Building the world’s biggest smelter in the Emirates

12 June 2009

Emirates Aluminium is preparing to bring on line the first phase of its new production facility at Khalifa Port Industrial Zone in 2010, but plans for phase two face further delays.

Founded in February 2007, Emirates Aluminium (Emal), an $8bn joint venture of Dubai Aluminium (Dubal) and Abu Dhabi government-owned investment vehicle Mubadala Development Company, aims to create the world’s largest single-site aluminium smelter complex.

Emal is under construction at a 6 square kilometre site at Khalifa Port Industrial Zone (KPIZ) in Taweelah, part of the emerging Abu Dhabi hub for shipping, logistics and industrial development. The smelter will produce sow, standard ingots, billet, T-ingots and sheet ingots. It has secured supplies of gas feedstock from the Abu Dhabi national grid.

Built in two phases, the smelter will produce 700,000 tonnes a year (t/y) of aluminium when phase one is completed in the second half of 2010. Phase two will increase production to 1.4 million tonnes a year. The project will be the largest non-hydrocarbon industrial venture in the UAE.

Emal will employ 14,000 people, with 2,000 working directly for the company once phase one is completed. The company will double its workforce from 600 in 2008 to 1,350 by the end of this year.

Manufacturing hub

Abu Dhabi’s 2030 masterplan will position KPIZ as a manufacturing hub for sectors that include metals and mining, aerospace, construction materials, machinery and parts, and healthcare products. The emirate aims to achieve annual non-oil gross domestic product (GDP) growth of 8.5 per cent.

Joint venture partners WorleyParsons of Australia and SNC Lavalin of Canada won the engineering, procurement and construction management contract for phase one.

Pre-feasibility studies are scheduled for completion by end of the year and phase one production is set to start in April 2010. Emal has yet to decide whether the project should progress straight to phase two as it balances global oversupply against falling construction costs.

“The timing to build phase two now is quite good from a cost perspective,” says Duncan Hedditch, chief executive officer of Emal. “We were unfortunate with the timing for phase one because work commenced in the peak of a boom, and we have seen significant cost improvements as a result of the improved market position, and for construction.

“Timing is good from a cost point of view. In the end, you cannot conduct this scope of business based on today’s view of the market and cost; you have to take the longer view and build your business case accordingly, based on a cycle of 15 years or more.

“We have seen how rapidly the markets have changed since September. The market cycles in the aluminium industry are about the same length, typically, as the time it takes to build a plant. Technically, you have to do all your business case planning, [taking a] long-term view of the market from a global perspective. We will look at phase two in the same way.” 

Foreign partnerships

In November 2008, Emal signed a turnkey contract with France’s ECL and Kempe of Australia to supply technology and equipment, including a hot bath removal and rodding plant. Under the $100m contract, ECL and Kempe will carry out civil works, supply and installation at the plant.

In March, Emal finalised supply contracts with Cagliari-based Fluorsid & Koppers, the Chinese subsidiary of Pittsburgh-headquartered Koppers Holdings. The two five-year contracts secure supplies of 65,000 t/y of pitch and 8,000 t/y of aluminium fluoride. The first shipments will arrive at the end of the year.

Emal has also signed a $200m service agreement with the US’ GE Energy Infrastructure, following its $500m order for GE gas turbines, steam turbines, heat recovery steam generators and condensers. Phase one’s power generation capacity will exceed 2,000MW.

Meanwhile, Emal will be the first smelter to license DX reduction cells, developed by Dubal. These offer greater energy efficiency, to reduce operating costs.

Mubadala, which holds a 50 per cent stake in the joint venture, wants the private sector to create downstream aluminium industries and has pledged not to invest in aluminium-based manufacturing in Abu Dhabi itself. Hedditch says that talks are under way with several players with a view to local start-ups.

Emal is positioning itself to meet demand from the construction, packaging, automotive and aerospace industries in Europe, Asia and the Gulf. As a new, low-cost operation with ready access to power and the latest energy-saving technology, the company will enter the market as a low-cost producer. “The timing of this project is not dependent on a view of the market, and never will be, apart from a very long-term view,” says Hedditch.

“You do not bring on [new aluminium projects] unless you are a low-cost producer, and the moment you are ready, you should operate. The smelter will start when it is ready to start. It will be in the bottom 10 per cent of the cost curve globally, and we will run to full production when it is technically possible. That is the way it works.

“A low-cost producer should produce even when the price is low. The aluminium industry is a global pool of producers and consumers, price-fixed independently of the producers and consumers through the market mechanism of the London Metals Exchange [LME]. You pay the market price. Because aluminium can be produced and shipped anywhere, your competitor is the next guy in the global pool.

“Currently, the market is in oversupply. The LME has more than 100 days’ supply in inventory, as the result of a collapse in demand. The medium and longer term will see continued rationalisation of higher-cost producers in North America and Europe.

“Capacity will rationalise to places with competitive advantage in the Middle East, and places with hydroelectric power such as Iceland and Russia. The aluminium business is, above all, an energy business. Areas in the world with competitive sources of energy have a competitive advantage.”

Project costs

Emal exports and local downstream production will be central to Khalifa Port’s strategy to anchor local cargo through Abu Dhabi. Khalifa Port is due to open in mid-2012 with initial capacity for 2 million 20-foot-equivalent units of containerised cargo and 5 million tonnes of general cargo.

In August, Emal will take delivery of its own jetty and dedicated berth at Khalifa Port, to install the handling equipment it needs for production to start in April. Meanwhile, imported raw materials are shipped via Jebel Ali.

In January, MEED reported that Emal was looking at opportunities to raise additional debt, having delayed a planned bond issue in early 2008 because of the global banking crisis. However, Hedditch says the project is “fully financed”, and that the company will look at options such as a bond issue “if the owners believe that is appropriate and when the timing is right”.

And timing, of course, is decisive. “With the recent boom in real estate, Gulf smelters have had to pay higher capital costs for construction,” says Massimo Rossi, senior consultant to the primary aluminium team at CRU. “There have been bottlenecks in supply of raw materials and skilled labour able to take on complex construction projects of this nature.

“Costs have gone up sharply in the past three to four years. However, the global economic slowdown has brought down prices of materials such as cement, and capital cost requirements for smelters are coming down too.”

Dubai Aluminium (dubal)

Dubai Aluminium (Dubal) celebrates its 30th anniversary in October. Since it opened at Jebel Ali in 1979, its capacity has increased seven-fold, producing an initial 136,000 tonnes of aluminium from three potlines, to more than 960,000 tonnes on nine potlines. This growth has made it a major supplier of foundry alloy to carmakers in Asia.

With clients in nearly 50 countries, the company produced 945,000 tonnes of aluminium in 2008. Despite the drop in world aluminium prices, Dubal has said publicly that it has no plans to curtail its production and is also pressing ahead with its Abu Dhabi joint venture Emirates Aluminium (Emal).

Dubal added a new potline and 40 additional smelting cells in 2008, representing investment of AED478m ($130m). The company announced a 16 per cent increase in profits to AED2.2bn last year, achieving AED9.1bn in sales. Its strategy now is to invest in and develop other new smelters in the UAE and further afield, and to cash in on its technical know-how.

Dubal licenses out its DX reduction technology to third parties, earning royalties in the form of initial and ongoing payments. Clients so far include Emal and new smelter projects under development in Iran.

Further afield, Dubal has taken a 19 per cent equity stake in a joint venture company that is developing a smelter in northern Brazil. Dubal has taken the stake in Companhia de Alumina do Para (Cap) in partnership with metals and  mining company Vale, which holds 61 per cent, and Hydro Aluminium, which holds 20 per cent in the project at Barcarena in Para State.

Scheduled for completion in 2012, Cap will have initial capacity of 1.86 million tonnes, with potential to expand to 7.4 million tonnes.

In May, Abdulla Kalban, Dubal’s president and chief executive officer, pledged to maintain full production over the coming months.

“Dubal has experienced a 30 per cent decline in orders from our established global customer base, many of whom are engaged in the automotive and building industries hardest hit by the recession in the first quarter of 2009 [but] we maintained our sales volumes,” he told delegates at the Commodities Research Unit conference in Dubai.

“We have achieved this by establishing new markets for our metal and changing our product mix to meet the needs of customers.”

Dubal aims to produce 1.7 million tonnes a year of primary aluminium by 2011 and to be one of the world’s top five producers by 2015.

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