Bahrain Aluminium

Recently we have seen a sharp decline in aluminium prices as a result of the on-going world economic crisis that has hit the metal industry hard. This was preceded by a wave of mergers and acquisitions in 2007-2008. How do you assess the global aluminium industry and how does it compare to the GCC aluminium industry?

Bahrain Aluminium: The current economic crisis has impacted most countries in the world, affected the viability of numerous industries and has placed many companies worldwide in a highly precarious position. The aluminium industry, too, hasn’t been immune to these developments since – in a matter of just six months – we witnessed a drop in aluminium prices from $3,300 to $1,400 per metric ton. The consequences of such a massive drop was difficult for high cost aluminium producers. It increased their cost of production and, as a result, compelled many of them to reduce their production figures. Simultaneously, there was a lower demand for aluminium, which gave rise to surplus stock in international warehouses. However, when you compare the situation with smelters in other parts of the world, the GCC is in a much better position because of its inherent competitive advantages that enhance continued sustainability. Alba, for instance, has harnessed these advantages to its benefit and combined it with cost competitiveness, operational efficiency, productivity and the expertise of our workforce.

Could you elaborate on the current trends in the industry?

Bahrain Aluminium: If we examine the trends from the past 15 to 20 years, we’ll notice that on a global scale the average growth in demand has been in the range of 3.5 to 4.5 per cent. However, what we are witnessing today is not normal since the trends aren’t following a familiar trajectory. We believe there will be a reversal in the prevailing situation but it is only a matter of time.

Bahrain Aluminium: The inventory cycle is not helping matters either. When the inventories increase to a level that necessitates depletion, it is only fresh demand for products that will serve to accommodate them in the inventory. Hence, a drop in demand will only aggravate the problem and affect the overall pricing mechanism.

Do you see the first signs of economic recovery? When do you expect prices and demand to rebound?

Bahrain Aluminium: It is hard to provide a reasonable prediction but, by all estimates, 2009 will not be an easy year. 70 per cent of the smelters worldwide cannot compete with prices at the current level and are unable to achieve sustainability. If I have to hazard a guess, then, I expect that it will only be sometime around the middle of 2010 that we will see some recovery. But that recovery is contingent on what happens to the global markets and to the economy as a whole.

DUBAL, a Dubai based aluminium smelter is currently producing  950,000 tons of metal per annum. Furthermore, EMAL – a joint venture between Abu Dhabi and Dubai – plans to build the biggest aluminium smelter in the world. It is clear that the competition in the aluminium industry in the GCC will intensify. How are you going to compete with these different smelters?

Bahrain Aluminium: First of all, it must be understood that location is not the major issue as far as the competitive environment for primary aluminium is concerned. Whether a smelter is set up in the GCC or in North America, the impact remains the same since the products are influenced by the dynamics of the international markets. What I’m more interested in is to see how we can change what appears to be a threat into an opportunity. We do think that the GCC region has the ability to attract the industry and we are working together on how best to co-operate on a number of issues. We have established the Gulf Aluminium Council with the specific goal of benefiting the entire industry in the region. So the competition is of an international nature rather than one between smelters within the region.

So regionally it is more about co-operation and working together to compete on an international level?

Bahrain Aluminium: I do think it gives us more of a say in the industry.

How strong is the GCC aluminium industry?

Bahrain Aluminium: Even though it has been established only recently, it has made rapid progress and a number of committees have been established as a result. We also have other committees like synergy, health, safety and environment. At the last board meeting, a training institute was set up to serve the requirements of the six primary smelter members. A synergy in what we do could help all the smelters.

How does Aluminium Bahrian - ALBA differentiate from other smelters in the world?

Bahrain Aluminium: It is with much pride that I like to say that Aluminium Bahrain - ALBA is the largest modern smelter in the world. While there are other smelters that are bigger than Aluminium Bahrain - ALBA but as far as environmental and safety standards are concerned, Aluminium Bahrain - ALBA is second to none.

Bahrain Aluminium: On safety, our workers speak for themselves. Ours is the only smelter that has reached 9.2 million hours without lost time incidents despite the extremely strict methods we use in counting them. Any absence of one shift of 8 hours is considered to be a loss of time incident while other smelters regard three shifts to be the barometer.

Bahrain Aluminium: Apart from having a highly experienced workforce, Aluminium Bahrain - ALBA has a low attrition rate that ensures all-round stability and contributes towards enhancing performance levels at the plant. Our employee strength currently stands at around 3,000 and we are pleased to say that 90 per cent of our workers are Bahraini. This huge percentage of localised workforce provides the crucial basis for the stability of our operations and has aided in our success.

Bahrain Aluminium: At the smelter, we use a mixed basket of three different technologies to ensure flexibility and boost operational efficiency. Considerable investment is made for their upkeep and maintenance so that even the older reduction lines operate as smoothly as the newer reduction lines that use the latest technologies.

You’re operating from Bahrain and it gives you a certain advantage. Could you explain to our audience what are some of the advantages for a company operating from Bahrain?

Bahrain Aluminium: The Kingdom of Bahrain offers some of the most attractive incentives for potential investors keen on setting up business or residence. Investors are assured of business-friendly policies, advanced infrastructure, high living standards and a cosmopolitan environment.

Bahrain Aluminium: We have a rich history – going back thousands of years – of having cultural and trading ties with people from different parts of the world. As a result, Bahrainis have learnt to be multi-lingual, are open to new trends and ideas, are extremely hospitable and tolerant in their approach.

With metal purity rates consistently at 99.9 per cent, Aluminium Bahrian - ALBA ’s aluminium has made it across the world with exports to more than 25 countries. What are your main export markets and how has the crisis changed your exports?

Bahrain Aluminium: Our main customers are in Bahrain. Around 45 per cent of our production is purchased by downstream companies in Bahrain. Their demand for aluminium hasn’t been affected by the crisis and, in fact, they are asking for more metal to meet their requirement. Hence, a major proportion of our production goes towards the local downstream industries and acts as part of the value chain for these world-class products that would eventually be exported.  Another 15 per cent of our aluminium is exported within the GCC region and that should, perhaps, provide answers to your earlier question. Around 25 per cent goes to the Far-East and the rest is split amongst Europe, the United States and the rest of the world.

Provide us with a few examples of these downstream companies, what are some of the major ones?

Bahrain Aluminium: Gulf Aluminium Extrusion Company (Garmco) and Midal Cables are two of our major customers who, together, purchase nearly 20 per cent of our production. They add value to our company and they add value to Bahrain as well. Garmco, for instance, has subsidiaries in many countries and sells sheets that go into a number of end products. Midal Cables produces rods which are exported all over the world.

Taking into account the free trade agreement with the US, did it help your operations? Do you see more exports going to the US?

Bahrain Aluminium: I would say, yes, it has helped us since the free trade agreement with the US opened up tremendous growth opportunities for our company as well as for other industries in Bahrain. Having said that, I do feel there is still considerable room for growth and, hence, I am keen on seeing a greater increase of our exports to the US markets. Hopefully, with our planned expansion and resultant increase in capacity, we will have more metal to sell to the US and derive maximum benefit from the agreement.

What is the relationship between you and your customer? Do they come to you because they have these needs or do you go to them?

Bahrain Aluminium: It works both ways. Aluminium Bahrian - ALBA is known internationally for the high quality of its products and the advanced processes used at the smelter. It is this reputation that has given customers the incentive to approach us directly for their product requirements. On the other hand, we do participate in numerous regional and international conferences and exhibitions where we are able to interact with our customers, respond to their queries directly and strike successful deals with them.

Which markets would you like to be developed in the future? Where would you like to export more to, which market would you like to target?

Bahrain Aluminium: As I said so earlier, the US market is one that we would like to explore in the future and expand our presence there. But to answer your question in a broader sense, then, I’ll have to say that I would like to see Aluminium Bahrian - ALBA continue playing a key role in fulfilling Bahrain’s Economic Vision 2030 strategy and in encouraging greater foreign investments in the industrial base.

Bahrain Aluminium: Just to use the example of the downstream companies in Bahrain. One reason why they are so competitive is because Aluminium Bahrian - ALBA is able to supply them with metals directly. They don’t need to remelt. They don’t need to keep inventories. All they need to do is derive the benefit of Aluminium Bahrian - ALBA being there as a just-in-time provider of aluminium and focus on marketing their products locally, regionally and even globally. This is just one example of how Aluminium Bahrian - ALBA is able to capitalise on its core competencies to support Bahrain’s economic development.

Bahrain Aluminium: I do look forward to the day when we are able to complete our planned expansion by building another reduction line. It will increase our capacity for metal production, enable us to satisfy our wide customer base and create a pivot for attracting greater foreign investors to Bahrain. So yes, while we do want to explore the American – and even European – markets, we need more metal to produce if we want to benefit from the opportunity.

And you mentioned that you would like to see the new line to be built. How much would it add to your capacity?

Bahrain Aluminium: If and when we do add another line to the smelter, it will bring in another 360,000 tonnes or 42 – 43% of our existing capacity. In any case, even within the existing plan we have drawn up an agenda for improvement that would yield an additional 100,000 tonnes.

So if we add everything together, how much would you be able to produce?

Bahrain Aluminium: It will be in the range of 1.3 to 1.4 million tonnes.

Aluminium Bahrian - ALBA uses cutting edge technology at every state of its production to ensure maximum efficiency. Could you explain to our audience what this cutting edge technology is, and do you have some worldwide novelty integrated into your production lines?

Bahrain Aluminium: Over the last 37 years, we have been expanding every five years and have gone from 120,000 tonnes to around 870,000 tonnes. As I mentioned earlier, we do not use just one single technology but incorporate three different technologies at the smelter. If we look at our electricity requirements, for instance, we produce our own power at a total capacity of 2200 MW. Power stations three and four make use of combined cycles where steam from gas turbines is used to produce power. When we converted from just gas turbines at gas cycles in the ‘90s, we doubled capacity and production while seeing only a marginal increase in gas consumption at just 25%.

Aluminium is Bahrain’s second major export after oil. What has been Aluminium Bahrian - ALBA ’s contribution towards Bahrain’s development?

Bahrain Aluminium: Aluminium Bahrian - ALBA ’s contribution has been prevalent in all the three key areas of development, that is, economical, environmental and social.

Bahrain Aluminium: Let me explain using the example of, at least, the seven downstream companies in Bahrain that receive a regular supply of aluminium from Aluminium Bahrian - ALBA . Together they employ nearly 5,000 people, which essentially indicate that 5,000 families are being actively supported by the aluminium industry spearheaded by Alba. And when you look at the size of Bahrain, then, you’ll realise that 5,000 is a substantial figure even if you aren’t including the combined purchasing power of these 5,000 individuals and the subsequent contribution to the local economy. The aluminium sector contributes roughly 10 to 12% of the GDP, and provides the economic angle to Alba’s support of the country’s development.

Bahrain Aluminium: On the environmental side, actions ought to speak louder than words. Over a span of 17 years, Aluminium Bahrian - ALBA has invested more than $ 600 million towards various environmental projects. Earlier this year, we invested another $ 63 million to ensure that the power station remains almost emission free. The Shaikha Sabeeka Oasis, which occupies an area of 90,000 square metre, is another example of Aluminium Bahrian - ALBA ’s environmental commitment. Located within the heart of the smelter, it was set up in 2005 and includes a marine section, a vegetable garden and diverse flora and fauna with migratory birds visiting it every year.

Bahrain Aluminium: Our petroleum consigner plant, which is 10 km away from the smelter, is highly unique in the entire aluminium industry. It is the only consigner in the world where both the raw materials and end products are stored in a covered area. Normally, in other smelters, you’ll find coke piled up in the open and is constantly sprayed with water to create a crust to prevent the ash from coming in contact with air. This covered storage converts the entire process into an environmentally friendly operation.

Bahrain Aluminium: We take our environmental commitment very seriously and regularly participate in conferences and seminars as well as organise trips to schools in order to impart training to young students.

Bahrain Aluminium: In October 2008, we organised one of the region’s biggest environmental conference under the patronage of His Highness Shaikh Abdulla bin Mohammed Al Khalifa. More than 300 environmental experts from across the world attended the conference and submitted their recommendations. I’m pleased to say that many of these recommendations – dealing with reduction of electricity and water consumption – are being closely followed and monitored.

Bahrain Aluminium: Community service is another area where Aluminium Bahrian - ALBA ’s contribution towards Bahrain’s development has earned the company tremendous goodwill. It is performed by committed volunteers who are actively involved in activities that take them to schools, hospitals and even helping out with road safety

Bahrain Aluminium: The activities are done with a clear strategy in mind and not on an ad hoc basis. There is considerable discussion before agreeing to a consensus, and once an agreement is arrived at, the volunteers pursue these activities with great enthusiasm. It must be understood that they are not paid for any of their efforts, which usually take place outside working hours. So yes, there is a great deal of sacrifice on their part, which once again, highlights the level of commitment they demonstrate towards community service.

Bahrain Aluminium: Our work with inJAz Bahrain, for instance, has been widely appreciated in the community and we have established a very strong and effective working relationship with them.  We recently cooperated with them in organising a business ethics programme for school students and it gave us an opportunity to share with young Bahraini students the importance of strong values in the work environment.

Bahrain Aluminium: So this should give you some idea of the safety, environmental and social responsibility culture that exists within Aluminium Bahrian - ALBA . We recognise that our role as contributors to Bahrain’s development has to be multi-dimensional and touch the lives of our various stakeholders in the country. The benefits that some of these contributions bring cannot be measured and hence inspire the greatest satisfaction.

You mentioned that the aluminium industry contributes 12% to Bahrain’s GDP. How important is the manufacturing sector in the Economic Vision 2030? Bahrain wants to increasingly project itself as a service economy and in this light, how important is manufacturing over service?

Bahrain Aluminium: Aluminium and petroleum together contribute substantially to Bahrain’s GDP and that should partly answer your question as regards to its importance.

Bahrain Aluminium: Manufacturing is an important component of the national economy and includes both large scale manufacturers to small scale industries. The government offers incentives to manufacturers and has even developed self contained industrial parks to encourage their growth.

Bahrain Aluminium: However, the government’s main thrust is diversification and hence the emphasis on the service industry is simply to add variety to the industrial mix. The banking and finance industry has been extremely successful in projecting Bahrain as the financial hub of the middle east and this has been made possible because of business friendly policies, strict regulatory framework to guide their operations and the available of a skilled local workforce.

Bahrain Aluminium: Tourism is another area that contributes greatly to the national income and we believe there still exists immense potential for this industry to grow further.

Bahrain Aluminium: As members of the manufacturing sector, the aluminium industry has been a remarkable success in the 40 years since Aluminium Bahrain - ALBA set up operations. The downstream industry provided a thriving ecosystem for Aluminium Bahrain - ALBA ’s products to find a market and develop a formula for success.

Bahrain Aluminium: While this success is commendable, we do recognise that the manufacturing sector is well established and what is needed for the country in the long run, is a healthy mix of the manufacturing and service industry side by side together. Diversification is what gave birth to Aluminium Bahrain - ALBA and it is diversification that is most needed for the economy to grow further.

Bahrain Aluminium: ALBA is committed to do its role in strengthening the national economy and support the government in enhancing Bahrain’s reputation as a key industrial player in the region.