Many aluminum companies  around the world are finding it challenging to keep profits and valuations up in the current environment, but those in the Middle East are in a good position to turn the industry around, a study released yesterday said.
The latest Boston Consulting Group  report, which explored the industry’s challenges and recommended some actions plans, noted that the crisis faced by the industry is a result of China’s move to expand its primary aluminum production capacity. The report urged GCC companies to explore ways to mitigate Chinese supply effects and the possibility of making the GCC a destination for Chinese smelter investments.
China has been the major driver of global aluminum consumption. Its own capacity for manufacturing primary aluminum has increased significantly because of its strategy, causing its imports to decline. Despite this, manufacturers outside China, particularly in the West, expanded their production. This resulted in overcapacity and high inventory, which eventually kept prices at low levels.
“Our analyses show that the industry’s crisis can’t be traced back to an unexpected drop in demand caused by the global economic downturn or sudden changes in the value chain’s upstream or downstream segments,” said Thomas Bradtke, a BCG partner and co-author of the report.
“The crisis  arose from the supply side, driven by China’s strategy to increase its capacity for producing primary aluminum. Producers in the rest of the world misinterpreted China’s move and did not adjust their own strategies fast enough in response,” he added.
The aluminum industry is an important contributor to the region’s economy, being a leading source of job opportunities and a vital contributor to small and medium size support industries. As of 2011, the Gulf exceeded 7 per cent of the world’s total aluminum production and investment in the regional industry reached more than $30 billion, according to a Gulf Aluminium Council  report.
BCG’s report said the Middle East’s aluminum companies are in an “advantageous position” to reignite the industry, given the region’s proximity to key markets, as well as the growing domestic demand for the metal.
The region can also play a key role in “consolidation and the development of new globally active players”. The UAE recently marked a $15 billion merger of two state companies, Dubai Aluminium (Dubal) and Emirates Aluminium  (Emal) to create Emirates Global Aluminium, the world’s fifth-largest aluminum producer.
“The GCC aluminum market’s cost advantage is supported by its proximity to Europe, Asia and Africa and growing aluminum demand from the construction, packaging, transportation and industrial sectors,” said Bradtke.
“We are seeing local players make strategic movements both upstream and downstream as they build viable value chains and further aluminum-driven manufacturing.”
The report recommended that the region’s aluminum industry should explore some key issues, including how much additional smelting capacity will be beneficial to the region and the global market; the new developments on downstream and new products; how GCC aluminum caompanies can further improve cost position and whether a truly global aluminum company will be headquartered in the GCC.