Economic Update

Published 22 Jul 2010

Work is on track for the ground breaking of what will be the world’s largest aluminium smelter, a project that will place Abu Dhabi at the forefront of the metal’s industry.

The facility, to be built at the Khalifa Port and Industrial Zone in Taweelah, is a joint venture between the Mubadala Development Corporation and the Dubai Aluminium Company, better known as Dubal. The company that will operate the plant, the Emirates Aluminium Company (Emal), with be equally owned by the two partners.

Construction of the first stage of the facility is set to begin in the first quarter of 2008, with completion due in 2010. Work on the second stage will commence as soon as the first is up and running.

Though its initial capacity will be 720,000 tonnes, later stages of the project will increase this to 1.44m tonnes. When it reaches full capacity, the plant in Abu Dhabi will almost equal the combined annual output of Aluminium Bahrain and Dubal, the two main producers in the Gulf Cooperation Council region, which have a production of 1.6m tonnes.

The total budget for the project has been set at $8bn, with $5bn dedicated to the initial stage, which will include port facilities, infrastructure, a power station and the first smelting plant. The remaining $3bn will mainly be invested to double the facility’s capacity. Much of the plant’s output is expected to be exported to the booming economies of Asia, and especially to the automotive industry in the Far East.

A small hurdle for Emal was passed on September 14, when the European Commission (EC) announced that it did not have any objections to the joint venture formed in February this year. Given that Dubal is the world’s seventh largest aluminium producer, the EC understandably scrutinised the new venture, which is paving the way for the Middle East to become one of the world’s centres for aluminium production.

Last year, Middle Eastern companies accounted for 7% (2.38m tonnes) of the world’s aluminium production of 34m tonnes, a figure that is tipped to rise to 6m tonnes by 2020, around 10% of the projected global output at that time, the CEO of Dubal, Abdulla Jassim Kalban, reported last week.

“This is the first in a number of business synergies between Mubadala and Dubal, which will make the United Arab Emirates (UAE) a first-tier player and a global force in the aluminium industry,” said Mohammed Al Bowardi, Mubadala’s vice chairman of development.

While Dubal has a proven track record in the industry, Mubadala is a relative newcomer. Established in late 2002 as a wholly owned investment vehicle for the government of Abu Dhabi, it has quickly built up a portfolio ranging from real estate and energy to manufacturing and utilities.

Obviously with the Emal project in mind, it has also been investing in upstream sectors of the aluminium industry, buying into a number of developments overseas.

In May, Mubadala joined forces with Dubal, BHP Billiton and Global Alumina International in a $3bn project to develop and operate the Sangaredi refinery in the Republic of Guinea. With Guinea having an estimated one third of the world’s bauxite reserves, partnership in Sangaredi will give the emirate’s companies, along with BHP Billiton, almost unlimited access to processed alumina, the raw material needed for aluminium production.

The Abu Dhabi and Guinea developments are not the only joint projects being undertaken by Mubadala and Dubal. In March, the two signed an agreement with Algeria’s state oil and gas company Sonatrach to build and operate Algeria’s first aluminium smelter.

The $5bn facility, which will have an annual production capacity of 700,000 tonnes, will further expand Mubadala’s involvement in the aluminium sector and build on its existing investment base in Algeria, said the company’s chief executive officer, Khaldoon Khalifa Al Mubarak.

“This investment is necessary to provide for an increased demand for aluminium globally,” he said. “The rising cost of energy in some regions continues to make older smelters uneconomic, whereas Algeria’s abundant supply of energy and regional position makes for an exciting opportunity.”

With the world’s demand for aluminium growing at a rate of more than 6% annually, Mubadala has, in a matter of months, positioned Abu Dhabi at the heart of a rapidly expanding industry.