CW looks at the recent shifts in the price of aluminium
Aluminium suppliers and manufacturers are getting a feeling of déjà vu as prices are escalating just like they did before the crisis. CW talks to companies within this sector to find out how this situation is affecting them and how it will affect them in the future.
In August 2008 the prices of building materials, from concrete to copper, peaked as a result of rising oil prices and the increased demand on supplies, due to the construction boom.
Prices then plummeted during the financial crisis – a time when projects were halted and the demand for materials diminished, particularly in Dubai.
Suppliers, which were attracted to the Gulf during the time when construction was rife, were left to compete with the many other manufactures and dealers trying to get work.
At present, it seems that the price hike is repeating itself – just last week CW reported that steel prices had increased by US $272 (AED1000) per tonne, and now the cost of aluminium appears to be gradually following the upward trend.
“Over the last 12 months between February 2009 and February 2010, the 60 building work categories [including metals and timber] have recorded an average rise of 1.4%, but over the last six months between August 2009 and February 2010 an average rise of 2.0% has been recorded, illustrating how the trough of the cost trend occurred mid summer last year,” says a recent report from Davis Langdon.
The London Metal Exchange (LME) listed the price of primary aluminium in January 2009 as US $1413 per tonne, falling slightly to $1330 per tonne in February before rising to $1420 per tonne in April.
The price of aluminium is now rated at $2380, that’s a 67% increase on last year. And oil costs recently rose above $85 per barrel, which could rocket the price of aluminium even further.
“The LME rate will cross the $2400 per tonne level this year,” predicts Khalfan Al Suwaidi, general manager of Emirates Extrusion Factory, a subsidiary of M’Sharie, a private equity arm of Dubai Investments.
“If the Iranian nuclear issue escalates, this may be the biggest factor that affects the oil prices, which is directly correlated to the price of aluminium. Also, if the US and European economy picks up, then aluminium prices will definitely go up.”
Before the financial crisis, the price hike was perceived as good news for aluminium suppliers because, due to the high demand for building materials, they were able to negotiate prices.
Some packages acquired for Infinity Tower in Dubai Marina, for example, were subject to price escalation.
“Between 2007 and 2008 material prices went up, which is when we signed the sub contracts. Still to this day, we have very high prices supplies on site,” Cayan chief development officer Ahmad Kasem told CW on a site visit in February.
Dubai’s Mirdif City Centre also suffered a few knock backs due to the high prices of materials.
“We started off the job when Dubai was red hot and as we got it to the project the market escalated quite rapidly and some of the later packages we acquired were prone to inflation,” says Majid Al Futtaim senior vice president for project management Jonathan Emery.
“Sub contractors and supply chains were taking advantage of the market and, due to the demand, they were able to renegotiate prices, so we had to deal with that.”
But, things are different now and the demand for construction supplies is shrinking rather than souring.
LOW DEMAND, OVER SUPPLY
“As the aluminium industry in the Middle East was mainly catering the construction sector, the present market conditions have largely affected the industry. The demand for the aluminium has not yet picked up,” says Gulf Extrusions managing director Modar Al Mekdad.
“The demand has been declined dramatically by around 70% so far,” agrees Suwaidi.
The low demand for aluminium has also had a knock on effect on the number of supplies available. The construction boom led to hundreds of suppliers setting up base in the GCC, and those suppliers are still here.
“Before the financial crises there were enough projects to cover the supply. The situation has changed and there aren’t enough projects to meet the supply of aluminium,” says Reem Emirates Aluminium brand manager Timour Asfour.
Suwaidi seconds that argument and adds: “The existing capacity in the GCC is 500K tonnes of aluminium, while the demand may not exceed 200K tonnes. And, locally [in the UAE] the supply is 150K tons and around 45K tonnes is in demand.”
But, it isn’t all doom and gloom for the aluminium sector. Many companies are expanding into other regions and exporting their products overseas.
“We are cutting our costs, managing our cash flow and selling 70% of our stock abroad. We are also hoping to expand our business into Africa,” explains Suwaidi.
And, Gulf Extrusions still has big plans for the GCC: “The projects we will be supplying our materials to soon include developments within Reem Island, Abu Dhabi and Barwa City, Qatar.”
The economic situation has also given many aluminium suppliers the time to concentrate on embracing sustainability regulations in the region.
“Gulf Extrusions is working closely with Masdar City in Abu Dhabi to promote the recyclable, sustainable, and versatile features of aluminum, which we refer as the ‘green aluminium’ and this supports the initiative of reducing carbon emissions into the environment,” says Al Mekdad.
REA has also developed an energy saving, mechanically ventilated double skin façade, which saves more than 50% of energy due to the integration with floor cooling and chilled beams.
Between 2007 and 2008 prices of aluminium rocketed, but the drop in demand meant that prices fell. Will this happen again and will the market stabilise? “We will see the prices progressively increasing until quarter three of this year and they will level out again during the last quarter,” insists Al Mekdad.
And, Asfour adds: “We expect to see the prices stabilise in the next two quarters.”
Aluminium companies to know
Alumco is a specialised aluminium façade contractor whose prime business is the design, engineering, manufacture and installation of façade systems. The firm’s scope of work covers skylights, cladding, doors, and windows, double glazing, tempering, powder coating and steel fabrication.
Gulf Extrusions, which is part of the Al Ghurair Group of Companies, is one of the largest extrusion plants in the Gulf. Located in Jebel Ali, Dubai, it produces more than 7000 profiles ranging from architectural sections to air conditioning grilles and customised products.
The plant is designed to produce aluminium sections in mill, silver and colour anodised, gold dyed and powder coated finishes. Nearly 70% of the output is used in the local market to support the building and construction projects; the remainder is exported to South East Asia, other GCC countries, Europe and Canada.
Reem Emirates Aluminum
Reem Emirates Aluminium (REA) was formed in May 2006 to serve the rising demand for architectural finishes and metalwork in Abu Dhabi. The firm is part of the Abu Dhabi-based Royal Group and is a designer and manufacturer of aluminium curtain walls.
REA has a 20,000m2 aluminium curtain wall factory that specialises in custom-built architectural cladding elements, with particular emphasis on designing and manufacturing unitised curtain wall panels. It can produce more than 65,000m2 of curtain wall panels each month. The firm is involved with high-profile projects including Etihad Towers Development and MIST.
Gulf Metal Craft
Gulf Metal Craft (GMC), a subsidiary of M’Sharie, is a manufacturer of sheet metal products. Established in 1989, the company produces a range of products made from electro galvanised steel, aluminium and stainless steel.
GMC has developed manufacturing facilities and has recruited a team of specialist engineers who can offer a custom designed service, from initial design stage through to installation.
The company has supplied electrical enclosures for DEWA substations, Dubai Internet and Media City, Dubai Marina Towers and Al Raha Beach resorts. It has also produced stainless steel architectural products for projects such as the Burj Al Arab, Abu Dhabi’s Marina Mall and Sharjah Exhibition Centre.
All sheet steel enclosures are manufactured from electro-galvanized sheet steel and all aluminium enclosures are manufactured from high grade aluminium alloys.
Emirates Aluminium (EMAL) is a joint venture between Dubai Aluminium (Dubal) and Abu Dhabi investment vehicle Mubadala. The company was formed to build a new hi-tech aluminium smelter in Abu Dhabi and is currently the largest industrial project in the UAE outside the oil and gas sector. The US $5.7 billion complex is located on a 6km2 site in the Khalifa Port Industrial Zone in Taweelah.
Aluma Systems Middle East
Aluma Systems Middle East rents and sells a patented portfolio of fast-track aluminium formwork systems that is designed to reduce floor cycles and labour needs. The firm’s most well known product is the Alumalite Truss Flying Table-Form, which is among the fastest slab shoring systems in the world. Within the Middle East, its head office and main GCC production facility is in Al Quoz, Dubai. It also has a sub office in Abu Dhabi.
Emirates Extrusions Factory
Established in 1993, Emirates Extrusion Factory (EEF) produces high quality aluminium systems for architectural and non-architectural applications. EEF is a wholly owned subsidiary of M’sharie, a private equity arm of Dubai Investments. The company uses mainly aluminium billets as raw material in the production process and also trades in the finished products. EEF aluminium profiles are used in a variety of applications including curtain walling.