UAE and the Aluminium Industry in the GCCIntroduction: The Aluminium Industry in GeneralThe global demand for aluminium is on a steady increase as developing countries such as India and China fuel the demand for the commodity in various industries. Estimates for 2005 indicate that the global demand for aluminium will probably stabilise at 41 million tonnes per annum (mtpa) in the year 2019 (Grady & Prebble, 2005). By the time the estimates were done in 2005, the global aluminium production levels were estimated to be at 28 million tonnes per annum (Grady & Prebble, 2005).
Throughout the world, aluminium is now treated as an essential metal, which is indispensable in the construction, transportation, retail packaging and other related industries (Oxford Business Group, 2011). The history of aluminium production in the Gulf Cooperation Council (GCC) region can be traced back to the late 1960s when the GCC countries (Saudi Arabia, Kuwait, Bahrain, Qatar, United Arab Emirates (UAE), and Oman) realised they had a competitive advantage over other countries due to the plentiful energy resources (Oxford Business Group, 2011). This realisation came to the fore as it emerged that 30% of all costs associated with aluminium production were related to energy.
With their access to plentiful natural gas and other competitively priced energy sources, the GCC countries made aluminium production a focal point of their respective diversification projects (Oxford Business Group, 2011). In addition to producing aluminium for export to other countries, the GCC countries are also major consumers of the product. For example, 45 percent of all demand for extruded aluminium products produced in the region is from Saudi Arabia, while the UAE represents a 28% demand of the same.
Qatar is at third position representing 15% of the total demand. To boost aluminium production in order to serve the export markets, the GCC countries have embarked on the expansion of the aluminium industry, with a new aluminium smelting facility expected to have an annual capacity of 585,000 tonnes this year (2012), hence making the facility the largest aluminium smelter globally (Oxford Business Group, 2011). Aluminium demand compared to other metalsWhile there are various metals that serve as substitutes to aluminium, most of them lack the versatility or the cost advantage that makes aluminium such as sought-after product.
Zinc and copper are mainly the two metals that can substitute aluminium, but their rising prices make them less viable for the construction, transportation and power sectors. Demand for aluminium is especially fuelled by the Chinese economy, which consumes ¼ of the entire global production of the commodity (UC Rusal, 2012). Although China has major aluminium production capacities, the country is yet to attain self sufficiency, hence raising the demand in UAE and other aluminium producing countries.
Before the earthquake that hit Japan in 2011, the latter used to cater for approximately 27% of China’s aluminium demand (Deloitte 2011). Following the earthquake and the interruption of power plants due to the threat posed on nuclear plants, Japan has not been able to provide China with as much aluminium, hence creating room for other producers to cater for the deficit (Deloitte, 2011). According to UAE Interact (2006) East Asian countries account for 50 percent of all exports from UAE, while Europe and the Middle East’s demand for the commodity is estimated to be slightly above 20 percent.