field of the ferrous metal industry is justified.

Especially as amid the global commodity crisis and the decline in the prices of steel output in the past three years, Azerbaijani private companies have not ceased the capitalization of the metal industry. For example, several years ago the Sumqayit Technology Park put into operation a plant for the mass production of spiral steel pipes. A while earlier, the Mingacevir Machine Building Factory had launched the production of metal structures for various kinds of use and put into operation a metal tile line. However, the main driver of the development of the industry today is Baku Steel Company (BSC), which launched in March 2016 a second line at the steel plant, increasing its capacity by an additional 250,000 t of steel. Work within phase two of the steel plant aims to gradually raise the overall capacity of the plant to 1m t of output. BSC also completed the reconstruction of the Sumqayit pipe plant called open-type joint-stock company Azerboru, which was privatized in 2013, by investing 71 million dollars in all works listed. The company has expanded its portfolio with commissions from domestic and foreign companies for supply of steel products. In particular, the steel will be used to make seamless pipes at Azerboru factory, and pipe customers are companies from Russia, Kazakhstan, Iran and Georgia.

The implementation of one more project started recently. Upon its completion, the country's ferrous metal industry will get a much-needed component. A local company, called "Baku non-ferrous metals and ferroalloys" and Turkey's Demora signed an agreement in February to begin the construction in the territory of the Sumqayit Chemical Industrial Park (SKSP/SCIP) of a ferrosilicon factory. Investment in the project will total 30m dollars, of which about half will be spent to buy technologies from Demora. As part of the contract, the factory "Baku non-ferrous metals and ferroalloys" will export about 35,000 t of output to Turkey annually. One more agreement has been signed with Baku Steel Company, which undertook to purchase for its own needs 12,000 t of ferrosilicons.

In June, the factory "Baku non-ferrous metals and ferroalloys" began the construction of a ferroalloys plant in the territory of the Sumqayit Chemical Industrial Park. The implementation of the project will take 13 to 14 months, and the factory will start to produce ready output already in the second half of 2017 - 20,000 t of ferrosilicon (FeSi) and 36,000 t of ferosilicomanganese (FeSiMn).

Thus, with the plants of the closed-type joint-stock company ASPC being put into operation in 2018-20, new BSC capacities, and also the ferroalloys plant, a closed metal complex is taking shape in the country that reduces the industry's dependence on imports of raw materials and ensures a greater profitability of production. The growth of the competitiveness of the industry will trigger an increase in the volumes of exports of the end output - pipes and steel products - to foreign markets, and in a few years Azerbaijan will be able to obtain the status of net exporter of metal output.