Position, Position, Position Key to Aluminum Smelter Siting

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Researched by Industrialinfo.com (Industrial Information Resources Incorporated; Houston, Texas). The basis for short term opinions on the aluminum market would seem to lie with the particular geographical position of the eyes of the marketer. The available power to production cost ratio combines with secure forward supply contracts to clients, or the lack thereof, to produce statements from industry spokesmen which are uppish, downish concerning oversupply, or firmly sideways depending on current local conditions. The medium to long term outlook for the sheer volume of aluminum production has positive indicators as evidenced by work planned and in progress on new smelters and refineries and by the continuing increase in the use of aluminum in fabrication and manufacturing...plus the China factor.

According to Joseph Govreau, Manager of Metals & Minerals for Industrialinfo.com, "We are tracking 52 projects in the primary aluminum sector worldwide, representing over $24 Billion in TIV (Total Investment Value). We are seeing a significant increase in capital spending/planning in this sector globally. This is happening despite a decrease in primary aluminum capacity in the U.S. due to uneconomic operating and energy costs. In some cases its cost prohibitive to make primary aluminum in the U.S. so most of the future spending will occur in Asia, Europe (see related article: Iceland Aluminum), Africa, and Australia."

During the last month, a joint venture between the Gulf International Investment Group (GIIC) and state owned Dubai Aluminum (Dubal) was signed which proposes the building of a $2 Billion aluminum smelter plant in Similajau, Bintulu, in the Sarawak province of Malaysia. The project will be implemented in two phases.

Phase 1, where production is scheduled to coincide with the completion of the Bakun Dam, will have a production capacity of 250,000 tons per annum and will initially take up 500MW of hydro produced electrical power. Consumption of electricity will gradually be increased from the 500MW base as the smelter plant ramps up production. Construction work is expected to begin in 2004. Production capacity will be doubled to 500,000 tons when phase 2 is completed in 2007/8.

The GIIC is the Malaysian investment arm of several Gulf investors, consisting of individuals and organizations based principally in Dubai and Bahrain. Dubal is one of the world's top ten aluminum producers. A project team will develop and explore the technical feasibility of the project.

The power rate costs are being negotiated with the Malaysian government for the plant, which is expected to provide 3,000 jobs. It will also generate downstream spinoffs, which will benefit the state and provide skills training for the local population.

Alumina feedstock for the plant will be sourced from the U.S. and Australia and the state will ensure disruption-proof power supply connections to the proposed 200-hectare smelter plant.

Government will also construct a road linking the project site and assist in building a new township in Similajau.

Also in the last few weeks Norsk Hydro (OSLO:NHY) (Oslo, Norway) made the decision to take part in expanding Alouette, the Canadian primary aluminum plant. The expansion of 307,000 tons will bring Alouette's capacity up to 550,000 tons a year. Hydro holds a 20% share in Alouette, which represents 110,000 tons of post-expansion primary aluminum per year, which will be up 60,000 tons from the current figure. The Alouette consortium holdings consist of Alcan (NYSE,TE:AL) 40%, Austria Metall AG (AMAG) (Ranshofen, Austria) 20%, Hydro Aluminum 20%, Societe Generale de Financement du Quebec (SGF) (Quebec, Canada) 13.33% and Marubeni (TOKYO:8002) (Tokyo, Japan) 6.67%. Total investment in Alouette will be $933 million of which Hydro's share will be $243 million. Work is due to commence on the expansion and the first production of aluminum is scheduled in February 2005. For more information on this topic read the related article: Alcan Secures Energy and Aluminum Interests in Quebec.

After expansion, Alouette will be among the world's lowest cost primary aluminum plants making the investment return per ton favorable. Operating costs for increased capacity are estimated at less than $1000 per ton. This will put Alouette among the top 10% of low-cost smelter capacity in the world.

Hydro Aluminium's overseas smelters in Australia and Canada represent potential to further improve its global cost position. The decision to take part in the Alouette expansion is one way of realizing this potential as Alouette has the flexibility to serve both North America and Europe.

Hydro's total capacity from its global plants is 1.4 million tons/year plus a further 1.4 million tons from its secondary aluminum smelters and third party sales. Hydro is presently expanding its Sunndal primary aluminum plant, which will be a highly efficient producer of primary aluminum and casthouse products when completed in December 2004. See related article: Hydro Aluminum Continues North American Growth.

Current views on today's aluminum market suggest that Russia may have been stockpiling unsold metal, which previously would have gone to maintain export levels. Russia denies these claims but does allow that there has been a 'reorientation' of 100,000 tons of primary aluminum from the export market to the domestic market. Russian customs data supports a 5% fall in exports of aluminum products. This trend gladdens the hearts of some other big global producers who have been fearing increased downward pressure on prices.

The main reason for the downturn in Russian aluminum exports has been the growth of Chinese aluminum production. In the past China has been the main market in eastern Siberia for the Russian smelters.