Experts have called for major production cuts amidst a sharp drop in international aluminium prices even as smelters across the GCC are pondering over their outputs for 2009.
Slumping demand over the past few months has pushed aluminium prices down by more than half – from a record high of $3,380 (Dh12,414) a tonne on July 10 to about $1,500. Lower prices are behind massive outputs in the industry, particularly in China.
The GCC presently has a capacity to produce 5.7 million tonnes per annum with Saudi Arabia being the largest producer followed
by the UAE.
Aluminium prices have sunk to a five-year low, breaching $1,500 a tonne, amid fears of deteriorating demand in China and the US. Inventories have risen to their highest levels since 1994, creating a stock overhang that could take considerable time to erode as consumption continues to fall.
Speaking at the 13th International Arabal Conference and Exhibition in November 2008, Jorge Vazques, founder and Vice-President of Harbor Intelligence, had warned that aluminium prices would not bounce until output cuts translate into inventory reductions and lower risk aversion. "Prices are at about 40 per cent below the marginal cost of production, the sharpest deviation so far this decade and in recent history," he added.
Aluminium inventories surged 12,050 tonnes to 2.4 million, the highest in more than 14 years. The metal used in transport and packaging closed at $1,570 a tonne yesterday, from $1,555 on Thursday.
Already production cuts of about 515,000 tonnes a year have been announced in the West. The cuts, according to estimates, should start to bring the market back towards equilibrium.
Speaking on the global aluminium market and price outlook for 2009 up to 2013, Vazques said during the past few months prices gave back three years of advances.
"This type of price movements is part of the structural change that prices underwent in 2005. The global manufacturing sector is facing its worst contraction in seven years [it started in July prior to the start of the financial crisis]," said Vazques.
According to him the aluminium market has experienced sharper contraction given a considerable de-stocking phase that started in early 2008. "Unprecedented risk aversion intensified the ongoing global manufacturing contraction and the destocking process, knocking out aluminium prices and taking the annual market surplus to plus 800,000 tonnes, the biggest so far this decade," he added.
Experts says China has become a determining factor in the world aluminium market. According to statistics in 1996 the demand for aluminium was the highest in the US with 27 per cent while China registered just 13 per cent. By 2007, however, the demand in the US had reduced to 15 per cent and the Chinese demand increased to 33 per cent. The demand in Western Europe too has fallen to 19 per cent from 22 per cent. China is responsible for more than 80 per cent of global aluminium demand growth since 2005.
However, according to Vazques, industrial growth and aluminium demand in China have proven to be relatively resilient in spite of global economic woes.
The Gulf, with its low energy cost, has a significant advantage compared to the rest of the world.
According to Abdulla Kalban, President and Chief Executive Officer of Dubal, energy efficiency, and operational costs coupled with established routes to markets and environmental standards will remain significant competitive advantages for new smelters.
While the world average in terms of energy performance is about 16kWh per kg of aluminium, new Gulf smelters could be less than 14 kWh per kg.
Dubal is the world's largest modern aluminium smelter with a captive power station and is also one of the largest non-oil contributors to the economy of Dubai.
Built on a 480-hectare site in Jebel Ali, Dubal's major facilities comprise a 960,000 mtpa primary aluminium smelter, a 2,600 megawatt power station, a large carbon plant, three casthouses, a 30-million-gallon-per-day water desalination plant, labs, port and storage facilities.
"The company has the capacity to produce more than one million metric tonnes of high quality finished aluminium products a year, in three main forms: foundry alloy for automotive applications, extrusion billet for construction purposes and high purity aluminium for the electronics industry," said a senior executive.
Dubal serves more than 290 customers in 46 countries predominantly in the Far East, Europe, the Asean region, the Middle East and Mediterranean region, and North America. According to Boston Consulting Group, primary aluminium production is shifting to the Middle East and North Africa (Mena) region and by 2015 almost 20 per cent of the world production will be from the Middle East compared to just five per cent in 2007.
Recently UAE's Emal signed a $100 million turnkey contract with France-based equipment supplier ECL and Australia's Kempe to provide equipment for its aluminium smelter at Taweelah.
The two companies will supply technology and equipment for Emal's anode rodding plant and hot bath removal at the smelter. According to reports, both companies will be executing the supply and installation of the equipment, in addition to the civil works and the erection of the plant.
When complete, the six square kilometres complex at Taweelah will become the world's largest single site aluminium smelter. It will be constructed in two phases with phase one due to be completed in 2010 to produce 700,000 tonnes per annum and 1.4 million annually at the end of phase two.
Presently the demand in the Mena region is about 3.5 per cent of the world demand compared to 2.2 per cent of the world GDP.
In the global aluminium value chain the building and construction sector will continue to demand the highest share with 13.1 million metric tonnes of annual production followed by the automotive sector with 10.5 per cent and industrial and consumer sector with 8.6 per cent.
During the next five years building systems will remain the main growth engine in the GCC, especially for use with architectural systems such as windows, doors, curtain walls, storefronts and superstructures including domes, silos, etc.
The majority of the primary aluminium produced in the country will be exported. According to Gulf Organisation for Industrial Consulting the region can be a viable export hub for almost 90 per cent of primary aluminium produced here apart from 80 per cent of the rolled products and 40 per cent of extrusions. According to estimates, an annual growth rate of eight per cent in expected in the GCC, when it comes to extrusions, rolled products and castings.
Production of extrusions is expected to increase from 490,000 metric tonnes in 2007 to 780,000 metric tonnes in 2012 and 1,320,000 metric tonnes in 2020. Similarly rolled products will increase from 380,000 metric tonnes in 2007 to 570,000 metric tonnes in 2012 and 1.07 million metric tonnes in 2020.
According to Tarek Ali, Show Manager for Aluminium Dubai, which is to be held in March, aluminium production in the region is expected to top 6.1 million tonnes by 2013 with 11 smelters in operation in the coming years.
"In the GCC, aluminium is widely used by the building industry, commercial transport, packaging and infrastructure sectors, with automotive, consumer products and aerospace sectors seeing less demand," he said.
Al fajer places Dh245m orders
Al Fajer Properties (AFP) yesterday announced orders worth Dh245 million ($66.7m) for aluminium and glass for its Jumeirah Business Centre towers project.
Reem Emirates Aluminium of Abu Dhabi and Shenyang Yuanda Aluminum Industry Engineering Co Ltd (Dubai branch) have been contracted to supply cladding for the construction of nine towers at the Jumeirah Lakes Towers (JLT) community.
Work is well under way on phase one of the project with aluminium and glass materials expected to arrive early February allowing cladding to start immediately.
For phase two (including the Ebony and Ivory project – a themed series of two all white and one all black speciality glass-cladded collection of towers) the excavation, dewatering, shoring and piling has been completed and the green consultant has recently been appointed to ensure all requirements of the Environment, Health and Safety Department are met.
AFP said in a statement that keeping in line with Dubai's vision for greener more environmental- friendly buildings it would use the latest technologies and materials and its towers would be in compliance with the Green Building Regulations promoting a brighter, cleaner Dubai. AFP reaffirmed its commitment to delivering the highest standards of quality and excellence in line with the reputation of Dubai, highlighting the city as one adhering to the highest standards of excellence in construction.
Under the terms of the order, AFP has placed a contract value of approximately Dh154m with Shenyang Yuanda Aluminum for six of its nine towers. The contract for the remaining three towers in the office chain series has been awarded to Reem Emirates Aluminium at an estimated contract value of Dh91m.
Wang Weiyuan, the Marketing Director of Yuanda Aluminium, said: "To enter into the Middle Eastern and Gulf market with such a high-profile project as well as working with a company such as AFP is a very important opportunity for Yuanda Aluminium.
Derek Bruce, the General Manager of Reem Emirates, also expressed his delight at winning the contract.