$3.8bn Saudi aluminium smelter signals major diversification

The move comes at a time when global demand for aluminium is rising fast. Analysts predict an eight million tonnes-year deficit in aluminium supplies by 2010 if recent levels of world economic growth continue.

Current Gulf aluminium production represents 6% of world output but with new smelters scheduled to come on stream and expansion of existing facilities planned this percentage is expected to rise to more than 10%.

Aluminium can be used in an increasing variety of manufacturing applications for cables, cans, components, auto parts, aviation structures, furniture, pastes, powders, foil, tools, tubes, cables and alloys. The versatile metal comprises about one third of car structures and up to 80 per cent of modern airliners.

GCC smelter expansion

Saudi Arabia's move into aluminium production mirrors other Gulf developments. Oman's also expects to start production in 2008 from a $2.2 billion 325.000 tonnes-per-year (tpy) smelter in Sohar. Qatar is also planning its first aluminium smelter with an initial production capacity of 570,000 tpy.

Production from Aluminium Bahrain (Alba), the oldest Gulf producer, is due to rise to 820,000 tonnes-a-year from 520,000 tpy and possibly to more than 1 million tpa as new pot lines are brought on stream making the smelter the largest in the world.

Dubai Aluminium Company (Dubal) has plans to increase production to 761,000 tonnes-a-year this year in a $300 million expansion. Dubal also plans to build a major new aluminium smelter in Algeria.

The Saudi smelter is planned to have an initial output of 623,000 tpy but its design will allow for output to be more than doubled. At first the smelter is likely to use imported bauxite though eventually some 200,000 tonnes-a-year of alumina will also be processed at the complex from Saudi mined bauxite at Az Zabirah in the north. This however, awaits development of promised rail links.

Third economic pillar

The Saudi Arabian General Investment Authority says that it hopes the mining sector and processing of metals will become a 'third pillar' of the economy after hydrocarbons and petrochemicals.

Maaden says the smelter project will help create more than 11,000 jobs and increase the kingdom's GDP more than $30 billion over 25 years and result in an improvement to the balance of payments of $533 million a year.

While the Saudi move into the aluminium sector follows other well established Gulf smelters, Maaden believes that because it can draw on Saudi-mined bauxite and the availability of cheap gas supplies its productions costs will be lower than any other GCC aluminium producer.

Such is the potential demand for the metal that there have been hints that another Saudi 500,000 tpy aluminium smelter could also be developed by a private consortium in the developing Jubail 2 industrial city.