Russian Connection

Owensboro Riverport major player in world aluminum market

10/15/06
By Keith Lawrence
Messenger-Inquirer

When people think of Owensboro, they think of barbecue, bluegrass and ... aluminum?

Well, maybe not the average person.

But Mark Freer, communications manager for the Owensboro Riverport, says: "When people in the international metals market think of Owensboro, they don't think of barbecue or bluegrass. They think of aluminum."

In fact, he said, "Owensboro is a major pricing component in the industry. You can price aluminum at the dock in St. Petersburg, Russia. And you can price it loaded on a truck in Owensboro."

There are no aluminum smelters in Daviess County -- although there are three within 35 miles of the riverport, Freer said.

It's the riverport itself that put Owensboro on the world metals map.

Today, the riverport is a major point of entry for foreign aluminum. "Most of the metal we get is from Russia," said Maurice Owen, port director. "We probably average 150,000 tons of Russian aluminum a year. We're the largest inland terminal in the United States that handles their product."

Roughly 16 percent of all the aluminum Russia shipped to the United States last year came through Owensboro, according to the U.S. Geological Survey.

That study estimates that the United States imported 5.6 million tons of aluminum in 2005 -- up from 3.74 million in 2001.

Of that, it says, 58 percent came from Canada; 17 percent, Russia; 5 percent, Venezuela; 3 percent, Brazil; and 17 percent, all other countries.

That would mean that 952,000 tons came from Russia, which produced 3.65 million tons of aluminum last year, the report said.

Net imports of aluminum increased by 14 percent last year, the survey said.

That means there's more foreign business for the riverport to get each year.

And that means Owen and Larry Woods, director of marketing and sales, are racking up frequent flyer miles.

Courting Russia

In September, they were in Moscow for the 21st International Aluminum Conference and took a side trip to Siberia to tour a smelter and two mills.

"They're our customers," Owen said of the Russian companies he visited. "We showed them pictures of their product stored at the riverport. There were a lot of meetings on the side, discussing deals over the next few months. Hopefully, something will come of it."

The riverport's connection to Russia dates back 13 years.

In 1993, then-port director Bob English converted a former coal yard at the port into a storage area for stacks of ingots produced at Russian smelters.

The fall of the Soviet Union opened the floodgates to shipments of aluminum to the United States. But most of it was coming into the Port of Baltimore and being shipped by rail to the Midwest.

English began writing aluminum brokers to sell them on the advantages of shipping through the port of New Orleans and up the Mississippi and Ohio rivers to Owensboro.

By May 1993, seven trading companies were using the Owensboro port for off-loading, storage and distribution. That year saw the arrival of the first 25,000 tons of Russian aluminum.

And the relationship has continued to grow.

By 2001, when it was celebrating its 25th anniversary, the riverport had become one of only four licensed warehouses in the U.S. for the delivery and storage of prime aluminum traded on the New York Mercantile Exchange's COMEX Division.

The port had more than 210,000 tons of aluminum in storage that year.

In December 2003, it acquired foreign trade zone status. It had already been designated as a U.S. port of entry.

In March 2005, the riverport was also designated as a licensed warehouse for North American A-380.1 aluminum alloy on the London Metal Exchange's North American Special Aluminum Alloy Contract.

The only other U.S. ports that handle the alloy are in Baltimore, Detroit, St. Louis and New Orleans.

But the Owensboro port is the only warehouse in the world serving contracts from both the New York Mercantile Exchange and the London Metal Exchange, Owen said.

"We're the largest-volume storage warehouse of primary and secondary aluminum in North or South America," Freer said. "We have between 100,000 and 150,000 tons in storage at any time. We have had much more than that at one time, but that's the average."

Metal from every continent

"We get metal from just about every continent," Owen said. "This year, we have metal coming from Brazil, Argentina and South Africa. In the past, we've had it from China and the Middle East. We have steel coming in from Egypt, Brazil and Russia."

CSN, the Brazilian steel giant that's considering building a mill in Hancock County, is shipping steel from Brazil to the riverport now for its U.S. operations.

"That deal could be worth 200,000 tons or more of steel," Owen said.

"We used to ship a lot out for AK Steel," he said. "But that mostly stays in the United States now. We get a lot of rebar from Eastern Europe and Japan. Over the past five years, we've probably averaged 50,000 tons a year of steel."

The port also handles copper, magnesium and zinc.

But, Freer said, "aluminum is our niche."

Last week, The Associated Press reported that Russia's OAO Rusal is buying rival Sual as well as the alumina assets of Swiss-based commodities trader Glencore.

That, the story said, will make Rusal the world's largest aluminum producer, topping Alcoa.
It will control 12 percent of the world's aluminum production.

"A portion of our aluminum comes from Rusal," Freer said. "It goes from here to the Midwest and South, primarily. We have sent aluminum as far as South Dakota, Texas, Florida and New York. But most of it is shipped within a 300-mile radius to rolling mills, die casting companies and others for the automotive industry, appliances, wires and other uses."
He said the demand for foreign aluminum continues to increase.

"Production in the U.S. has to be supplemented by foreign aluminum because demand exceeds supply," Freer said.

The riverport offers 10 acres of paved outside storage, 60 acres of compacted-rock outside storage and more than 1 million square feet of warehouse space.

It also has 75 acres that can be used for additional outside storage.

And it is planning a 30-acre terminal at the old Green River Steel location on U.S. 60 East.
Last week, Owen and Woods were in Rotterdam, the world's seventh-largest port, to study the roll-on, roll-off dock.

"It's a very high quality dock, and we want to look at it," Owen said. "We're planning a similar dock at Green River Steel. They also have some aluminum metal exchange-approved warehouses that we want to see."

Then, it was on to London to attend the London Metal Exchange Conference.

"Everybody who's anybody in the metal exchange industry will be there," Owen said.

"The metals industry ebbs and flows," he said. "But I think we'll see an increase in both imported aluminum and steel in the long term. It's more expensive to produce in the United States."