Power outage slows Dubai smelter

The chief executive of Dubal says production fell by a fifth last week due to a power outage.

A power cut last week that sliced Dubai Aluminium's (Dubal) production by nearly 20 per cent came just as the company was weighing an output cut in response to falling demand for the metal worldwide, the company's chief executive said yesterday. A "thermal overload" at a unit in the company's 2400-megawatt power plant near Jebel Ali left the smelter without electricity for "a couple of hours" on Nov 2, said Abudulla Kalban, the Dubal president and chief executive. Aluminium smelters, which run a current of electricity through alumina to make aluminium, require a power supply equivalent to the needs of a small city. They are built to run continuously for decades, and a sudden power failure can pose a serious risk to equipment. "For the first time in 25 years, a prolonged power outage occurred," Mr Kalban told a conference in Dubai. "Dubal as a company has taken a knock." He said the cut did not damage the facility's production cells. Between 15 per cent and 20 per cent of the facility's production remained out of service, he added. The company hopes to have full capacity restored in six to eight weeks. Mr Kalban suggested that the problem came at the best possible time for Dubal, as it surveyed a weak market for aluminium and considered reducing output next year. Prices for aluminium have fallen 45 per cent in two months as the worsening economic outlook has hit industry. Producers are facing the "biggest oversupply in the aluminium market so far this decade", according to Jorge Vasquez, an economist for Harbor Intelligence who closely follows metals markets. "Half of the industry is losing money," he said. "Up to 2.5 million tonnes of output curtailments will take place before the year ends." Dubal could change its output level at a board meeting in December, but the company did not yet know by how much, Mr Kalban said. The firm wants to produce 960,000 tonnes of metal this year, and plans call for producing 1 million tonnes next year. "I am not saying we are revising it downwards. By December we will know," he said adding that the firm was gathering information from the market on price trends and would have a clear picture of demand from its 300 customers before the issue was taken up at the board meeting. A down market could present an opportunity for Gulf aluminium producers to aggressively expand their market share, he said, since they use natural gas as a feedstock and have the lowest operating costs in the industry. "In the short and medium terms, it is going to be survival of the fittest," Mr Kalban said. "We believe we are well positioned to take advantage of the opportunity that will eventually be generated by the current crisis." Dubal is pushing ahead with expansion plans despite soft market conditions and is planning an aggressive push into Europe. The firm supplies 200,000 tonnes of aluminium to Europe and has plans to more than double exports to the continent within the next few years. Japan and other Asian nations make up the largest market for Dubal, followed by Europe, the MENA region and the US. A free trade agreement between the EU and GCC could further bolster Dubal's plans for tapping European markets. "There are serious efforts now to align both trading blocks and we see the light at the end of the tunnel," Khalid Essa Abdulla Buhumaid, the vice president of corporate relations and international affairs at Dubal said. Mr Kalban said Dubal was pressing ahead with the Emirates Aluminium smelter it was building at Taweelah in partnership with Mubadala Development, refuting recent media reports suggesting the second stage of the project could be delayed. "There are no plans to scale down or delay the ongoing projects. We don't even see a possibility [of delay] in the future," Mr Kalban said. "The project is on schedule and the first phase is expected to be online in 2010." He said the second phase of the project was under environmental study and Dubal expected to complete the process within eight to 10 months. Asked how the firm planned to raise capital for the next phase in the difficult market conditions, Mr Kalban said: "we will have to wait and see I guess." He declined to comment on whether the cost of the second phase would be higher than initially anticipated. Aluminium producers across the region are also forming the Gulf Aluminium Council, a body which will represent the GCC producers at global forums. "The objective of the council is to maximise strengths, develop synergies to reduce cost and give the GCC aluminium industry a voice at the international level," Mr Kalban said. [e-mail] [e-mail]