Dubai and Abu Dhabi are fast becoming a major power in the aluminium industry.
UAE rises in ranks of aluminium majors
The UAE's two aluminium producers are tightening their grip on the metal's supply chain as they race up the ranks of global producers.
Dubai Aluminium (Dubal) and Mubadala Development of Abu Dhabi are already members of a consortium developing a bauxite mine in Guinea, home to the world's largest-known reserves of the base mineral for aluminium.
They are also 50-50 partners in the Emirates Aluminium (Emal) project at Al Taweelah, a smelter in Abu Dhabi near the emirate's border with Dubai. The Emal smelter came into full operation this year.
"We are co-operating with Dubal on the upstream side," said Waleed al Muhairi, the chief operating officer of Mubadala, a strategic investment company owned by the Abu Dhabi Government. "We have our holding in Guinea. We have a concession there, and they are part-owners there. We are looking together with Dubal to also make further upstream investments in bauxite."
That closer co-operation comes as Mubadala and Dubal hammer out the creation of a company that would manage all of the UAE's aluminium assets. The deal may involve Mubadala taking a stake in Dubal, which is fully owned by the Dubai Government.
"There are a lot of economies of scale," said a person familiar with the deal who asked to remain anonymous. "You have two smelters but you don't need two support units."
Dubal, which started producing aluminium in 1979, brings to the table a range of expertise and market knowledge, as well as a firm hold on critical bauxite and alumina supplies.
Rocks bearing bauxite are mined in Australia, China, India, Africa and other countries and are refined through a chemical process into alumina, a powder. Smelting companies such as Emal and Dubal put the powder through power-intensive electrolysis to produce aluminium.
In addition to its Guinea bauxite interest, Dubal in 2008 signed an agreement to develop a bauxite mine and alumina refinery in Cameroon. A year later, it teamed with Vale, a Brazilian mining outfit, and Norsk Hydro, a Norwegian company, to develop an alumina refinery in Brazil.
Analysts say gaining a foothold in the mining and refining businesses that make aluminium production possible is one way in which the UAE is trying to secure its place in an industry in which demand is expected soon to outstrip supply.
Global production now stands at more than 40 million tonnesa year, but demand is projected to rise to as much as 70 million tonnes by 2020, leaving a major gap that new smelters in Asia and the Gulf are expected to fill. Access to cheap gas for the smelting process gives the Gulf a crucial cost advantage that regional producers are increasingly aiming to exploit.
"Whereas in Europe your concern is about the availability of power, the concern in the Gulf is about raw materials and human resources," said Chris Bayliss, the deputy secretary general and director of global projects at the International Aluminium Institute, a body in London that represents about three quarters of the world's producers.
Yet as the UAE's aluminium giants gain leverage in the global supply chain, there are potential problems with securing the natural gas from which electricity is produced to smelt alumina. Aside from Qatar, which has some of the world's largest gas reserves, the Gulf countries are not flush with gas. And that could put a cap on the region's aluminium boom.
"Taking into consideration the ambitious development plans that the Gulf states have for the next two decades, the governments in the region need to strike a balance between the demand for electricity for civil use and that for industrial use such as aluminium and petrochemical industries, which are the two main industries after oil," said Mahmood Daylami, the head of the Gulf Aluminium Council, a regional industry body.
Despite those concerns, the UAE's aluminium drive is in full swing. With Emal now running at its full capacity of 750,000 tonnes a year, the UAE can now produce about 1.75 million tonnes of the metal annually, potentially lifting it from the world's ninth-largest producer to fifth. According to the British Geological Survey, the top producer of aluminium globally in 2009 was China, followed by Russia, Canada and Australia.
Emal, which lost Dh416 million (US$113m) last year but is expected to report better results this year, will reveal this summer whether it is going ahead with an expansion that would raise its capacity to 1.5 million tonnes. Its executives say they are unconcerned about securing more gas, noting the plant is locked into a contract with Abu Dhabi National Oil Company to supply enough gas to power the smelter throughout its life cycle.
"There are plans to take care of power," said Yousuf Bastaki, the vice president of projects at Emal. "Energy comes from the Abu Dhabi Government as part of the Vision 2030 to diversify Abu Dhabi's economy."
Dubal has separate power contracts with the Dubai Government.
"Now it's about making sure these guys operate efficiently, making sure we're able to squeeze out, from an efficiency perspective, the most amount of metal at the best cost to generate the best return," Mr al Muhairi said, referring to the Emal smelter.