The raw material sector is one of the factors allowing Kazakhstan to make an economic spurt and becoming a competitive commodity producer. Along with that, the policy of concentration on raw material, i.e. on the products with a low added value pursued by the owners of companies of the mining and metallurgy sector creates a threat to the sustainable development of the domestic economy. The Accelerated Industrial and Innovative Program of Kazakhstan as it is in the current state is hardly able to efficiently remove this threat.
Kazakhstan comprises in the top ten countries in the world by explored reserves on a number of mineral resources. After gaining by Kazakhstan of its independence, the authorities of the republic made the intensive exploitation of mineral resources the basis of the economic policy of the state. Accordingly, the mining and metallurgy complex became one of the basic sectors of the economy; the products produced by this sector are ferrous and non-ferrous metals, which are in high demand on the external market.
It is not a surprise that in Kazakhstan the transnational corporations such as Glencore International AG (Kazzinc JSC), ArcelorMittal (ArcelorMittal Temirtau JSC) set up their permanent representative offices and quickly familiarized with local specifics. With this, foreign investors do not always meet the high environmental standards they declare to, while the greater part of information on the activities of the companies of the mining and metallurgy sector, where they have interests, is restricted. In the first place, this concerns the economic indicators, including the cost of the products.
The analysis of solutions implemented in the area of industrial policy results in the conclusion that the greater part of them are taken under the pressure of large players of the raw material sector of the economy. As a result, the republic has a lag in reproduction of the raw material base that has become chronic, compared to the increased mineral production. Moreover, with the purpose of gaining quick profit, mostly the geological structures rich with mineral resources are developed. This is caused mainly by the fact that high metal prices allow corporations not to engage in the mining of base ores or the complex extraction of raw material. In particular, in the production of complex ores part of their valuable components becomes waste. However, this approach leads to the quick depletion of the raw material resources.
In the last year, the processing industry, which comprises the enterprises of the metallurgical sector, experienced a 4.5% decline. Although, in the mining segment the output rose by 6.1%. One should not forget that the oil and gas industry made a considerable contribution in the above-said indicator.
Meanwhile, according to the Agency for Statistics, the output of certain metallic ores and, accordingly, the production of metals themselves and their alloys was much reduced in 2009. In particular, the production of copper ores decreased by 4.12% to 31.23 million tonnes, while copper-zinc alloys by 4.09% to 5.03 million tonnes. The production of iron ore pellets reduced by 11.1% to 6.18 million tonnes, ferroalloys by 7.6% to 1.47 million tonnes, and refined copper by 7.6% to 368.13 thousand tonnes.
The reason of this is the lack of investments in the renovation and maintaining of the production facilities. Despite the improvement of the above indicators in the next few years, it is too early to speak about the final solving of this matter. The price situation does not add as well to the re-orientation of the mining and metallurgy sector to setting up of productions producing the products with a high added value. For example, as of January 1, 2001 the price per tonne of copper was $1,784 at the London metal exchange, while in May it already exceeded $6,820. Experts from Societe Generale expect that this year copper will cost $7,525 per tonne, in average. The price of zinc rose sharply in the six last years from $900 to $2,389 per tonne. As a result, more than 90% of products produced by the enterprises of the mining and metallurgy sector is exported outside the country, while the export of ore concentrate and pig copper still remains the most beneficial and non-problematic way of gaining income.
Thus, to produce the products with a higher value added in the value chain investors do need extra stimulus. Otherwise, Kazakhstan can finally remain in the list of countries with a raw material-oriented economy. Meanwhile, the leadership of the country put a task before the domestic mining and metallurgy sector by the year 2015 to provide double the output and export. Due to the deepening of the processing and setting up of the productions that produce products with a higher value added in the value chain, the gross added value of the product has to increase by 107%. However, we should note that if the government is satisfied only with the pure figures, the companies, provided that the prices continue rising, will be able to increase the gross value, making little efforts to do so.
Kazakhstan is endowed with considerable resources of ferrous metals, sufficient to ensure the sustainable development of the sector. The reserves of iron ore are estimated at 16.6 billion tonnes that is some 8% of the world’s reserves. Of the 8.8 billion tonnes of explored iron ore and ore prepared for exploitation, 73% of the reserves are easily extracted. 6 large industrial complexes with 10 pits with the aggregate designed extracting capacity of about 80 million tonnes of ore a year operate as the basis of the iron ore mines. Some 90% of all iron ore is extracted at Sokolovsko-Sarbaiskoye Ore Mining and Processing Association (SSGPO) and Lisakovskiy Ore Mining and Processing Plant.
The domestic consumption of the metal in the republic is minor and is provided mainly due to the building sector and, in a lesser extent the machine building sector. In this connection, the major consumers of the iron ore are metallurgical plants in Russia and Kazakhstan. Meanwhile, the experts of a number of analytical companies expect that in the second half of 2010 and in 2011 the cost of iron ore will drop to $130 per tonne.
The largest producer of iron ore raw material in the country is SSGPO JSC, comprising the Holding Company Eurasian Natural Resources Corporation (ENRC). The enterprise owns the Sokolovskiy, Sarbaiskiy, Kacharskiy and Kurzhunkulskiy open pits, Sokolovskaya underground mine, Kzylzharskiy lime pit and Alekseyevskiy dolomite pit, the plant for ore treatment and pelletizing, and other subdivisions and shops as well.
36.6 million tonnes of iron ore was produced at SSGPO in 2009 that is 3% less than in 2008. According to information of the company, the production of the primary iron ore concentrate was 15.2 million tonnes (-1.9%), commodity iron ore concentrate 8.54 million tonnes (+9%), commodity iron ore pellets 6.18 million tonnes (-11.1%).
Under the approved capital expenditure program, SSGPO has plans for implementation of a number of projects, part of which is included into the Accelerated Industrial and Innovative Development Program of the Republic of Kazakhstan. Among them, there is the construction of a plant for production of direct-reduced iron with the designed capacity of 1.4 million tonnes a year, the expansion of the concentrating mill capacity by 16 million tonnes of iron ore a year (the value of the project is estimated at $440 million), the increase in the ore base by 10 million tonnes a year, worth of $535 million, and the construction near Rudniy of a $180 million conveyer complex. It is no doubt that the company’s development prospects are impressive. No information about the timeframes for implementation of the given projects is available.
The production and dressing of chrome ores in the republic is carried out by TNC Kazchrome JSC, combining in its structure the mining and dressing of ore (Donskoy Ore Mining and Processing Plant JSC, and the production of chrome ferroalloys, manganese ferroalloys and siliceous ferroalloys (the Aktobe and Aksuskiy ferroalloy producing plants). Kazchrome ranks second in the world in terms of the reserves and mining of chrome ores and third in production of ferrochrome: The output of latter reaches more than 1 million tonnes a year. In Kazakhstan itself, the demand for ferroalloys is minor, so more than 90% of the products of Kazchrome are exported to overseas countries (USA, Europe and countries of South-East Asia).
On the whole, the ENRC’s ferroalloys producing subdivision mined 3.4 million tonnes of commodity chrome ore in 2009 that is 6.4% less than in 2008 and 2.25 million tonnes of manganese ore (-1.7%), produced 904 thousand tonnes of commodity manganese concentrate (-11.7%), 1.16 million tonnes of ferroalloy (-2.9%), and 1.45 million tonnes of ferroalloys (-6.8%).
The dominating production direction of the Kazakhstani non-ferrous metallurgy is the production of copper. There are more than 90 deposits of “red metal” in the republic; with this, the greater part of the reserves that are recorded on balance of the state is concentrated in Eastern and Central Kazakhstan. The largest deposit of ore is the Dzhezkazganskoye deposit of cupriferous sandstone. Subsidiaries and structural units of Kazakhmys Corporation JSC, Kazzinc JSC and the Aktobe Copper Company run the production of copper-bearing ores. The leading producers of non-ferrous metals are the first two of the mentioned companies with the entire production cycle, from extraction of the raw material to production of products of a higher added value in the value chain.
The greater part of the extracted copper concentrate is used for the production of refined copper; parts of it are supplied to China, Russia and Uzbekistan. The largest copper producer in the country is Kazakhmys Corporation, owing 20 copper mines, 10 concentrating mills and two copper-smelting producing complexes. Based on the 2009 year results, the corporation produced 320.4 thousand tonnes of copper products and 149 thousand tonnes of zinc in concentrate. In January–February of the current year, it produced 78.4 thousand tonnes of cathode copper that is 8.4% less than in the analogous period of 2009. Also, Casting LLC, which produces some 20 thousand tonnes of copper a year, owns facilities producing the refined copper from the secondary raw material.
One of the chief problems in the sector is the lack of reserve deposits with profitable reserves that would be used for the operation of old mining productions. With this, some deposits in various regions of Kazakhstan are not developed today because of the lack of concentrating mills and metallurgical plants.
The launch into operation of new mines and plants is seen to become a solution for Kazakhmys in solving the problem of the lack of our its raw material and the increase in the output of cathode copper and copper concentrate. Thus, with the purpose of developing the mineral & raw material base, Kazakhmys is planning the development of the Bozshakolskiy deposit, which is one of the largest copper projects in the world. The annual production capacity of the designed ore mining and processing plant will be about 25 million tonnes of ore a year that allows producing some 100 thousand tonnes of copper in concentrate. It is planned to get the first concentrate in 2014. Up to $2 billion will be allocated for the development of the deposit from the earlier extended loan in the framework of the credit line provided to National Welfare Fund Samruk-Kazyna by China Development Bank.
In late April the Kazakhmys Group of Companies announced the signing of the memorandum of intention to cooperate with the Chinese Company Jinchuan Group Ltd. It is planned to set up a joint venture (Jinchuan intends to acquire a 49% participating interest in the project, worth of $120 million) for production of copper at the Aktogay cooper deposit.
The strengthening of the cooper direction is in the plans of the second large player in the sector for the near future. Kazzinc Corporation carries out the construction of copper-smelting and copper electrolysis facilities in Ust-Kamenogorsk, designed for the production of 70 thousand tonnes of cathode copper. The copper plant is oriented to the processing of 285 thousand tonnes of the copper raw material; of them, 220 thousand tonnes from their own copper concentrates. The remaining facilities are planned to be used for processing of man-induced products of enterprises of corporation.
The major zinc and lead producers in Kazakhstan are Kazzinc (the raw material base of the enterprise are the Maleevskiy, Tishinskiy, Ridder-Sokolny ore deposits in the Eastern Kazakhstan Oblast as well as the Shaymerden deposit in the Kostanay Oblast), Kazakhmys (Artemievskoe, Orlovskoe, Yubileino-Snegirikhinskoe, Belousovskoe, Nikolayevskoe deposits, as well as the Kosmurun and Akbastau ore mines in the Karaganda region), and Shalkiya Zinc (Shalkiya and Talap mines in the Karatau ore mining region).
Last year Kazzinc, which has the share of 87% in zinc metal output in the republic, brought the production to the level of 301.1 thousand tonnes, compared to 299.44 thousand tonnes in 2008. During this period Kazakhmys Corporation produced 149 thousand tonnes of zinc in concentrate while this year it is planning to produce 130 thousand tonnes. Up to 88% of zinc production in Kazakhstan is exported. The major consumers are Netherlands, Turkey, Italy, Ukraine and China. The remaining volume is used domestically, mainly for production of galvanized steel at ArcelorMittal Temirtau JSC.
The experts estimate the condition of the raw material base of zinc and lead industry as quite complicated: Production dynamics here in the last years has been achieved thanks to intensive exploitation of the richest and long developed fields. The industrial category reserves are depleting with every year coming, but the companies do not show many efforts to refill them. Specifically, the peak of mining by Kazzinc is expected in the upcoming decade; then, there will be a decline in production, and the processing will require the involvement of anthropogenic sources, formed as a result of multi-year operation of the mining and metallurgy enterprises. The sources indicate that mine dumps have accumulated about 30 million tonnes of zinc.
Overall, in the last decade the volume of metallic ore production in Kazakhstan has grown by over 3.5 times. At the same time, in 1999–2003 the mining and metallurgy sector was entrusted with the task to implement scientific developments through the setting up of small and medium productions and mastering of technologies for the output of competitive products with a high added value in the value chain. However, the benevolent intentions remained on paper: The share of the extracting sector in the industrial structure did not only diminish, but, vice versa, increased and exceeded the 60% level.
The industrial production of materials and metal goods, based on the up-to-date technologies (powder metallurgy, electrometallurgy, electroplating, nanotechnologies etc), as well as effective use of secondary resources, did not go through the improvement process. The republic does not produce the needed assortment of roll stock and metal goods for machine building sector, oil and gas industry, light industry and other sectors, as well as for the construction, heavy engineering and shipbuilding sectors. The industrial production of materials and metal goods are not based on the up-to-date technologies. Moreover, many positions on integrated processing of the raw material have been lost. The metallurgy continues to have a high energy intensity of production and a critical level of depreciation of fixed assets.
This is clear. In the condition of huge scientific and technological gap between Kazakhstan and developed countries the rich endowment with minerals became the disadvantage rather than advantage for Kazakhstan. For instance, India currently produces software for $40 billion and it is planning to reach $60 billion in the near future. China increased the number of inventions and technologies applied by one third. Therefore, intellectual products in these countries bring more income than Kazakhstan makes from selling of its oil.
The global crisis again made the problem of diversification of the economy and enhancing the competitiveness of goods vitally important. However, what we failed to implement in the previous 20 years in the field of industrial and scientific potential development is going to be achieved by the government through an accelerated schedule, so-called quick march, within 5 years. The foundation for another "leap forward" has to be "natural advantages", including, by the way, the mineral resource base.
The Accelerated Industrial and Innovative Program highlights such vectors of industrial policy as resource-saving, integrated use of mineral resources and reduction in the raw material loss, organization of productions producing products with the high value added in the value chain for creating of high-end technology plants. According to the plans of the government, this year has to commence the 5-year Accelerated Industrial and Innovative Program. In the next years we have to accelerate the building up of a new industrial economy, mainly based on the launch of innovations and new technologies.
However, there is the supposition that Kazakhstani enterprises will continue producing mainly fine basic metals; even if they are going to build new facilities, these will be mining factories, not the plants, producing products of the 5th or 6th levels in the value added chain. To make sure in that, it is enough just to look at Kazakhstan’s Industrialization Map for 2010–2014: Of 101 projects, included in it, more than 50% are infrastructure-related ones. Of 13 projects, which can be referred to the mining and smelting industry, the half of them is the construction of dressing plants and factories. This means we continue capacity building of ore-dressing plants, while nothing is mentioned about the extraction of the following associated valuable elements (rhenium, osmium, scandium, indium and gallium). The industrialization map does not contain integrated mining and smelting plants with an entire production cycle from extraction to the output of products with a high level of commodity readiness.
Therefore, we are not talking about innovative products with a high value added level in the value chain. Considering this situation, it is unclear how they can provide the "increase in the gross added value in the metallurgical sector for at least 107% based on deep conversation of mineral resources and establishment of new productions producing products with the higher added value in the value chain.”
At the same time, it is supposed to place all the burden of scientific and technical progress on foreign investors, who came to us in search of raw material. How it looks in practice can be judged by that fact how the government is trying to get this through the demand to increase the local content and perform investment liabilities. It is expected that the innovation policies for the Accelerated Industrial and Innovative Program have to be built up not on the administrative pressure on investors, but creation of economic incentives. This is particularly important since the increase in the existing production facilities and construction of new ones assumes the expansion of the generating capacities as well as infrastructure development.
There is one more factor that can negatively affect the implementation of the Accelerated Industrial and Innovative Program: It is the lack of skilled human resources, caused in the first place by the absence of modern training and retraining systems that would ensure the high scientific and technical level of the output. The second reason is poor performance discipline and qualification of the machinery of the State that is confirmed by the failure of the previous programs. Here we can agree with the Deputy Prime Minister and Industry and New Technologies Minister Aset Isekeshev who stated that "the efficiency of state agencies will be the major success factor in the program implementation". But this is only partially since we are talking about the Accelerated Industrial and Innovative Program implementation in the condition of market economy, not administrative-command one.