Arabian Gulf aluminium producers are on track to nearly double their slice of global output by 2020 as the Gulf is the only region outside China expanding capacity in the industry.

This comes despite Qatalum, a key player, putting its expansion plans on hold. The joint venture between Qatar Petroleum and Norway’s Hydro Aluminium cited a large supply overhang and uncertain profitability for its decision.

However, other players, including the UAE's Emirates Aluminium (Emal), are pressing ahead with growth plans. From the middle of next year, it will have completed its second phase expansion, taking capacity to 1.3 million tonnes. The facility will be the world's largest single site smelter.

“We are three months ahead of schedule so that means we need to slowly go up with production because as you make you need to have people to buy it from you,” said Emal’s president and chief executive Saeed Fadhel Al Mazrooei.

It was announced in June that Emal would be merged with Dubai Aluminium (Dubal), the company operating a 1.06 million tonne capacity smelter in Dubai. Elsewhere, Aluminium Bahrain (Alba) will complete a feasibility study next year to determine whether to push ahead with extending capacity from 900,000 tonnes a year to 129,000.

The output of GCC aluminium companies currently accounts for 8.1 per cent of total global output. That is expected to rise to 13 per cent by 2020.

The only other region investing in capacity growth is China, but a significant amount of the extra output will be consumed domestically, say analysts.

Aluminium has increasingly been viewed as an efficient way for GCC economies to use their cheap and plentiful supply of fuel to expand their industrial footprint and create jobs. Such supply allows producers to make aluminium, even when prices are low.

Aluminium priced for delivery in three months reached US$1,812.50 per tonne on the London Metal Exchange yesterday. Prices have slid from $1,900 on October 28, the highest level in two months.

Tim Murray, the chief executive of Alba, said that despite prices being relatively low, demand would pick up in India and China over the next three years, the time it would take to expand its smelter capacity.

“Our view is that is the right time to invest as we will build now and in three years we think there will be a pickup in prices,” he said.

Elsewhere in the region, Ma’aden, a Saudi Arabian mining company with operations in aluminium, plans to eventually raise capacity to 780,000 tonnes, up from 260,000 tonnes now.

But Tom Petter Johansen, the chief executive of Qatalam, said it was putting on hold plans to raise annual capacity from the existing 628,000 tonnes to 1.2 million.

“At least from a Qatalam perspective, we don’t think it’s the right time to do this now,” he said. “If you look at total inventories in aluminium, they seem very high, slowly they’re reducing but still very high,” he said. “If you look at China what’s going to happen there? We don’t know.”

He said producers also had to “take into consideration gas prices and the risk from running these projects” at too low a price.

Another challenge for regional producers remains building an effective downstream industry.

Although the GCC accounts for 10 per cent of global primary metal output, it produces only 3 per cent of downstream primary metal products, said Raju Daswani, the managing director of Metal Bulletin, a London-based metals research and publishing company.

The UAE has made efforts to build a downstream base, most recently with the opening yesterday in Jebel Ali of a Royal Engineering Fabrication plant to produce aluminium components for the car industry.

tarnold@thenational.ae