02 February 2010

As Aluminium Bahrain considers a sixth production train, its main challenge is securing gas feedstock.

As operator of one of the largest aluminium smelters in the world, Aluminium Bahrain (Alba) has been able to exploit its access to low-cost energy to position itself among the most competitive firms in the global industry. And with 3,000 staff, it is one of Bahrain’s most important employers. But amid uncertainty over the outlook for the regional gas supply and pricing, it has a difficult decision to make on whether to press ahead with the construction of a sixth production line.


Alba is 77 per cent owned by the government of Bahrain. The other shareholders are Saudi Arabia’s Sabic Industrial Investments (20 per cent) and the Germany-based Breton Investments (3 per cent). It is incorporated under the terms of a 1968 charter issued by the Emir of Bahrain.

Company snapshot

  • Date established: 1971

  • Main business sectors: Aluminium smelting and related products

  • Main business regions: Bahrain, GCC, Europe.

  • CEO: Ahmed Saleh al-Noaimi

Although it is majority state-owned, Alba operates as a commercial enterprise. It does not release financial results but in late 2006, Esam Fakhro, chairman of the board, revealed that it expected to make a dividend payment of $200m to shareholders. It was also known at that stage that Alba had a BD70m ($185m) package of loans.

Fakhro also reported at the time that Alba had been carrying out detailed studies into the possibility of launching an initial public offering (IPO) that, if implemented, would necessitate the publication of detailed data on the company’s accounts and financing.


In the spring of 2006, Alba opened a fifth production line, increasing capacity by 320,000 tonnes. Total capacity is now 840,000 tonnes.

The company has developed a broad spread of regional and overseas export clients to complement a strong customer base in Bahrain, where it supplies a well-developed downstream sector in the shape of Gulf Aluminium Rolling Mill (Garmco), Bahrain Extrusion company (Balexco), Midal Cables, Bahrain Atomizers and Aluwheel.

Moreover, it has established a solid reputation for quality. “Alba’s brand is registered on the LME [London Metal Exchange],” says Massimo Rossi, senior aluminium analyst at London-based consultant CRU. “Consequently, it is accepted as a good-quality material.”

However, it is operating in an intensely competitive environment, with Dubai Aluminium (Dubal) also a major producer and Abu Dhabi, Iran and Qatar developing their own smelters.

In the global aluminium industry, Alba is ranked in the first quartile in terms of business operating costs, because of its access to cheap energy resources and high level of efficiency.

However, Rossi estimates energy accounts for 35 per cent of Alba’s total production costs. This compares favourably with 45 per cent for a typical European competitor. But, he notes, at African smelters - especially those supplied by hydroelectric power plants - energy probably accounts for only 30 per cent of costs.

So the future is not without serious issues for Alba. “Gulf aluminium producers face various challenges,” says Rossi. “They need sufficient power supply to feed their smelters. This requires national access to the gas necessary for electricity generation. At a time of rising global energy demand and buoyant demand for LNG [liquefied natural gas], this can pose difficulties.

“Additionally, the construction boom in the region has fuelled rapid capital cost inflation for the development of new smelters. A shortage of skilled employees is another obstacle the local [Gulf] producers have to circumvent.”

However, in regard to this latter point, Alba may be relatively well placed because of the aluminium industry’s long local history and the readiness of Bahrainis to take skilled ‘shop floor’ jobs in the production industry - 88 per cent of the company’s workforce are nationals.


Looking forward, Alba has opted to concentrate on the aluminium industry, its specialist strength. In 2005, Ahmed Saleh al-Noaimi, the group’s chef executive officer, said it would not seek to diversify ‘sideways’ into other industries such as other metals or chemicals, and this is broadly the approach he has pursued.

However, he has for some time indicated a readiness to contemplate upstream investment within the sector - for example, in alumina production - a move already adopted by Dubal through involvement in a Guinean alumina project. Al-Noaimi says several co-operation initiatives are being pursued with potential partners.

Alba would clearly need a partner with relevant expertise if it were to move into the upstream transformation of bauxite into alumina, the intermediate material from which aluminium is produced. However, the company would then secure a fixed-price, long-term source of supply.

This could be highly attractive. Alba is currently suing Alcoa, its long-term alumina supplier, for more than $1bn in damages in the US in a dispute over pricing and supply.

MEED Assessment

Should Alba move into upstream alumina production, there would also be advantages for its partner investor: both parties would be able to extract the best possible value from the bauxite-to-aluminium supply chain and therefore maximise their overall cost competitiveness.

However, the biggest challenge for Alba is securing gas feedstock. This is particularly crucial as it considers whether to build a sixth potline, to take production capacity up to 1.2 million tonnes.

The government of Bahrain has been negotiating with Iran about the possible supply of gas by pipeline, although for Alba, regional power network integration might offer an alternative source of energy.

Just three weeks ago, Bahrain’s energy minister called for a Gulf-wide gas network, but no such development is planned.

Meanwhile, it is unclear if and when Alba might be partially privatised. Earlier talks of an IPO have not been followed up and in today’s volatile energy markets, it will be difficult to give potential investors a clear picture of the firm’s plans and performance.

Metals production

  • Current metal output (tonnes): 872,393

  • Output, 2006 (tonnes): 883,247

  • Sales of metal billets, 2006 (tonnes): 339,473

  • Sales of metal ingots, 2006 (tonnes): 178,648

Sources: Alba; MEED

Q&A: Ahmed Saleh Al-Noaimi, CEO

Ahmed Saleh al-Noaimi is chief executive officer (CEO) of Aluminium Bahrain (Alba), where he has worked since 1974.

How has Alba performed over the past 18 months?

Alba is now producing more than 860,000 tonnes a year of hot metal. It has grown incrementally over the years and this experience has made us really comfortable with the logistics of such a large operation.

While the commodity market has seen large increases in its primary products over the past few years, the commercial gains for all smelters have been offset by raw material, energy and labour costs.

Building a sixth potline would be an attractive prospect. How far have your plans developed?

Any brownfield expansion, such as Line 6, for an aluminium smelter will offer better returns than starting from scratch. We are constantly reviewing our strategy, part of which is the expansion of the current facility. Line 6 is only one of the options we are considering. Having said that, due to economies of scale, Line 6 would offer the best returns.

Many factors influence the decision to go ahead, including construction material prices, availability of gas, market conditions and so on.

How far have Bahrain’s negotiations to secure extra gas supplies advanced?

The lifeforce of any aluminium smelter is electrical power and any deal that secures the primary source for that power is to be welcomed. Natural resources are not limitless.

Bahrain and Alba actively focus on sustainability - it is part of our mission statement. As far back as 1968, Bahrain recognised a need to diversify away from the oil industry and commenced the process that lead to the formation of Aluminium Bahrain.

We are pursuing several initiatives that will secure our energy requirements well into the future. We are also looking forward to the results of government negotiations into what the newly constructed GCC power grid may offer.

What would be the time-table for development of a sixth potline?

The timetable for a potline depends very much on setting up finance and the lead-time for major equipment. The smelter construction market is busy now and consequently lead times are being extended.

To conduct a bankable feasibility study and arrange finance may take a year, selection of EPC [engineering, procurement and construction] companies and engineering a further six months, construction of the smelter and power facilities a further two years. So from the study to the ‘go decision’ to hot metal, we are talking about three-and-half years.

How is Alba performing in cost terms, particularly when compared with regional competitors such as Dubal?

Alba is recognised by all industry consultants as being well positioned on the first 25 per cent of the cost curve. We cannot easily compare smelters in the region as we all have different product mix and plant facilities.

You once said that further expansion projects, beyond the sixth potline, would still be in the bauxite aluminium sector. Do you have plans for such global investments yet - for example, upstream in alumina production?

Alba is progressing with several initiatives that are in line with the company’s strategy. We are working closely with potential regional and international partners from outside Bahrain.

Where do you see the most attractive opportunities for sales growth or for new investment by Alba itself?

Alba’s focus as much as possible is on responding to the requirements of the local market. Some 50 per cent of our output is sold directly in Bahrain, with the GCC as a whole taking a total of 66 per cent.

We are also taking advantage of the European market, with 11 per cent of our sales going to this region. Alba’s actual shipments in 2007 was 878,907 tonnes.

What is the progress of your legal action against Alcoa in the US?

As the case is with the courts, Alba is unable to comment further at this time.

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