reality and prospects of aluminum industry in the … and... · 800 800 8000 world production (1...

Economic Studies Section

Reality and Prospects of Aluminum Industry in

the Emirate of Abu Dhabi

REALITY AND PROSPECTS OF ALUMINUM INDUSTRY IN THE EMIRATE OF ABU DHABI 2

Introduction

The primary aluminum industry is one of the oldest and most important

manufacturing industries that GCC countries have relied upon, to develop

their industrial sectors and economies, due to being a capital-intensive

industry that consume a great deal of energy, especially that these factors

are characteristics of the region. The aluminum industry started with the

establishment of Aluminium Bahrain (ALBA), in 1968, followed by the

establishment of Dubai Aluminium Company Limited "Dubal" in 1975.

In recent years the interest in aluminum industry widely increased, and the

Gulf States became in a position to be among the largest producers of

aluminum in the world, following the establishment of Emirates Aluminium

(EMAL) in Abu Dhabi and Qatar Aluminium Company Limited "Qatalum," in

2007.

The Emirate of Abu Dhabi move towards the aluminum industry was

backed by favorable factors as the Emirate enjoys a competitive advantage

in this industry at the global level. Abu Dhabi maintains great potential for

growth, consistent with the development agenda of the Emirate, the

"Economic Vision 2030" views metal industries, including aluminum, as the

engines of future economic growth, which would spur achieving the

objectives of the emirate regarding economic diversification. Therefore, the

quest of Abu Dhabi for the aluminum industry is a strategic choice towards

economic diversification, as the aluminium industry forms the basis for a

spectrum of locally, regionally and internationally intermediate and final

industries. Moreover, the aluminium industry is deeply interdependent

with important economic sectors such as construction, transport and

communications, etc…

This report aims to shed light on the reality and prospects of growth for the

aluminum industry in the Emirate of Abu Dhabi, in view ongoing global and

regional developments in the aluminum industry in recent years. The

report runs in into four parts; the first part reviews the reality of the

aluminum industry at the global level, while the second part focuses on the


aluminum industry in the Gulf Region. The third part examines the reality

of the industry in the Emirate of Abu Dhabi and the future prospects for

development. Part four of the report winds up with summary and

recommendations.

The Aluminum Industry Worldwide:

Aluminum is one of the recent modern metals in use compared to other

metals such as iron and copper. Its exploration and extraction processes

had gone through many stages which witnessed various technical and

economic developments; until aluminum turned as one of the most

important mineral industry at the moment, due to the use of aluminum

products in the very wide variety of applications.

The reason behind the diversity of uses of aluminum is that aluminium has

certain characteristics, features and benefits as a metal with low density, a

good conductor of heat, highly resistant to rust, the second most common

flexible metal, and one of minerals most amenable to an extrusion and

forging. Aluminium can be casted and molded, and manufacturing, and

easily machined or formed, in addition to the possibility of being recycling

as a whole.

Due to these advantages, the industry of final aluminum products has seen

tremendous expansion in recent years; and now this industry meets a

wide range of uses, particularly in the sectors of transport and

communications, and construction, which account for 31%, and 23% of the

consumption of aluminum worldwide, respectively.


Fig (1)

Global Consumption of Aluminum by Use

Source: Gulf Aluminium Council.

World production of primary aluminum reached about 41 million metric

tons in 2010, while world consumption was nearly 38.7 million tons during

the same year; which generated a surplus production of 2.6 million metric

tons. This surplus helped to increase the global stock of primary aluminum

from 4.4 million tons in 2008 to 6.9 million tons in 2010.

Table (1)

World Production and Consumption of Aluminium

(Thousand metric tons)

8005 8006 8000

World Production (1) 10000 04350 10000

World Consumption (2) 04180 01002 05338

Balance (1)- (2) 8400 0044 8306

Stock 1024 3080 3608


Transport & Communications

31%

Building & Construction 23.5%

Packing 18%

Electrical Conductors 11%

Other 17%


The regions of production and consumption of aluminum in the world have

changed during the past three decades. The United States was the leading

consumer and producer of aluminum in the world in 1980; as it used to

hold 26% of global production. The U.S. production of aluminium now does

not exceed 5% of the total world aluminum production in 2009

It was noted that China became a significant producer of primary

aluminium in 2009, accounting for more than 36% of world production.

However; this production was not enough to meet the increasing needs of

local Chinese industries which depend on primary aluminium as input to

the production of many important products. China become an importer of

aluminum since 2009, importing 1.4 million metric tons, after being an

exporter of about 12 thousand tons, 49 thousand tons, and 548 thousand

tons in 2008, 2007and 2006 respectively

Fig (2)

The Change in Global Production of Aluminium by Regions

(1980 – 2009)

China 36%

Asia 11% Eastern Bloc 13%

Western Europe 10%

%8كندا

UAS 5%

Latin America 7%

Oceania 6% Africa 4%

2009

Chia 3% Asia 14%

Western Bloc 22%

Eastern Eurore

18%

Canada 6%

USA 26%

/Latin America

5%

Oceania 3%

Africa 3%

1980



The geographical distribution of the production of aluminum is different

from the geographical distribution of the production of bauxite, which is

the main material in aluminum manufacturing, many of the producing

countries of bauxite do not produce aluminum because production is

closely linked to cheap energy, and this energy is not available in most

bauxite producing countries

The U.S. Geological Survey issued in January 2011 shows that Africa

accounted for 32% of the bauxite resources in the world, Oceania 23%,

South America and the Caribbean 21%, while Asia accounts for 18% of

these resources. Guinea, India, Australia, Brazil, Vietnam, and Jamaica hold

the majority of the world's reserves of bauxite ore

1. The Aluminum Industry in the Gulf Region:

Although the GCC countries do not have large reserves of bauxite,

necessary for the manufacturing of aluminum, however; the availability of

energy sources has supported the emergence of the aluminum industry as

one of the oldest manufacturing industries in the region, as the Aluminium

Bahrain Company "Alba" was founded in 1968.

The company started production in 1971 with a production capacity of 120

thousand metric tons; the company has seen many developments over

years, which included increasing production capacity until it reached 450

thousand metric tons per year in 1992. In March 2005, "Alba" raised its

annual production capacity to 870 thousand metric tons. The company's

maximum production capacity is estimated at 1.2 million metric tons per

year, which if reached; would contribute to ensuring the optimal

production as a result of economies of scale


Dubai Aluminum Company "Dubal", was established in 1975, as a

company wholly owned by the Government of Dubai, the company began

production in 1979, while commercial production began in 1981 with a

capacity of 135 thousand metric tons per annum. Through a series of

successive expansion projects, the total production of Dubal went up by

more than seven folds, Expansion stages included adding many production

lines, and ancillary infrastructure facilities for power generation in

addition to poles manufacturing plant, foundry operations of the, port and

storage, areas. Consequently, "Dubal" smelter now stands as one of the

largest modern aluminum smelters in the world.

"Dubal" Plant's main facilities currently include a smelter with capacity of

more than 950 thousand metric tons per year, a 2350 MW power station, a

large carbon plant, a 30 million gallons per day water desalination plant,

laboratories, port and storage facilities

"Dubal" can produce aluminium in three forms: foundry alloy for

automotive applications; extrusion billet for construction, industrial,

forging and transportation purposes; and high purity aluminium for the

electronics and aerospace.

Table (2)

The Capacity of the Aluminium Smelters in GCC Countries

Country Company

Production

per

annum(Thous

and metric

tons)

Year of

Production Ownership

http://www.dubal.ae/our-innovations/growth-through-technology.aspx


UAE

Abu

DhabiEmal 720 0202

Mubadala 50%

Dubal 50%

Dubai Dubal 950 0646 Dubai Govt. 100%

Saudi Arabia Ma'aden 402 0200

Ma'aden 75%

Alcoa US 25%

Bahrain Alba 542 0640Bahrain Govt. 78.5%

Sabic 21.5%

Oman Sohar 032 0225

Oman Oil Company

40%

ADWEA – Abu Dhabi

40%

Rio Tinto Alcan 20%

Qatar Qatalum 252 0202Qatar Petroleum 50%

Hydro – Norway 50%


In light of the economic boom witnessed by the countries of the region in

recent years, attention increased in the region for aluminum manufacturing

as a strategic option to diversify the economy. Sohar Aluminium in Oman

was founded through a coalition of three major shareholders: Oman Oil

Company (40%), ADWEA Abu Dhabi (40%), and Rio Tinto Alcan (20%)

with a capacity of 360 thousand metric tons per year

Qatar Aluminium Company Limited "Qatalum" was established as a joint

venture between Qatar Petroleum and Norsk Hydro of Norway, where each

partner owns 50% of the shares of the company. The total production in

the first phase of the project was scheduled to reach about 585 thousand

metric tons per annum of primary aluminum.

Ma'aden of Saudi Arabia is developing a joint project of aluminum with

Alcoa Inc. of America, which owns 25% of the project, compared to 75% for

Ma'aden. The project seeks to exploit the bauxite resources of Saudi Arabia

by mining and exporting of finished products to local and global markets.


The production capacity of the project is 720 thousand metric tons per

year.

Due to the integration of aluminum manufacturing with intermediate and

final industries, the GCC private sector was encouraged to set up a number

of industries that depend on primary aluminum as an input to production;

for example "Sohar" company allocated 60% of the annual production

capacity of the smelter for local manufacturing companies. The company

has allocated two hundred hectares of land adjacent to the smelter site in

the Sohar industrial area for the development of manufacturing industries,

so these industries can obtain the molten aluminum directly instead of re-

melting it, thereby significantly reducing the cost of production at these

plants.

At present, there are many companies that work on the manufacture of

intermediate and final aluminum products in the GCC countries, where

there are about 27 firms for the production aluminum alloy, 13 of which

are in the UAE, while Saudi Arabia ranked second with 7 factories and the

Kingdom of Bahrain with 5 plants

The total Gulf investment in the aluminium industry is about $ 22.3 billion.

UAE's investment alone amounts to $ 10.7 billion in the UAE, equivalent to

48% of the total Gulf investments in this industry.

Most of the manufacturing industries that produce finished aluminum

products in the GCC countries are concentrated in projects that serve the

building and construction sector, producing doors, windows and facades,

as well as a number of factories for the production of household appliances,

cans, drums and chips of aluminum


Table (3)

Aluminum Alloy Production Statistics in GCC Countries

Country No. of Plants Amount of

Investment ($

billions)

Number of

workers

thousand)

UAE 00 0204 206

Saudi Arabia 4 200 000

Bahrain 2 000 100

Oman 0 001 002

Qatar 0 205 000

total 04 0000 0100

Source: Gulf Aluminium Council

2. The Aluminum Industry in the Emirate of Abu Dhabi

2.1 The Reality of the Aluminium Industry

Within the strategy of the Emirate of Abu Dhabi Industrial which aims at

encouraging economic diversification, came the establishment of Emirates

Aluminium "EMAL" in 2007, as a joint venture between Mubadala

Development Company "Mubadala", and Dubai Aluminium Company

Limited "Dubal". The project is being implemented in two phases; the first

phase was completed at a cost of U.S. $ 5.7 billion, and included the building

of 756 cell production cell along two production lines, a 2000 MW power

plant, a factory for the production of positive electrodes and a multi-

product foundry


The project is located in Khalifa Port and Industrial Area at Al Taweelah,

and its site near the port would facilitate in flow of raw materials, and

provide gas for the power plant, thus ensuring long-term energy supplies

The current production capacity of the project is 750 thousand tons per

year, including a variety of primary aluminum products, extrusion billets,

and alloy standard aluminium alloy, and alloy sheets and high purity

aluminum ingot. It is expected that the total production capacity of the

project by the end of the second phase, would jump to 1.5 million tons of

aluminum annually, making "EMAL" the largest single site for the

production of aluminum in the world

The project's products meet the needs of a number of industrial sectors

such as aviation, automobiles and technology, in addition to the packaging

and construction sectors. The products of "EMAL" constitute a prime

resource for high-quality aluminum products for the electronics

components industry.

Despite that the Emirate of Abu Dhabi does not have the reserves of

bauxite, as main input for the production of primary aluminum , knowing

that bauxite, accounts for about 44% of the average cost of global

production, however; the Emirate it has many advantages that enhance the

possibility of developing the aluminum industry, as an activity which is

profitable and supportive of growth. These advantageous features include

the low cost energy, which constitute about 27% of the global average cost

of production.

In addition to the above, the Emirate of Abu Dhabi has built a complete

infrastructure in the industrial cities, especially the Khalifa Industrial zone

where "EMAL" is set. And which , which is planned to include parks in

manufacturing industries parks around "EMAL" smelter, to enabling these

industries obtain aluminum alloy and cast, which reduces the cost of

production at these plants, and enhances the aluminum industry to assume

a leading role in supporting economic diversification


Fig (3)

The world Average Cost of Production of Primary Aluminium

Source: Gulf Aluminium Council

The Emirate of Abu Dhabi pursue a comprehensive strategy to develop the

aluminum industry by focusing on the concept of industrial clusters, and by

attracting investment in manufacturing industries, which can depend on

the "EMAL" smelter, for provision of required production inputs, such as

aluminum alloy, liquefied aluminum, and also benefit from the advantages

of competitiveness provided by the industrial zone at the Khalifa Port.

In this context, the Abu Dhabi Basic Industries Company "ADBIC" held

several strategic partnerships, with a number of specialized companies to

establish manufacturing entities for aluminum industries, including the

United Cable Company, which was founded in collaboration with "MEDAL

Cables" Company-Bahrain. An agreement with Gulf Aluminium Extrusion

Company was made for establishing an aluminum clips and extrusion

factory.

Aluminium 44%

27%Enerrgy

Labor 8 %

%9الكربون

%10أخرى


0 Employment Opportunities for Citizens in the Aluminum Industry

EMAL" through the various stages of construction used the expertise of

some 19 thousand employees, workers, contractors, engineers and

administrators. It will provide about 2000 job opportunities directly

through the stages of operation.

Emiratization constitutes basic strategy human resources in the company;

which has developed an integrated program of Emiratization which

extends over five-years, for employment of UAE nationals in a broad

spectrum of functions and locations, including operations, support and

management. The program aims at attracting at least 115 UAE nationals

each year to work with "EMAL", each according to his competence and

educational level.

EMAL" Company is working with universities in the country to support

undergraduate majors related to mining engineering and aluminum

industries; as coordination with universities in this context, would help in

providing a future cadre of qualified graduates, in terms of skills and

experience, to ensure to a successful career with the company.

The scholarship program funded by the "EMAL" provides significant opportunities for young Emiratis who enroll in local universities to benefit from the comprehensive grants in disciplines related to the aluminum industry. Preference is given to the disciplines relevant to the current and future needs of "EMAL", namely: mechanical, chemical and electrical engineering.

0 The Prospects for the Aluminum Industry in the Emirate of Abu

Dhabi:

The establishment of "EMAL" company formed a start towards turning the Emirate of Abu Dhabi and the UAE into a regional center in the aluminum industry, and confirmed that the UAE would lead the region in this important industry, and that the Emirate of Abu Dhabi would occupies a privileged global position in the industry in the coming years.


The entry of Abu Dhabi in the aluminium industry is expected to provide major economic benefits in the long run, especially as it would form a strong basis for the establishment of promising local manufacturing industries, in the area, in fields of final products of aluminum. This would enable Abu Dhabi to occupy a privileged position within the programs of economic diversification, and focus on major value added industries as a hub for development in the Emirate of Abu Dhabi. This industry will be a provider of many opportunities for career development in a wide range of disciplines which would include citizens and expatriates alike.

However; there are a number of challenges that may face the aluminum industry in the emirate, which should be taken into account so as not to hamper one of the promising industries on which the Emirate counts in its agenda of development contained in the "Economic Vision 2030". These challenges can be summarized as follows :

I. Production marketing: "EMAL" may face challenge on penetrating

world markets and competing with top investors in this kind of

industry, especially with the increasing production of aluminum in the

region; and the entry of a number of new players this sector, which

generates strong competition between these companies in light of the

excess of world production over consumption, and the accumulation of

stock. It should be noted that the some aluminium products of the GCC

countries are facing some of the tariff barriers, particularly in European

markets, which impose tariffs by 6% on imports of primary aluminum to

protect their markets

II. The development of aluminium value added industries sector:

There is an important challenge facing the Emirate of Abu Dhabi in this

regard, is the need to promote and increase investment in

manufacturing industries, to come out with products of higher value

compared to produce primary aluminum. Investment in manufacturing

industries will support the marketing ability of "Emal through the

creation of internal channels for the marketing of primary aluminum,

which is used as an input to production in these industries.

III. The creation of a new generation of national cadres with expertise

in the aluminum industry: One of the important challenges is to

increase awareness about the aluminum industry, and to establish


institutions aimed at training and qualifying national cadres to work in

the industry, so as to create a generation of national cadres capable of

coping with advancement.

IV. Securing the needs of raw materials necessary for industry: In the

light of the growing number of companies working on the manufacture

of aluminum, and the surge of existing companies to increase their

productivity, and the lack of reserves of bauxite in the Emirate of Abu

Dhabi, then the ensuring of a stable supply of raw materials may be a

significant challenge that must be taken into account in the long run.

V. Maximizing the utilization of aluminum waste: There is an important

challenge in the optimal exploitation of aluminum waste, most

importantly is the scrap resulting from the factories and workshops;

especially that the recycling of waste aluminum, constitutes more than

one third of the aluminum industry in the world. Facing this challenge

properly would help to achieve more than one objective. Firstly, to

increase efficiency by reducing energy consumption, where the energy

required to recycle aluminum products is equal only to 5% of the energy

needed to manufacture primary aluminum from natural raw materials.

VI. Secondly, to preserve the environment by getting rid of waste in a safe

manner, as well as to reduce emission of gases that help global warming,

where the recycling process accounts for 5% of these gas emissions.

I

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