JEDDAH, 30 January 2006 — The future of the aluminum industry in Saudi Arabia looks bright because the Saudi government will increase the Kingdom’s aluminum production. The government is considering involving the Saudi private sector in downstream aluminum industries.
“We believe that the development of an aluminum industry in Saudi Arabia will be significantly beneficial, not only for our country but for the Gulf region as a whole,” said Dr. Abdallah E. Dabbagh, president and chief executive officer of Saudi Arabian Mining Company (Maaden).
State-owned Maaden obtained an official license in May 2001 to explore and investigate the Az-Zabirah site for deposits of bauxite which is the main source of aluminum. The study of the site showed that Maaden could build a refinery with an annual capacity not less than 1.4 million tons of alumina to be smelted into aluminum.
Industrial Development
The aluminum industry will contribute to the development of secondary industries in the Kingdom. When aluminum is available in molten form at a smelter, it can be economically used for the production of other products.
Typical aluminum products that are possible to produce are: foil, coils of aluminum sheet, extrusions for the manufacture of frames and wires for the manufacture of cables.
Maaden will also possibly be in a good position to produce magnesium on the same site, which will permit the manufacture of high-grade alloys.
In addition to the above downstream uses, existing industrial and national companies, such as Saudi Basic Industries Corporation (SABIC) and Saudi Aramco, will benefit from the project. Typically, SABIC will have a market to sell large quantities of caustic soda and other chemicals used in the aluminum production process. Aramco will also be able to sell natural gas, petroleum coke and soft pitch to Maaden for use in the production of aluminum.
Cash Generation
The aluminum business is a massive cash generator. The Kingdom is in a fortunate position when it comes to producing aluminum since the major elements of aluminum production costs are local. Only expatriate labor and spare parts, both representing less than 20 percent of the operating costs, need to be imported. Regardless of the imported costs, with Maaden’s projected long-term sales of almost SR4 billion ($1.06 billion) per annum, the effects on the local economy will indeed be substantial.
Employment Creation
The aluminum business is a major employment creator, which is why governments in the Gulf often support it. “As can be seen, the major employment effect results from the refining and smelting activities,” Dabbagh said.
“It is for this reason that we decided to achieve benefits as soon as possible by starting the project using imported bauxite. We are presently working on a macroeconomic study, which will advise us as about the additional effects on the Kingdom’s economy,” he added
Maaden estimates indicate that ultimately 4,000 direct employment and 9,000 indirect employment posts will be created as a result of the expansion of the aluminum industry.
According to Maaden, the benefits to flow from the Az-Zabirah Aluminum Project will provide (a) direct and indirect employment opportunities for Saudi citizens; (b) stimulate related downstream industries (over SR2.8 billion per year); and, (c) increase the Kingdom’s gross domestic product (SR115 billion over 25 years) and improve its balance of payments (average SR2 billion per year). These benefits are consistent with the government’s 6th and 7th development plans for the rapid growth of non-oil sectors of the Saudi economy.
According to Dabbagh, “Saudi Arabia will put in place the first totally integrated aluminum production facility in the region, and the Gulf will be among the largest regional producers of aluminum by the year 2020.”
“We have a vision of the Gulf region becoming the largest aluminum producing region in the world,” he added. Market conditions and the increasing global demand for aluminum are the stimuli that make many Gulf countries, in addition to the Kingdom, interested in expanding their aluminum industries.
The regional metal industry began in the 1970s with the production of primary aluminum, taking advantage of the abundant reserves of energy in the region. Today, regional smelters produce approximately 1.5 million tons of primary aluminum per year of which less than 40 percent is processed by regional downstream industries. This is about six percent of the total world aluminum production but with further expansion of existing production capacities and large new smelters, the total regional output for the Gulf will exceed 10 percent of total global output.
According to Dabbagh, the government will own less than 50 percent in Maaden by 2010 and in 2020 Maaden in its present form and structure will cease to exist leaving the mining sector in the hands of the private sector.
