UAE aluminium producers to form $15bn joint venture

05 June 2013

Mubadala and Investment Corporation of Dubai merge aluminium assets

Emirates Aluminium (Emal) and Dubai Aluminium (Dubal) will merge in a $15bn (AED44bn) equal-ownership joint venture called Emirates Global Aluminium, Investment Corporation of Dubai and Mubadala Development Company announced on 3 June.

The creation of the joint venture means the Abu Dhabi sovereign wealth fund will gain a larger stake of the UAE’s aluminium producers, as Emal is currently half-owned by Dubal.

“I understand the companies have looked to tie up on more than one occasion,” says Duncan Hobbs, a London-based senior commodities analyst at Macquarie, a global investment banking group.

“There appears to be strong industrial logic with some obvious synergies. Both are relatively low-cost producers because they pay low prices for energy – Dubal’s production costs are a little higher than Emal’s, but not that much. Potentially, gas supply from Abu Dhabi will be key to the energy supply for their production.”

The formal commencement of Emirates Global Aluminium’s joint operations is expected to be completed within the first half of 2014. It will look to expand along the value chain, from aluminium smelting to alumina refining and bauxite mining overseas, as well as continue to attract downstream manufacturing and ancillary businesses related to aluminium smelting and alumina refining.

“They’ll be in a good position to globally compete in supplying products used in construction and transport,” says Marco Georgiou, head of primary and products at CRU in London.

“They produce value-added shapes like billets and foundry alloy, which are sold domestically, but could go to North America, Asia and Europe as well. With larger production they will be able to combine their marketing and sales and enjoy greater global visibility, maybe also on the cost side when it comes to negotiation power of raw materials.”

Hobbs adds global growth in alumininium is “good”, but he is “not exuberant” in his market outlook as slowing growth for commodities is a worry for investors.

“Aluminium production is expanding quite aggressively, while there already is surplus in the market,” he says.

“Producers sell closest to their clients as possible, but it’s likely there will be a scramble for market share globally. China’s production last year was close to 22 million tonnes and that could increase by as much as 40 per cent. By 2015, their production could be approaching 30 million tonnes. Some would argue China is a seperate market, but ultimately it’s not, it’s a global market. The lower cost producers would survive.

“In absence of trade restrictions, Gulf producers may eye Europe, where producers have higher costs and where Gulf producers would have a logistical advantage compared with other global peers seeking expansion. They could also seek growth in other emerging markets in Asia.”

Globally demand for aluminium is forecast to grow by 8 per cent in 2013 and 2014. Global aluminium surplus is estimated at 1 million tonnes this year.

In 2012, UAE, Saudi Arabia, Qatar, Bahrain and Oman combined produced 4.4 million tonnes of primary aluminium, with the UAE accounting for nearly half of that. GCC production is expected to equal close to 6 million tonnes by 2015.


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