India, Middle East emerge as new aluminum hubs

China is still the big story in primary aluminum production on a global scale, but India and the Middle East are coming up as rival hubs, analysts and participants in the sector said.

Lower energy costs and easier access to raw materials are the biggest attractions in India and the Middle East, regions that market players say have room to grow as producers close shop in developed countries as power costs make their plants uneconomic.

Energy costs per tonne of aluminum produced range from $255 to $368 for major producers in the Middle East, a market source told AMM sister publication Metal Bulletin. In India, the energy costs range from $514 to $904 per tonne, the source added.

"Energy is by far the largest portion of production costs (for aluminum smelters) and a growing portion given the global rise in energy prices, so having access to lower-cost or more competitively priced power is a real advantage," Barclays Plc analyst Gayle Berry said.

"The operating costs of the Middle Eastern smelters are in the bottom quartile or the lowest-cost quartile for the entire industry, while in India they are within the bottom-half quartile," she added.

Middle Eastern total operating costs are about $1,300 to $1,400 per tonne of aluminum produced, while those in India are near $1,700 per tonne, she said.

In some developed countries, older smelters sometimes report operating costs as high as about $2,000 a tonne—or above the cost of aluminum itself. On Friday, three-month aluminum closed at $1,861.5 per tonne on the London Metal Exchange.

Besides having affordable power, the Middle East has a major edge in terms of location, sources said.

"Let’s say you are producing in Iceland—you don’t ship products out to Asia. But if you are in the Middle East, you can ship product to Asia, you can ship it to Europe and use it in the Middle East, which is booming itself," a Singapore market source said.

The Middle East today accounts for 8 to 9 percent of total global aluminum production, but that will expand with the ramp-up of Alcoa’s joint-venture Ma’aden smelter, among other projects.

"Following that, there’s the expansion of Emal (Emirates Aluminium Co. Ltd.), which will go from 800,000 tonnes in 2012 to 1.3 million tonnes in 2014," said Ron Knapp, secretary general of the International Aluminium Institute.

Meanwhile, "India offers (better-priced) energy as well as availability of bauxite plus good domestic markets," an Indian producer added.