Global Aluminum Demand Growth Spawning Major New Smelter Projects

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Researched by Industrialinfo.com (Industrial Info Resources; Houston, Texas). There has been a spate of new aluminum smelter project announcements since the beginning of 2006, and there are more to come as the new project planners seek to identify the lowest cost electrical power sources capable of guaranteeing long-term power supply security. The growth in the production of primary aluminum (out of the smelter pot) production between 2004 and 2005 was 3.6% and from 2001 to 2005 the growth in production was about 14%. Over the next five years, the industry is expecting an annual growth rate of over 4%. The International Aluminum Institute estimated global production in 2005 at 23.41 million tons.

In 2004, a total of 2.56 million tons of scrap aluminum was available in the market in addition to the primary production and this total is expected to rise in parallel with production. China’s percentage of the global aluminum consumption total rose from 10% in 1995 to 22.5% in 2005.

Alcoa (NYSE:AA ) (Pittsburgh, Pennsylvania) has signed an Agreement in Principle with the government of Trinidad and Tobago to build a world-class smelter in the Cap-de-Ville region in southwestern Trinidad. This follows the Memorandum of Understanding (MoU) that was signed between the two parties in May of 2004.

The scope of the $1.5 billion project will include a 341,000 million ton per annum aluminum smelter with an associated anode plant and cast house. The plant will produce 240,000 million tons of billet and forging stock, with downstream facilities. A dedicated natural gas power plant will provide electricity to the smelter. First production output from the smelter is scheduled for late 2008. Construction will begin after the completion of the EIA (Environmental Impact Assessment) and the finalization of government and company approvals. Alcoa will have a 100% interest in the smelter and the government will provide or facilitate the required infrastructure for the project.

After completing and initiating various new aluminum production expansion plans in 2005, the Dubai Aluminum Company (Dubal) announced in February a joint agreement with the Mubadala Development Company (MDC), an Abu Dhabi state investment company, to build a $6 billion greenfield smelter complex.

The new 1.2 million ton per annum smelter will be constructed at Taweelah at the Khalifa Port and Industrial Zone and will be the largest single-site aluminum smelter in the world. The project will require a dedicated power supply of 2,600 megawatts and negotiations are taking place to secure the gas feed for the proposed project power plant. Currently, the world’s largest plant is Rusal’s (Moscow, Russia) Bratsk smelter in Siberia, which produced 965,000 tons in 2004.

Dubal and MDC, who will have 50/50 stakes in the project, will oversee the management and operation of the smelter. The partners are aiming to make their joint venture company a leading player in the global aluminum industry and are looking together at opportunities in alumina production, investment in existing production capacity and in the development of greenfield smelters in the Middle East and North Africa.

Abdullah Kalban, Dubal’s CEO, said that there is ample room for additional capacity on the back of strong international demand, which is equivalent to about 1.3 million tons per annum, necessitating a new smelter or two to be built each year to feed the growth.

The company is also looking at other investment opportunities upstream and downstream in the aluminum industry, including the production of calcined coke, development of aluminum rolling mills and applications in the automotive industry.

A couple of weeks prior to the new project announcement, Abdullah Kalban had said that $392 million in expansion plans would see 100,000 tons of hot metal added to Dubal’s annual capacity by the last quarter of 2006 to raise hot metal production to 861,000 tons per annum. Power generation went up 9% in 2005 to 1,350 megawatts and is expected to hit 1,767 megawatts in 2006. The company has also made upstream integration plans with India’s L&T group for a $3.6 billion alumina refinery and has taken a $200 million, 25% stake in Global Alumina and a 40% off-take agreement with Global’s Guinea Alumina Corporation.

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