Thursday, Jul 19, 2007
LONDON (Dow Jones)--Aluminum demand growth continues to drive investment in smelting projects with cheap energy and cost benefits, with the decision to go ahead with the Qatalum aluminum smelter in Qatar a key example of this, analysts said Thursday.
The Middle East has been at the center of investment in the energy-intensive aluminum smelting sector, with a number of new projects scheduled to commence operating there in the coming years.
The latest to get approval is Qatalum, which will add an additional 585,000 metric tons capacity to the region with first production due 2009 and full capacity expected in 2010. The site layout caters for a future expansion up to 1.2 million tons annual capacity.
The project, a joint venture between Norway's Norsk Hydro ASA (NHY) and state-owned Qatar Petroleum, involves the construction of an aluminum smelter, anode plant and casthouse, in addition to a dedicated power plant. Production will be based on Hydro's reduction cell technology.
The project is located in the Mesaieed Industrial Area, south of Doha and Hydro has said it is a "major element" in its strategy, as it will improve its relative cost position in primary production and further strengthen its positions in the global metal markets.
Analysts said that secure and relatively cheap energy supply is key to smelting projects in the region, with tax breaks adding financial incentives for investors.
And the aluminum sector isn't the only beneficiary - the projects are ideal ways for Middle Eastern investors to diversify some of their petrodollars, analysts added.
"The aluminum market needs this growth in smelting capacity, otherwise it'll remain in the situation it's been in for the last three years - of having no capacity with few projects coming onstream," said Michael Widmer, London-based analyst at Calyon. "The market may not be as tight as it was in the past, but the world still needs aluminum," he added.
Calyon forecasts a slight market surplus for 2007, of 149,000 tons.
Other projects scheduled for the Middle East include the Sohar smelter, in which Canada's Alcan Inc. (AL) has a 20% stake. The smelter in Oman is on target for start up in the second quarter of 2008 and will have the capacity to produce 350,000 tons a year.
And earlier this year, Dubai Aluminium Co. and Abu Dhabi's investment vehicle Mubadala Development Co entered into a joint venture for the construction and operation of what will be the world's largest single site aluminum smelter. The project will produce a total output of 1.4 million tons annually, with the first phase expected to be operational in 2010.
Analysts at Goldman Sachs said the aluminum demand outlook remains positive, with the market "supported by industrialization trends in emerging markets and substitution out of relatively high priced copper and zinc into aluminum, which provides additional support to the aluminum price floor."
As of 1330 GMT, London Metal Exchange aluminum was trading at $2,828/ton, up 2% on the day.
-By Andrea Hotter, Dow Jones Newswires; +44 (0)20 7842 9413; andrea.hotter@dowjones.com
(END) Dow Jones Newswires
July 19, 2007 10:09 ET (14:09 GMT)
