Securing gas is vital for growth in the Gulf

28 March 2008

Aluminium production in the Gulf is set to soar, marked by the start of production later this year at a new aluminium smelter in Oman, the first to come on line in the region in more than 25 years.

But despite the booming construction sector, local demand for the metal is limited and producers know they will have to look abroad for orders. Securing overseas customers will be a major challenge, and ensuring they have enough cheap gas will be vital.

The Gulf’s primary aluminium output could reach as much as 4 million tonnes a year (t/y) by 2012. This will prompt expansion across the region’s aluminium-processing industries.

Local demand alone will not justify the investment. The Middle East currently uses less than 1 million t/y of aluminium. The bulk of that is in the construction industry, which uses extruded aluminium for window and door frames. The demand for flat-rolled products to make foil and cast aluminium used in the automotive industry is also relatively low.

Expansion of the region’s automotive industry would be a strong driver of demand and there have been proposals to develop the sector in the UAE, Saudi Arabia and Morocco. But until that happens, or other manufacturing industries gather pace, the main markets remain overseas, in particular Asia.

Unfortunately, the more downstream industrial development there is in the region, the greater the competition will be for gas feedstock. Even if customers are signed up, a lack of gas supplies could mean that producers become uncompetitive in the future.

Already, some European smelters have had to close down because of rising energy costs. Given their access to relatively cheap energy, Middle East producers still have a comparative advantage in this area, but it will take a lot of effort to ensure this remains the case.

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