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- Dubai 05:23 06:36 12:34 15:53 18:25 19:39
When the first phase of Emirates Aluminium (Emal) – the world’s largest single-site aluminium smelter – goes operational in April 2010, Abu Dhabi will be catapulted into the big league of aluminium producers.
It will certainly be a big achievement at that time, but now the challenge is to build it. Duncan Hedditch, a veteran of the aluminium industry with 30 years of experience, has taken on the challenge to get the smelter construction on time. “The smelter has a conventional design, but is very big in size. It is the size that brings complexity and so simply managing this project to fruition is a major challenge before us,” said Hedditch, Chief Executive Officer, Emal.
The CEO is confident that high crude oil prices will not result in cost overruns on his project. Energy costs are the largest component of an aluminium project. “This project has been put together on quite conservative and realistic estimates. We are not expecting to make any changes to our business model irrespective of the recent changes in oil prices,” Hedditch said.
The share of Gulf Cooperation Council (GCC) countries in total primary aluminum production of the world has steadily increased during the past three decades from less than one per cent in 1975 to 4.9 per cent in 2005, according to research released by Kuwait-based investment bank Global Investment House. The report expects a quantum jump in the GCC share over the next decade to around 10 per cent with the expansion of existing smelters and the commissioning of new ones.
The demand, however, will come mainly from the high-growth markets of India and China and the high-consumption industrialised nations of Europe and North America. So why is the Gulf building smelters? “Aluminium smelters are not located where demand is, but where energy is,” Hedditch said. “About a third of the cost of aluminium is electricity and so sufficient long-term supply of energy is absolutely critical. Smelters are either built in places where there is enough hydropower, natural gas or coal.”
Emal has already tied up for long-term gas supply with Abu Dhabi National Oil Company. “We have gas supply in place for needs of both phases of our project.”
The company will source raw material from mines in western Australia. “Raw material will come from Australia where we have long-term supply contracts in place.”
Asked why the company is building its own power plant when there is abundant natural gas available in the region, Hedditch said: “There is an increasing demand for power in the Gulf countries; so we decided to build our own plant.”
Emal is being built at the Khalifa Port and Industrial Zone in Taweelah as a joint venture between Abu Dhabi-based Mubadala Development Corporation and Dubai Aluminium Company.
Its first phase will create production capacity of 700,000 tonnes per year; the second will increase it to 1.4 million tonnes. The initial budget for the project was set at $8 billion (Dh29.3bn), with $5bn (Dh18.3bn) dedicated to the creation of port facilities, infrastructure, a power station and the first smelting plant. The rest will be invested to double the facility’s capacity in the second stage. Most of the plant’s output will be exported to Asia, Europe and North America.
The two UAE companies joined forces with BHP Billiton and Global Alumina International in May in a $3bn (Dh11bn) project to develop and operate the Sangaredi refinery in the Republic of Guinea. With Guinea having an estimated third of the world’s bauxite reserves, a partnership in Sangaredi will give the UAE companies almost unlimited access to processed alumina, the raw material needed to make aluminium.
One of the concerns on Hedditch’s desk, however, is the fact that the boom in the Gulf economies is fuelling competition for resources such as labour, equipment and machinery, apart from basic raw materials.
“We are a big project in the middle of that and it’s quite a challenge to get resources for all projects,” said Hedditch. Optimism is, however, palpable at Emal’s headquarters. The company has already brought on board an engineering, procurement and construction (EPC) contractor, a joint venture between Canada’s SNC-Lavalin and Australia’s Worley Parsons.
“We have commenced work at the smelter location – such as levelling the site, building the rods, putting up the fencing and installing temporary power supply.”
The whole project is being put together at multiple locations – Abu Dhabi, Australia, Canada, India and China. The first phase, which will cost $5.6bn (Dh20.5bn), will become operational in April 2010. The new facility will have a production capacity of 700,000 tonnes per year.
“We haven’t decided on phase two and haven’t costed it yet. The costs will depend on when we plan to build it,” Hedditch said. But he rules out any suggestions of cost overruns. “The numbers originally talked about were early estimates before any engineering work had been done. We completed the final cost estimate only a couple of months ago.”
Aluminium smelters typically operate for 50 years and require significant amounts of energy. Unlike other industries, this energy is not consumed but transformed and stored in the metal.
“Aluminium can be recycled almost endlessly. It takes only five per cent of the cost to recover the metal compared to producing it. Hence, the energy that we are using today is, in fact, not being consumed. It is being transformed and stored, and this is an investment for the future.”
In a social sense, Emal will offer better employment opportunities and will recruit 2,000 people in the first phase. On completion, the plant will have around 3,000 employees, a significant number of them being technicians, engineers, technologists, accountants and environmental scientists.
“We are really creating high-quality employment for people in an industry that is outside the region’s predominant oil and gas sector,” Hedditch said.
He rules out competition between aluminium producers. “Aluminium is a standardised and traded product. Competition tends to be more with comparative materials such as plastic, glass and ceramic.”
Aluminium prices are unlikely to decline in the near future; they will continue to hover around the $2,500 (Dh9,175) per tonne mark, Hedditch said.
Traditionally, aluminium prices have shown a price decline of one per cent per annum as production efficiencies increase. Five years ago, the aluminium prices were expected to be pegged between $1,700 (Dh6,239) and $1,800 (Dh6,606) per tonne.
“What has happened in the last four years is that the world has realised that energy is not getting any easier to get hold of and increases in energy costs and expectations of increase in energy costs have been fed through into the market and are now being reflected in the prices of the finished product.
“I am one of those who believe that $2,500 [per tonne] is here to stay and it is not an aberration nor a reflection of boom times, but of the basic infrastructure changes in the industry,” said Hedditch.
Growing demand for big smelters
The world will require a smelter of the size of Emal every year for at least another decade, Hedditch said. “Each year we need to bring in another smelter about the size of what we are building here. So over the next decade, we will require a project of this size every year somewhere in the world.”
In March, Mubadala and Dubal signed a pact with Algeria’s state oil and gas company Sonatrach to build and operate Algeria’s first aluminium smelter. The $5bn (Dh18.35bn) facility will expand Mubadala’s involvement in the aluminium sector and help build on its existing investment base in Algeria.
“The smelter will basically be an identical one to the first stage of our model. We have other joint ventures in discussion, but our focus will be on the Mena region,” Hedditch said. Abu Dhabi Basic Industries Corporation recently said it plans to build a 550,000 tonnes per year smelter in Abu Dhabi in a joint venture with British mining company Rio Tinto.
Hedditch, CEO Emal
Australian Duncan Hedditch grew up on a farm in Gorae West near Portland, in Victoria’s southwest. He completed a degree in electrical engineering at the Royal Melbourne Institute of Technology.
Jobs with Telecom, BHP and with Philips in Holland were followed by a 15-year stint with aluminium giant Alcoa in Australia, including seven years in Portland, where he helped set up the company’s aluminium smelter. Before joining Mubadala, Hedditch held the position of Managing Director at Rusal, Australia. Prior to relocating back to Australia in 2004, he served as managing director at Rusal Krasnoyarsk aluminium smelter in Krasnoyarsk, Siberia, for two years.
He is no stranger to hard work. “We tend to work even when we are asleep. That is typical with a big project. Most of my team is working pretty long hours and that’s fine,” said Hedditch.
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