Abu Dhabi in $4bn aluminium plant deal

Joint venture by Mubadala with Malaysian government increases involvement in fast-growing market.

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ABU DHABI // Abu Dhabi's strategic investment company has launched a joint venture to build a US$4 billion aluminium complex in Malaysia. The preliminary deal with 1Malaysia Development will deepen the involvement of Mubadala Development in one of the world's fastest-growing metals markets.
"We want to invest in aluminium smelters in places that have similar advantages to Abu Dhabi with competitive energy costs and good logistics," said Waleed al Muhairi, Mubadala's chief operating officer.
The agreement to build the smelter in Sarawak, on the island of Borneo, is still preliminary and its execution will hinge on regulatory approvals and an agreement on the price of electric power, among other things, he said. It will have a capacity of 750,000 tonnes a year, according to the initial plan.
1Malaysia Development plans to complement the smelter with other associated factories including an aluminium rolling mill, a cable plant, a casting plant and 10 extrusion outfits with an additional investment of $1.8bn. Mubadala will not participate in those ventures.
The decision to invest in Malaysian aluminium follows the successful completion of a smelter in Abu Dhabi by Emal, which is jointly owned by Mubadala and Dubai Aluminium. Emal recently reached full production of 750,000 tonnes a year and a decision is expected soon on a second phase that would double its capacity to make it the Gulf's biggest single smelter.
"Aluminium is a core sector. We are extremely happy with the success of that investment so we plan to invest further as opportunities arise," Mr al Muhairi said.
The new joint venture is the latest in a number of recent moves by Mubadala in Malaysia. The company is an investor in the Iskandar project, a massive new development zone near Malaysia's border with Singapore. It also has interests in Malaysia through Pearl Energy, an upstream oil and gas producer.
"All this is a strong signal of Abu Dhabi's confidence in Malaysia as a growth enabler," the Malaysian prime minister Najib Razak said. "It opens the way for more investment from the Middle East pouring into Malaysia."
The new facilities will be in the Sarawak Corridor of Renewable Energy, a focus of Malaysia's energy development strategy. The projects are expected to create 10,000 jobs during construction and 2,000 specialist jobs on completion.
The agrement was signed during a weekend visit to Malaysia by Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces.
Sheikh Mohammed is also chairman of Mubadala, Abu Dhabi's primary vehicle for diversifying the economy away from hydrocarbons.
The logic of aluminium production in the Gulf is to take advantage of cheap gas to generate the stable electricity supplies necessary for smelting: energy is the biggest single cost element in producing aluminium.
Hydroelectric power is a common source of energy for smelters in many other parts of the world.
Investment in aluminium globally is increasing as more industries start to use the metal as a lighter, cheaper alternative to steel. China is the world's largest producer and consumer of aluminium, much of which goes into construction.
"The expected growth [in aluminium demand] is around 6 per cent a year for the next ten years," Laurent Schmidt, the chief executive of Aluminium Bahrain, told The National at a recent aluminium conference in Dubai. "Now consider what is the consumption of aluminium this year. It's about 42 million tonnes. Six per cent growth means that every year you need additional production of 2.4m or 2.5m tonnes."
Much of that new production is expected to come from the Gulf and Asia. In addition to Emal, the Gulf has some of the world's biggest new smelter projects, including in Oman, Qatar and Saudi Arabia.
For Mubadala, aluminium is fast becoming one of the pillars of a growing portfolio of businesses in the aerospace, semiconductor manufacture and property sectors, among others.
The company owns a range of aircraft maintenance, repair and construction outfits, including Strata, a new aerospace composite materials manufacturing plant in Al Ain.
Through the Advanced Technology Investment Company, Mubadala also owns one of the largest semiconductor manufacturing businesses in the world.