Vehicle manufacturers are taking note of the Gulf’s cheap aluminium to replace heavier steel components.
Since 2008, three aluminium smelters have started up in the GCC, and a fourth is currently being commissioned. Between them, the plants will have added more than 2.3 million tonnes a year of aluminium capacity.
The growth in aluminium output in the region has coincided with a shift in the automotive industry, away from iron and steel car components to lighter aluminium in a bid to lower the fuel consumption of vehicles. In 1975, the average aluminium content in cars was 3 per cent and this is forecast to rise to 20 per cent in 2025. At the same time, steel content will decline from 75 per cent to 40 per cent in 2025.
This represents a major opportunity for regional governments looking to broaden their industrial bases and to move into car assembly and component manufacturing. The production cost of aluminium in the GCC is among the lowest in the word due to access to low-cost energy. Electricity accounts for 27 per cent of the cost of producing aluminium.
Already, car and component makers are taking note. In December 2012, the UK’s Jaguar Land Rover signed a letter of intent to build a $1.2bn factory in Saudi Arabia by 2017 with an annual output of 50,000 Land Rovers. It is likely to be the first of many such deals. Qatar Automotive Gateway is also looking to attract automotive manufacturing companies to Qatar. The incentives on offer are likely be irresistible to well-established carmakers that have long battled rising production costs in the West.