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ON current trends world demand for aluminium will reach 70 million tonnes by 2020. But where will the extra supply come from?
There are few places with the abundant cheap energy needed to make the metal.
China is home to Chalco, one of the giants of the aluminium business, and to over a third of the world’s smelters. But although plants can be built cheaply in China, production costs are among the highest in the world.
Therefore, it is here that the Middle East region can seize the opportunity and strategically turn the challenges of the aluminum industry into sustainable business opportunities.
With the world’s major aluminium producing nations pondering the closure of smelters due to increased fuel costs, energy-rich countries in the Gulf are expected to meet the projected production shortfall in the aluminium industry.
Consequently, there are several smelter projects in the pipeline while existing units have been initiating major expansion.
While the region’s leading smelter, Dubai Aluminium (Dubal) plans to boost its capacity to 1.5 million tonnes per year by 2011 – consolidating its position as the largest single site smelter in the world – Bahrain’s Alba is set to increase capacity further to 1.3 million tonnes per year with the installation of the sixth pot line project.
Qatar Petroleum (QP) and Norsk Hydro of Norway are planning to develop one of the world’s largest aluminium plants in Qatar. Under the plan, Qatalum, the company set up to build and operate the plant will have in the first stage a 585,000 tonne capacity smelter, 15,000 tonnes more than initially planned.
Az Zabirah Aluminium project, undertaken by Saudi Maaden involves the construction and operation of a 0.62 million tonne per annum aluminium smelter and 1.4 million tonne per annum alumina refinery at Ras Al Zour located on the Central East coast of Saudi Arabia, and a 3.3 million per annum bauxite mine located at Az Zabirah in Central Northern Saudi Arabia.
Oman’s Sohar aluminium is also building a greenfield smelter which will have a capacity of 350,000 tonnes per annum. It has a long term aluminium supply contract with Alcan.
The total budget of the project is about $2.4 billion and it will commence production by the second quarter of 2008.
In addition there are 22 major extrusion plants in the region with a total production capacity of 300kt/y; overall capacity utilisation exceeds 88 per cent.
Most of the plants have anodising, powder coating and painting facilities. About 60 per cent of the extruded products are used in GCC and the balance exported to international markets.
During 1999 – 2000, GCC investments in industrial projects totalled $13.44 billion, out of which $6.01 billion (4.5 per cent of the total investment), was invested in aluminium and other base metal industries.
It is estimated that the gross investment for aluminium industries in the GCC is $5 billion. The trend predicts a steep increase during 2007 – 2010 in the production of aluminium to 10.5 per cent and consumption rate to 4 per cent.
Global ratings agency Fitch says the availability of low cost gas power in the region will boost the growth rate in primary aluminium production over the next five years. Driving this growth would be low energy costs of an average of $20 per megawatt hour (mwh), which compares favourably with $28/mwh in the US, and over $40/mwh in China.
The share of gas as a primary fuel source in the Middle East is projected to grow to 28 per cent of the total energy supply, rapidly gaining on oil which stands today at 40 per cent.
The remaining 32 per cent is distributed among coal, nuclear, solar and wind.
Linking regional demand centres with regional excess supply is one of today’s hottest issues given that a third of the world’s natural gas reserves are located in the region.
Combined, the natural gas reserves of Iran, Qatar, Saudi Arabia, the United Arab Emirates, Algeria, Egypt, Iraq, Kuwait, Libya, and Oman account for over 2,100 trillion cubic feet.
Besides sharing natural gas, the region would have to address two more challenges if it is to gain an upper hand in the global aluminium business.
One of them is raw material availability and the other is achieving a sustainable business model that addresses environmental regulations and social expectations.
These issues are not new, but taken together they are increasingly challenging and are among the points that countries should focus as they try for value maximisation.
Talking Business
K S Sreekumar
sreekumar@tradearabia.net
