Rusal to Back New U.S. Aluminum Mill, the Largest in Decades

Date: April 15, 2019
Source: Wall Street Journal
Russian aluminum giant United Co. Rusal plans to invest $200 million in a Kentucky rolling mill that would be the largest new aluminum plant built in the U.S. in nearly four decades.
 
The plant, which startup Braidy Industries Inc. plans to open next year in Ashland, Ky., is the largest project being pursued in the domestic aluminum industry under the Trump administration’s 10 percent duty on imports of the metal, imposed a year ago. It would also draw more imports into the U.S. because the mill would roll aluminum slabs from abroad into thin sheets for the auto industry.
 
Braidy’s ability to attract one of the world’s largest metal companies to the $1.7 billion project reflects the changing state of the rolled aluminum market. After decades of stagnant sales of aluminum sheet for cans and other staple products, rolling companies in the U.S. are pivoting to production of higher-profit sheet for vehicle bodies. Car makers increasingly are replacing steel with aluminum because it is lighter. Now tariffs have pushed up the cost of foreign-made aluminum, giving domestic producers greater pricing power in a market where production capacity is already tight.
 
“It’s the start of a megatrend and I want to be in the middle of it,” said Braidy Chief Executive Craig Bouchard.
 
Rusal is the world’s second-largest producer of raw aluminum. Braidy said Rusal would supply the new mill with as much as 200,000 metric tons of foreign-made aluminum each year, most of it from an aluminum smelter under construction in Siberia.
 
The 10-year agreement would make Braidy Rusal’s biggest customer and give Rusal a significant presence in the U.S. rolled-aluminum market, where it has no mills of its own. Rusal would own a 40 percent stake in the Braidy subsidiary operating the mill.
 
“We think this type of partnership is something we could replicate around the world,” said Gregory Barker, chairman of Rusal parent company En+ Group PLC and Britain’s former minister for energy and climate change.
 
The deal still needs to be approved by board members at Braidy and En+.
 
The investment in Braidy is the first by Rusal and En+ in the U.S. since the federal government-imposed sanctions against the company in April 2018 in retribution for Russia’s alleged meddling in the 2016 U.S. presidential election. The sanctions were lifted in January after Russian oligarch Oleg Deripaska agreed to surrender his majority ownership of En+ and the board was revamped, with Barker as chairman.
 
Bouchard said Rusal’s $200 million investment would enable Braidy to reach its $500 million private-investment goal, allowing the company to secure $1.2 billion in loans to build and equip the plant.
 
He said he intends to take the company public in July.
 
Bouchard is seeking low-interest financing through a U.S. Energy Department program for advanced manufacturing and further financing from a German government program for export sales of the equipment for the plant. Delays in the loan process, or construction falling behind schedule, could throw off plans for the new mill to start delivering aluminum in early 2021.
 
The last rolling mill built in the U.S. opened in Logan, Ky., in 1983. Bouchard is counting on new and efficient equipment built to produce automotive sheet to make the Braidy mill the lowest-cost producer in the market for at least five years. He estimates that is how long it would take competitors to plan and build a similar mill.
 
Rising demand from the automotive industry is bound to attract other companies to invest in new production as well. That could eventually cause an oversupply and drive down prices for aluminum auto sheet, particularly if an auto-production downturn occurs in coming years or auto companies face less pressure to make vehicles more fuel-efficient by reducing their weight.
 
The state of Kentucky has invested $15 million in the Braidy project and offered a further $15 million in economic-development incentives. Construction of mill is expected to require 1,500 workers, and the plant is expected to maintain a permanent workforce of more than 600.
 
“It has tremendous upside potential,” Gov. Matt Bevin said about the project.
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