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Ready to meet tough challenges

SOHAR — Undeterred by the recent fall in aluminium prices worldwide and the coming up of more mega smelters elsewhere in the Gulf region, coupled by the general recession hitting the world, Sohar Aluminium is well geared up to take advantage of the tough times the industry has been enduring in the recent months, thanks to the best-in-the-world technology it uses.

The state-of-the art Sohar Aluminium smelter, which reached its full production capacity this February, was officially inaugurated on Thursday. The smelter, located 12km outside the Sohar industrial town, produced its first batch on June 11, 2008 and reached its full capacity of 360,000 tonnes this year. As the new kid on the domain, the Sohar Aluminium smelter uses the latest technology ‘AP36’ and thus has a lower operating cost than some of its more established competitors. The construction of a single 360 pot AP36 aluminium smelter potline represents the largest single potline in the world. AP36 is the most electrically-efficient smelting technology in the business and is able to yield in excess of 2,700kg of aluminium per pot per day.

Vision

On the sidelines of the inauguration ceremony on Thursday, Ahmed bin Salim Al Wahaibi, chairman of Sohar Aluminium, was candid about expansion during these times of recession. “We have just started operations and we will have to first show performance as a value project. But we have set a vision and are prepared for expansion.”

Tom Abanese, chief executive of Rio Tinto, was all praise for the Sohar Aluminium team for pulling all stops in setting up the project in record time. He said the focus would be on creating economic sustainable development and added, “In the long run, the Gulf region would be a future source of interest for investments.”

The CEO of Sohar Aluminium, Bruce Hall, informed that Omanis comprise 68 per cent of the 1,000-odd workforce and added, “People here are ready to work. Of the capital invested $513 million was spent into the local economy by using local businessmen and contractors and during the ongoing operation the Sohar Aluminium will also continue to spend $65 million in the region annually.”

Great future

Jacynthe Côté, chief executive of Rio Tinto Alcan, said the very fact that the project is doing extremely well in difficult times proves that Sohar Aluminium is poised for a great future.

Sohar Aluminium, conceived in September 2004 and whose equity is shared among Oman Oil Company, Abu Dhabi Water and Electricity Authority and Canada’s Alcan in 40:40:20 ratios, is focused on increasing cost efficiency to sustain profits. For industries such as aluminium manufacturing, the global downturn poses serious challenges as construction projects get shelved and orders dry up. Since Oman is better placed as far as global recession is concerned the impact would be minimum here.

Attention is now turning to building up markets for the Sultanate’s aluminium output, as well as developing domestic downstream industries to make use of the bounty. One such industry has already come up in the vicinity and another is on the cards.

However, while developing both upstream and downstream industries, Oman will face increasing competition in the region. Apart from the existing aluminium smelters in Dubai and Bahrain, Qatar, the United Arab Emirates and Saudi Arabia are all building new processing facilities. These are all intended to support domestic aluminium downstream industries as well as generate exports. Bruce Hall is confident that aluminum has an international market and thus there is no fear for over-supply.

While this regional rivalry to build smelters could result in oversupply of raw material, this should not affect downstream firms such as those in Oman, who could actually benefit from the competition between producers keen to make sales in contracts.

Diversification

Oman’s 2009 budget shows that the Sultanate is unwaveringly committed to diversifying away from the gas and oil industry, as outlined in its Vision 2020 programme. Accordingly, the government has increased its allocations towards development projects contained in the current five year plan (2006-10) by 10 per cent over last year’s budget, bringing the total to $2 billion. At the moment, Oman is ploughing ahead with major infrastructure projects in transport, construction and other sectors that will help to maintain demand for aluminium.

Considering the calming down of recession anticipated at the end of the year it is predicted that by 2015 global production capacity in aluminium would increase from the current 30 million tonnes to 45 million tonnes. And here Sohar Aluminium can take full advantage.

The Gulf states aluminium industry has played its part and has reached nearly two million tonnes of the white metal with huge expansion envisaged over the next ten years and beyond, predicted to be 10 million tonnes by 2020. Across the Gulf there is a flourishing fabrication industry of aluminium hot, cold and foil rolling, many extrusion presses and finishing capacity and aluminium foundries and aluminium powder production.

Opportunities

Much of the nearly two million tonnes of aluminium is exported, earning valuable revenues but the downstream industry gives added value, as well as employment opportunities to the locals. The major primary market for Sohar Aluminium is the Far East Asian countries.

Oman can play an increasingly significant role in the aluminium supply chain in ways that are fully sustainable.