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Aluminium Bahrain lacks power

for $1.7bn aluminum expansion

Aluminium Bahrain, the largest aluminum smelter in the Middle East, said it needs more supplies of gas or other forms of energy to proceed with a planned $1.7bn expansion to meet rising demand for the metal.
“For expansion we need to find alternative sources” of electricity, chief executive officer Ahmed al-Noaimi said here. “Energy is an issue.”
Aluminium Bahrain, or Alba, started production in 1971 using gas from Bahrain’s Awali oil field to power its smelter.
Domestic gas supplies aren’t sufficient to meet the needs of a planned expansion that would increase annual production to 1.2mn metric tons, from 872,288 tons last year.
Aluminum prices rose to a record $3,310 a ton last May in London as Chinese demand expanded.
That has spurred producers such as Alcan and Norsk Hydro to boost production in Middle Eastern countries where abundant supplies of natural gas are available to power smelters.
Electricity typically accounts for about a third of the cost of producing aluminum, used to make beverage cans, aircraft and window-frames.
“Aluminum demand is set for continued growth and there are some questions as to where supply will come from,” said Robin Bhar, a London-based metals analyst with UBS.
“The United Arab Emirates, Qatar and Saudi Arabia are all looking to increase production, so if Bahrain can’t get more power its loss would be a gain for other Arab countries.”
Norsk Hydro, the world’s fourth-biggest aluminum producer, is building a $4.5bn smelter in Qatar with the state’s energy company. First production is due in 2009.
Qatar controls the world’s largest single natural gas field and by 2012 plans to operate 14 trains producing 77mn tons of liquefied natural gas a year.
Montreal-based Alcan is building a $1.7bn smelter in Oman with Oman Oil and the Abu Dhabi Water and Electricity Authority, with production due to begin in 2008.
Abu Dhabi’s Mubadala Development Co and Dubai Aluminium Co are planning to spend $5bn building the world’s largest aluminum smelter in the UAE, capable of producing 1.4mn tons a year.
State-controlled Alba in 2005 opened a fifth potline costing $1.7bn and is already exceeding its smelter’s 830,000-ton-a-year design capacity. A potline is a series of electrolytic cells that extract aluminum from alumina.
It’s working on upgrades to “squeeze” another 60,000 tons from the smelter within three years, according to al-Noaimi, and plans a sixth $1.7bn potline in a “five year horizon”.
“Maybe we need to discuss joint ventures to generate power,” al-Noaimi said, declining to be more specific on where Alba could secure additional electricity supplies.
Natural-gas prices are more than three times higher than during the 1990s and gas consumption will outpace global energy demand for the next 25 years, according to the Paris-based International Energy Agency.
Alba exports about a third of its production outside the Middle East to buyers in Europe, Asia and the US Global demand for aluminum will grow at about 4% a year for the next decade, the company forecast.
This year will be a “peak year” as aluminum prices range between $2,500 and $2,700 a ton, al-Noaimi said. Prices will fall to between $1,900 and $2,200 a ton in the next four years on new supply, he said, “depending on how much the funds play in the market.”
Unless it proceeds with a sixth potline, Alba won’t need to borrow for upgrades planned for its Bahrain plant, al-Noaimi said. The company is “preparing” for an initial share sale which he said will probably happen “in the region of five years” from now.
Alba is 77%-owned by Bahrain’s government, 20% by Saudi Basic Industries Corp and the remainder by Germany-based Breton Investments.

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