Interview: Tim Murray
How would you characterise current competition in the aluminium export market?
TIM MURRAY: Competition is reasonably challenging at the moment. Market analysts estimate that aluminium consumption, which was 42m tonnes in 2011, will grow at an average of 6% per annum in the next decade. Therefore, there will be a need to produce another 3m tonnes to cater for the additional demand, as well as to compensate for the closures of obsolete smelters. This growing demand will ensure sound competition for the foreseeable future. Aluminium demand will stem mainly from Asia, due to Chinese and Indian imports, and from the US on the back of recovery in the automotive and construction sectors. The competitors to primary aluminium are producers of alternative materials such as plastics, composites and other metals. Furthermore, aluminium is taking market share away from other metals like steel and copper in transportation, packaging, construction and electrical applications.
What is the current status of the projected sixth smelter in Bahrain?
MURRAY: Back in December 2012, Alba initiated the bankable feasibility study to determine the viability of the Line 6 expansion project, which is expected to add an additional 400,000 tonnes per annum to the current capacity of 890,000 tonnes. Bechtel Canada was awarded a letter of intent to perform the bankable feasibility study for the project. The study will include the analysis for the construction of Line 6 and a fifth power station. Also, the company has chosen Dubal Dx+ Technology to be used in the Line 6 bankable feasibility study. We expect that the financing for this expansion will be raised through export credit agencies and commercial and Islamic banks, along with a bond issuance pending our upcoming credit rating. The bankable feasibility study is expected to be completed in the third quarter of 2013 and, subject to Board approval (towards the end of third-quarter 2013), the construction will start by the end of 2013; the first molten aluminium is expected by year-end 2015. The primary objective is to achieve our organic growth target – by adding 45% additional capacity on top of Alba's current production through the Line 6 expansion project. In addition, the Line 6 project will create around 300 new direct jobs within Alba, and will have a significant impact on Bahrain’s 2020 trade balance. The expansion will also attract various foreign aluminium investments to Bahrain and therefore enhance the downstream semi- and end-use industries across the kingdom.
To what extent are gas price fluctuations affecting future industrial strategy?
MURRAY: Utility costs represent a sizable proportion of the cost of producing aluminium. The new gas price of $2.25 per million British thermal units, which took effect in January 2012, had an impact of $85m on our earnings before interest, taxes, depreciation and amortization for the year.
The long-term gas supply agreement that we anticipate signing with the Bahraini government in the near future is expected to offer a long-term gas supply and pricing policy for Alba.
How has the global downturn affected demand for aluminium and how does it influence pricing?
MURRAY: Our 2012 profits took a hit due to a 16% drop in aluminium prices at the London Metal Exchange (LME) – from $2398 a tonne in 2011 to $2019 a tonne in 2012.Despite the downward trend in LME base metal prices, Alba is still able to generate cash. In the long-run, we believe that, with LME prices below $2000 a tonne, more smelters will shut down or face further capacity cuts. Despite this fact, premiums continue to rally on the back of strong physical demand in the market. I'd expect LME prices to hover between $2000 and $2100 a tonne in 2013.
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