Middle East Aluminium production may hit 5 million tonnes by 2015

　　Aluminium production in Middle East is expected to rise 5 million tonnes by 2015, said Mr Mahmoud Daylami, general secretary of the Gulf Aluminium Council.

　　“Middle East aluminium output is expected to grow from 3.6 million tonnes in 2011 to 5 million tonnes by 2015 once new projects in Abu Dhabi and Saudi Arabia are completed. We see the central gravity shifting towards the Gulf”, he said.

　　Aluminium industry giants Rio Tinto, Alcoa Inc and Norsk Hydro ASA are betting heavily that the region can produce aluminium more cheaply and can grab global market share.

　　The aluminium market currently is so oversupplied that market participants say half of the world’s production is unprofitable at current prices. Producers and state owned companies hope Gulf production can take advantage of low energy costs locally and lower shipping rates globally. Such a shift comes at the cost of more costly aluminium smelters in Europe and America.

　　Mr Jean Simon president and CEO of primary metal for Rio Tinto Alcansaid that Benchmark aluminium on the London Metal Exchange closed at USD 1,942 per tonne after hitting 2 year low last week. Due to the low prices, only about 50% of aluminium smelters are making a profit.

　　Rio Tinto, Alcoa and Norsk Hydro have all closed smelters this year as prices fell below the cost of production. Gulf nations, hoping to diversify energy-dominated economies are positioning themselves as a solution. Not surprisingly energy costs which account for one third of aluminium production expenses are lower in the region.

　　According to a January 2011 Alcoa presentation, National electricity costs average USD 22 per kilowatt hour in the Middle East, compared to USD 25 per kilowatt hour in North America and USD 34 in Europe. Such rates don’t always apply to aluminium smelters, as producers seek to negotiate energy contracts directly with utilities rather than paying market rates. Others produce their own electricity on site.

　　Mr Bridget Freas senior analyst for Morningstar said that “Given how high energy costs have gotten, it makes a lot of sense for aluminium companies-especially Alcoa and Rio Tinto to build new plants in areas where they can access low cost electricity.”

　　Mr Ryan Derouin an executive for General Electric Company said that meanwhile, rapid ship building in China in recent years has pushed shipping costs lower which builds turbines that produce about 80 per cent of the power used by smelters in the Middle East.

　　Mr Derouin said that the Baltic Dry Index, which tracks shipping rates for dry commodities, has dropped 37% so far this year. Aluminium makers used to be compelled to set up shop close to their customers to ease transportation costs but that’s not necessarily the case anymore.

　　A JV between Norsk Hydro and Qatar Petroleum reached full capacity of 585,000 tonnes per year last year. Rio Tinto was the first to open JV project in the region. Sohar Aluminium which Rio Tinto owns with Oman Oil and Abu Dhabi National Energy Company reached full capacity of 360,000 tonnes per year in 2009.