Expansion key to Emirati aluminium growth

28 July 2015

Special Report Contents

The UAE’s aluminium industry, the largest in the Middle East, is going through a period of both consolidation and expansion as it looks to capitalise on its world-scale smelting capacity.

The UAE is currently the only GCC country with two smelters, which were united under the same company, Emirates Global Aluminium (EGA), after a 2014 merger of Abu Dhabi’s Emirates Aluminium (Emal) and Dubai Aluminium (Dubal).

EGA’s primary aluminium production makes up about half of the total for the GCC. The Gulf Aluminium Council (GAC) forecasts that the UAE will produce 2.6 million tonnes in 2015 compared with 5.26 million tonnes for the six-country bloc.

Initial production

Abu Dhabi started the first production at its $4.5bn Emal phase two smelter expansion in September 2013 and has since ramped up production at the operation to a capacity of 1.4 million tonnes a year (t/y).

In numbers

2.6 million tonnes Forecast UAE production of Aluminium for 2015

5.26 million tonnes Forecast total GCC production of Aluminium for 2015

Source: Gulf Aluminium Council

The merger and expansion make EGA the world’s fifth-largest producer of primary aluminium after Russia’s Rusal, UK/Australian Rio Tinto, US-based Alcoa and Aluminium Corporation of China, based on 2011 figures from London-based consultancy CRU Analysis.

Although the UAE is the top producer in the region and has undergone significant expansions, there are no plans on the table for a further increase in smelting capacity.

The UAE and the wider Gulf have built their aluminium-smelting industries on an abundance of cheap and plentiful gas reserves.

However, gas supplies in the GCC, outside of Qatar, are now more critical and the UAE has moved from the status of net gas exporter 10 years ago to net gas importer today. This makes gas major government gas allocations for industrial projects harder to come by for metals and other sectors such as petrochemicals.

Sector integration

Although no major smelter expansion is on the cards, the UAE aluminium industry has several other projects in the pipeline to add value and integrate the sector vertically from raw material supplies to finished aluminium products.

It makes sense [for EGA] to have vertical integration to secure the alumina [it needs] for the smelter

Marco Georgiou, CRU Analysis

The most important project under development is the estimated $3bn alumina refinery, which will process imported bauxite to extract alumina (aluminium oxide), which is then used as a raw material to produce primary aluminium in a smelter.

“From EGA’s perspective, from the amount of aluminium they produce each year, it makes sense to have vertical integration to secure the alumina that they need to for the smelter, because they are a very large buyer of alumina in the global market,” says Marco Georgiou, head of aluminium primary and products at CRU Analysis.

“It gives them more control over raw material costs coming into their plant, otherwise they are more exposed in that market if prices spike upwards, or there are shortages of alumina,” Georgiou told MEED.

He added that there have been very few investments in alumina refineries outside China in recent years due to the capital costs involved.

Seeking new sources

EGA is aiming to source the bauxite for the refinery from its mining subsidiary in Guinea. Guinea Alumina Corporation is developing a mine and export project in the Boke region in the northwest of the West African country.

MEED reported in October 2014 that EGA had awarded the engineering, procurement and construction management (EPCM) contract for the alumina refinery to a consortium of UAE-based Petrofac Emirates and US group Bechtel.

EGA is expected to award further contracts for construction packages of the alumina refinery later this year

Although sources close to the contract claimed the deal had been signed, there has been no official announcement from the client or engineering companies.

The Petrofac Emirates and Bechtel consortium also carried out the project’s feasibility study.

The alumina refinery will be built in two phases, each with a capacity to produce 2 million t/y of alumina, Abdullah Kalban, EGA’s CEO, revealed to reporters at the International Aluminium Conference held in Abu Dhabi last year.

Further contracts

In September 2013, EGA awarded two contracts to secure technologies to support the project. A joint venture of Canada’s Hatch Associates and Finnish minerals processing group Outotec were awarded one deal, while Canadian aluminium firm Rio Tinto Alcan was selected for its refinery technology.

India’s Larsen & Toubro (L&T) announced in June that it had been awarded an engineering, procurement and construction (EPC) contract for the tankages package of the alumina refinery.

EGA is expected to award further contracts for packages on the construction of the alumina refinery later this year, meaning the facility is unlikely to be completed until towards the end of the decade.

Although plans to build a rolling mill in the UAE to significantly expand downstream have been talked about for years, no solid plans have emerged. The UAE’s neighbours Saudi Arabia and Oman have both established rolling mills to add value to their primary aluminium output.

“I don’t think there will be any rolling mills built in the UAE,” says Georgiou.

“The UAE will continue to manufacture products such as billets and slab, and foundry alloy, then sell them in the region and the export market rather than going for full downstream operations, which requires quite a large capital investment and selling [new products] in addition to processed shapes,” Georgiou adds.

EGA assessing power plant bids

EGA is currently assessing bids from contractors vying to build a captive cogeneration power plant at its Emal smelter site in Khalifa Industrial Zone Abu Dhabi (Kizad).

Emal initially received bids in February, but asked bidders to resubmit fresh prices due to bids being too high over budget.

The expansion will increase the capacity of the captive power plant by about 235MW and enable EGA to power its alumina refinery, which will be built in tandem with the power plant.

The bid list for the power plant tender is thought to include Spain-based Abengoa, Turkish group GAMA and South Korea’s Samsung C&T.

Regional projects tracker MEED Projects, citing market sources, reported that GAMA is the lowest bidder on the contract.

Samsung C&T recently completed work on the $625m second phase expansion of the captive power plant at the Emal complex. The expansion of the power plant has increased the capacity of the plant from 2,000MW to 3,100MW.

In November the US’ GE Power & Water was awarded a long-term agreement to provide services on turbines that power the Emal aluminium smelter complex.

The contractual services agreement (CSA) will extend its current services for three of the GE-supplied 9FA turbines and add the maintenance and support of two 9FA standby units. The CSA will cover requirements of spare parts, repairs and field services.

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