Sometime before the end of June in Oman’s port of Sohar, Arabia’s first greenfield aluminium smelter for more than 25 years is due begin producing metal. It will be the start of something big that could put the GCC at the top of world aluminium by mid-century.
They are already talking about quickly doubling Sohar Aluminium Company’s initial 350,000 tonne-a-year capacity.
In the next three years, a further 2.1 million t/y will be added in greenfield aluminium smelters in Abu Dhabi, Qatar and Saudi Arabia. If they all go ahead, the planned aluminium smelters in the GCC will have combined capacity in five years of about 5 million tonnes.
The future looks even brighter. Rio Tinto Alcan business development director Sundeep Biswas told MEED’s Middle East Aluminium Conference in Dubai on 18 February that at least one quarter of the additional 35 million t/y of capacity the world needs by 2030 could be built in the Gulf region.
After that, the sky’s the limit. Should China decide to scale back its plans as high energy prices make smelters uneconomic, the Middle East in general and the GCC in particular could become as dominant in aluminium as it already is in oil and increasingly in gas and petrochemicals.
It is a startling prospect for an industry in the grips of the most dramatic period of change since it was born a century ago.
Aluminium is poised to challenge other metals in a range of market sectors. As versatile as plastic, it can be used to make everything from space satellites to paints. More significantly, aluminium smelting has now become extremely profitable, provided you have access to low cost energy.
GCC aluminium is about to acquire global significance on the competitive advantage the region has in gas, which is now sold to its existing smelters in Bahrain and Dubai at one-tenth the present world market level. Even if GCC gas prices are quadrupled to help finance upstream investment, the region’s aluminium smelters will have an unbeatable competitive advantage over everyone apart from Iran and Russia.
Advanced economies are also happy to say goodbye to an industry with an unenviable environmental reputation that produces few jobs. So why should the Gulf give it a welcome? The gas advantage is great. But that’s also applicable to plastics and fertilisers.
The answer is being provided by queues of investors seeking to set up downstream and valued-added industries next to Sohar Aluminium and Emirates Aluminium, the Dubai Aluminium Company (Dubal) and Mubadala Development Company joint venture due to start producing in 2010. More than 80 per cent of Gulf aluminium is used in the construction sector.
Projects worth more than $1,500 million have been announced in the GCC. Booming GCC consumer industries supplying markets growing by more than 10 per cent annually love the metal. And where there are downstream industries, there are potential jobs for GCC nationals. Aluminium’s logic looks irresistible.
And yet, the industry has not been given, at least not yet, the strategic significance that has been attached to GCC petrochemicals. Saudi Arabia’s Maaden is pressing ahead with a full value-chain project that involves building a bauxite mine in central Arabia, a railway line to the Gulf coast and an alumina refinery and aluminium smelter at Ras al-Zour. It will be the first large-scale expression of the kingdom’s desire to develop its mining industry. But it has taken years to get off the drawing board.
Scepticism has been swept away by a rise world metal prices of at least 100 per cent in less than five years. Aluminium is more expensive, but still looks competitive compared with its substitutes. The market has got the message. Plans for up to nine new smelters have been submitted to the Saudi Arabian General Investment Authority (Sagia).
There are challenges. The first is securing bauxite and alumina feedstock. Dubal and Emal blazed a trail in 2007 by creating a joint venture mining project in Guinea. Other Gulf smelter firms are likely to follow their lead. Smelter construction costs are rising sharply and this will be a persistent headache. There are a host of environmental and logistic challenges. And there is, inevitably, a global and growing skill shortage.
But the lure of abundant gas waiting to be found and extracted throughout the GCC and buoyant domestic and regional markets seem to outweigh these disadvantages. All the world’s largest aluminium companies have or plan joint venture partnerships in the Gulf If they want a future in smelting they will have to be there. The region’s golden economic era now now has a silvery aluminium tinge.