Khalid Essa Buhmaid

Vice President of Corporate Relations & International Affairs of Dubai Aluminium Company Limited (DUBAL)The limited supply of raw materials is a factor behind the major consolidation trend of the world aluminum industry.

The limited supply of raw materials is a factor behind the major consolidation trend of the world aluminium industry. In 2007, the merger of RUSAL, SUAL, and the alumina assets of Glencore was completed and recently the new number one Rio Tinto was created. There are a lot of mergers, acquisitions, takeovers in the industry. How do you see the future structure of the industry? 

Well, if you look at the mergers and the reasons behind the mergers, it’s mainly driven by the market needs or market requirements. Mergers are happening in all different parts of the economy, not only in this industry: that is the trend for the future. The opportunities are there and I think it is not only with these companies; it is also something that we are looking at seriously. The great demand for this metal requires more consolidation; and more, in a way, synergy to strengthen the position of these mergers.

Could we see a more consolidated structure in the future?

This is something we are looking at very seriously

Where do you see the new center of gravity? Would it be in China or around the bauxite producing countries?

What really drives this industry are two main factors. One of them is the energy that is required to support this industry. And secondly is the financial investment: it is a very capital-intensive industry. We believe China will remain very attractive for two or three years, but we truly also believe that players in the Gulf are moving in the right direction. And in the near future the Gulf will be playing a major role in this industry.

With continued cost pressures on primary production relating to high energy and raw material prices, is primary aluminum is expected to grow in 2008 by 8 to 9 percent? How will the price of aluminum behave in 2008 and beyond?

It’s very promising. We have to remember that it’s a commodity; the prices are really set in the aluminum market. As it’s a commodity, the demand and supply controls that. We believe, according to the CRU statistics, the prices of the primary aluminum will behave very positively, and I think it’s expected to go into 2009 as well. The main reason for this is the high demand for this commodity in the world, which is driven by the wide use of this commodity in all aspects of our lives.

Is the supply going to keep up with the demand?

We are expecting that there will be a shortage of supply. But, as we mentioned, with mergers and new expansions, the shortfall will be caught up. But the commodity will always be in demand.

You have evolved into the seventh-largest aluminum producer in the world, with an output of 950,000 tonnes of metal per annum. Furthermore, you are aiming to achieve one million tonnes by the end of 2008. What are your main, key success factors? How did you evolve into this giant?

Ever since DUBAL was established back in 1976, we have embarked on an expansion movement, so to speak. The initial design capacity of the system was 150,000 tonnes. When we started to monitor the world market, the increase in the demand highlighted the potential for expansions. One of the key factors for our success was the strategic vision of our leaders in this part of the world. Secondly, being located geographically between East and West, and next to the Jebel Ali port, meant great facilities for our exports to the world. Not to mention the amount of gas that is required for this industry. We have an abundance of it here in this part of the world. Being adjacent to the Indian subcontinent, with highly-skilled labor, has also contributed to our success dustry. And at the end of the day, it’s the quality of the metal that we provide to the world. We are still in high demand.

You are currently exporting to 46 countries worldwide. You are the biggest exporter in Dubai. What is your relationship with your export market, especially with the European Union?

As you said, we do export to every corner of the world, from China to Mexico. Our exports to the EU are still not as strong as we wish for; we want to see our exports to Europe improve. And that is due to the downstream industry in Europe. The EU is now at 25 countries, and a huge market, a huge demand. But unfortunately, we are not being treated fairly when it comes to trade issues. The EU is the only market in the world to impose 6% duty on primary aluminum imported from the Gulf. If you take the trade imbalance between us and the EU, it’s always in favour of the EU market. I think the most recent figure was somewhere around 21 billion dollars in favour of the EU over the GCC. We really want the EU side to look into this and facilitate our metal reaching the EU market.

How do you assess this European Union policy?

I think the EU policy has to change. The economics of the market have changed. When the EU introduced the 6% tariff it was for legitimate reasons back during the Cold War. The economics of the world have changed, and the EU needs to revisit the trade policies and amend them accordingly, to the new developments in the market.

Is this hurting the European Union?

It’s hurting the EU downstream users more than anybody else. They pay more than their competitors in Japan, or in the States, or China.

There are many global players who are diversified in mining and aluminum production sectors, such as RUSAL, ALCOA, RIO TINTO. With this huge competition, how are you going to secure adequate primary resources?

We like challenges. Without challenges, life would be boring. When we set our game plan, it’s a cultural thing, driven by our leaders, that we have to challenge ourselves and take it to the maximum. It’s an open market, you know, and we have a saying, “If you are better than me, then prove it.” It’s as simple as that. For us to embark on overseas projects, that’s one way of attacking or approaching this issue and be ahead of the game.

How will you structure your competitive strategy? Will you diversify?

In our industry there are two main factors. One is to secure our supply of raw materials, for which we have already embarked on two projects, very promising projects. They are in well-advanced stages. The second is to look for opportunities in the market, to invest, and enhance your participation in different parts of this world. When it comes to the primary industry, we already announced the Algerian smelter. We are in negotiations with other parts of the world. Obviously, I cannot make the announcement now, but in due course, when it’s all completed, then we’ll do it. I think our alliance with the government of Abu Dhabi to build the biggest single smelter in the world, is also testimony to our challenge to achieve.

Where do you position your main competitive advantage along the value chain? What is your main specialty?

I think it’s premature to answer this question by having just one single answer. It’s a combination of expertise in this industry… I mean, by 2009 we will be completing 30 years in business. Now, this expertise that we have in this particular industry contributes a lot. Obviously, the natural resources, for example, the geographical location, being close to the subcontinent, the abundant amount of gas … these are natural resources given by God to this part of the world. What we need to do is just use it right. So it’s a combination, basically. It’s a combination. Added value, and added-value products, always.

Added-value products. Can you explain to us how you are adding value to this very high quality metal you are producing?

Well, it depends, really, on the raw material that we use, and the level of purity it can deliver. Ever since we started producing aluminum, that was our aim; not to produce a metal, but to produce a brand. And to produce an added-value product, that touches every segment of the economy … if you talk about cars, and automotive, if you talk about instruments, if you talk about construction. So it’s all about the investment that you make initially, that will pay off later on.

So, we could say that you are the technological leader in the industry?

We are certainly one of the technology leaders in the industry. We have developed our own technology. It’s called DX technology, which is the new generation in the smelting industry. The same technology will be used for our new smelter in Abu Dhabi, EMAL. That is going to use DUBAL-developed technology, and that’s also to our advantage.

DUBAL contributes some 2.2 billion dirhams to Dubai’s economy every year. In 2004 this equated to 5% of the city’s gross domestic product and 32% of the industrial sector contribution to Dubai’s GDP. It also represents approximately 5% of the country’s non-oil export revenue. How do you contribute to the economic and social development of Dubai? Can you mention some of these?

We contribute directly, and indirectly. What I mean by that is, in every single expansion at DUBAL, we look at our local suppliers. And this is something that is grown by our leaders, to look at it seriously. Secondly, the indirect contribution arises from the amount of job opportunities in all of these expansions. We secure jobs; and promote all the indirect business generated out of these expansions. So this is the payback from DUBAL to the country, or to the city. Not to mention, of course, our corporate social responsibility. The list goes on and on and on.

You mentioned job opportunities. What is your part in Emiratization?

Of course it’s one of our mandates to increase the number of UAE Nationals in DUBAL. Right now, if you take the organization as a whole, we are at 22% Nationals, but 70% in top management. We participate in career fairs to encourage Nationals to join the industry. We visit schools and universities around the country to try to attract them. But here the point is we attract the right individuals into the right job. And that is something of a challenge for us.

Could you tell us more about how you integrate corporate social responsibility in DUBAL? I know you are participating in numerous activities.

Yes. We look at it as a mandate as well. Since we are a factory or smelter, the perception is that we harm the environment, which is totally not true. In the past 27 years, DUBAL has invested 1 billion dirhams in our fuel treatment plants and to preserve the environment. If you drive around Dubai and see the amount of greenery, that’s testimony for us. So we do take initiatives. We support the Emirates Environment Group (we are one of the founders) which educates the public about the importance of preserving the environment. Not only that, but also safety. At the smelter, we have is an excellent safety record. Recently, we celebrated 7 million hours without a Lost Time Injury, which is an excellent achievement. We send our engineers to schools to talk to the students about the importance of safety in all aspects of their lives. Also, we support the educational aspect of social upliftment. We sponsor students who go to colleges, or to universities, either locally or abroad, especially in the industrial fields, and this is something we always try to encourage.

You are also the main sponsor of Dubai Desert Classic.

Yes, when it comes to events, it has also been a mandate to us to highlight Dubai as a city, and the UAE as a whole. It’s a sporting destination. We’ve been involved with the Dubai Desert Classic, the golf tournament which is rated one of the best in the Middle East, for the past 17 years as the major sponsor. We bring along the best players to the best golf course to play golf in Dubai and to highlight Dubai as a sporting destination. Also we are one of the sponsors of the Dubai World Cup horse race, and we support the Dubai Carnival, the Dubai Horse Show. We are one of the main sponsors there. Also, we support the jet-ski competitions that take place every year in Dubai. When it comes to sporting events, we are very selective. We want to be associated with the best. As you know, maybe golf is not a part of our heritage, but it’s a well-known sport. But when it comes to horses, horse racing is built in to our blood. It’s part of what we inherited from our fathers and grandfathers, and the Arabian horse race is well-known all over the world.

It’s very good, I see that DUBAL is contributing to the Emirate, it’s one of the main priorities.

Yes, it is.

EMAL plans to build the biggest aluminum smelter in the world. This is a joint venture between Abu Dhabi and Dubai, and DUBAL in particular. What do you expect from this strategic partnership?

Well, it’s what we call the right alliance. When we started negotiating with the government of Abu Dhabi to set up a smelter in Abu Dhabi, the economics of the project were right. It’s about 45 minutes away from our Jebel Ali site, and it’s next to Sheikh Khalifa’s port, in the Al Taweela area. Gas is there, the financials are there. From our side, the capital bit is there as well, and the expertise in the industry. So it was a perfect alliance between us. Secondly, it’s also supporting our national economy. You have two major organizations like DUBAL and Mubadala teaming together to develop the biggest single site aluminum smelter in the world. This will also strengthen our national economy. Of course, it’s a very strategic and very important project. And it’s going according to schedule, I’m glad to report. The construction has already started, and all the engineers are already on site. By the end of Phase 1, we’ll be creating about 4,000 jobs, and I hope the majority of these jobs go to UAE Nationals.

And Phase 2?

Phase 2 will start immediately after Phase 1. Phase 1 will be finishinged to allow the first metal to be exported to the world in 2010. By 2013, we’ll be finishing the second phase. The first phase of the project is more than 700,000 tonnes, and the second phase is as large. Add these together, you’re talking about 1.5 million tonnes of metal a year.

How do you see the company in 2013?

I think by then the Gulf area will be producing about 6 million tonnes, producing close to 10 percent of the world’s production. By then the alliances between DUBAL and will be playing a major role. We will be trying to compete with the rest of the world in terms of quality metal and excellent services. And that is a role we seek. As far as technology, we are ready to market our technology. And that will be proven, as we did. We tested it here and it has proven to be very effective. And by that we make it happen.

You mentioned that you have started a project in Algeria as well. What are some of your major global expansion plans, international expansion?

Going back to your question about being ahead of the game, and what is our competitive advantage, going to Algeria is also a very strategic move. Firstly, it will strengthen our relations with the Arab world. The economics of the project are right. Algeria is close to Europe, has excellent port facilities, and there is a large amount of gas available in Algeria. We come with our expertise in this industry, and this is also one of our strategic expansions globally. We look for opportunities all over the world. The opportunity arises in Algeria, we go, and we investigate. The project is at the early stages. We’ve been visiting Algeria quite often to see that everything is on schedule. So that is something that we have announced. As we just mentioned, the EMAL project in Abu Dhabi, is a second smelter investment undertaken by DUBAL. Also we are in the discussions in other parts of the world. We’ll make it public when it’s finished.

The future looks ripe for DUBAL and the aluminum industry in the UAE in particular. Is there any particular message you would like to address to our listeners, our viewers and readers?

What I would like to highlight is that this part of the world has got so many things to offer. Yes, we are well developed when it comes to our infrastructure, you know, in terms of roads, facilities and services. But it’s not only that. We do have a well-developed industrial base. Besides, there are some other opportunities that need to be discovered. So coming to the UAE is not only to enjoy the beaches and enjoy the 5-star restaurants, but it’s much more than that. I believe that five years down the road, the industrial sector and its contribution to the national economy will almost double.

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