Sales at Dubai Aluminium (DUBAL) have fallen sharply as a result of the financial crisis but the company will continue to produce at full capacity through the year, its chief executive said. Aluminium orders at the firm fell 30 per cent in the first quarter and should be down 20 per cent this quarter compared with last year as manufacturers across the world scale back, said Abdulla Kalban. "The effects of the economic crisis continue to force dramatic changes to the global aluminium industry," Mr Kalban said. "Inventories are building up higher and higher. "Worldwide, they're expected to reach 4 million tonnes and there's not much demand in Europe, the States and the Far East." Spot prices for aluminium on the London Metals Exchange fell more than 60 per cent from July to a low of US$1,251 a tonne (Dh4594) in February. The price has stabilised to about $1,500. Producers across the world have reacted by reducing output but DUBAL is holding production at 960,000 tonnes a year, which is more than the company's output last year, Mr Kalban said on the sidelines of the CRU aluminium conference in Dubai. Despite the drop in sales, he said DUBAL was not increasing inventories but declined to say where the firm was selling its surplus. "I'm not building inventories - my inventory is low," Mr Kalban said. "I will not comment on where the metal is going." The company exports 95 per cent of its output, according to Walid al Attar, the vice president for marketing and sales at DUBAL. The company could be selling to investors willing to rent space to store the metal and sell it on a futures contract at a much higher price, said Dan Smith, a metals analyst at Standard Chartered in London. "I can only imagine they're selling it to aluminium warehouses," Mr Smith said. "There is quite a bit of interest in financing aluminium inventory at the moment." Contracts to deliver aluminium in 2012, for example, are pricing the metal at $1,930 a tonne, substantially above today's levels. A cashed-up investor could buy aluminium at current prices, immediately sell it to consumers on the futures market and then store it until the delivery date. In the interim, producers are suffering from steep falls in aluminium consumption, caused in large part by a slowdown in car making and construction. Alcoa, the world's largest aluminium company, estimates global demand fell by 3 per cent last year and will decrease by another 7 per cent this year, said Bernt Reitan, an executive vice president at the firm. Alcoa has reduced production by about 20 per cent, or 850,000 tonnes a year, Mr Reitan said. Two regional producers, Sohar Aluminium and Aluminium Bahrain, told Reuters yesterday they would put capacity expansion projects on hold, in part as a result of the financial crisis. DUBAL officials yesterday warned it was not the right time to build "downstream" aluminium plants in the region to turn the metal from smelters into consumer products. Government officials in the UAE, Oman and Saudi Arabia have talked of establishing "downstream clusters" near coming smelter projects as part of the region's industrialisation drive. But such projects would face stiff competition from the West and should be driven by economic, not political motives, Mr al Attar said. "The concept of clusters appears more politically driven, more founded on enthusiasm than realism," he said. Last month, DUBAL announced it would acquire a 19 per cent stake in an alumina plant in Brazil owned by Companhia Vale do Rio Doce to provide raw materials for its smelter. Mr Kalban said the investment, together with two similar ventures in Cameroon and Guinea, would eventually provide 50 per cent of DUBAL's alumina needs. firstname.lastname@example.org
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