Record-breaking loan points to major expansion in Bahrain's aluminium production capacity

In October 2016 Alba secured the biggest corporate loan in the history of the kingdom, as conventional and Islamic banks offered it $1.5bn in the first tranche of funding that will finance the $3bn potline six expansion. The government’s investment arm, Mumtalakat Holding Company, controls 69.38% of Alba, and the project is a key component of the country’s strategy to invest now in order to reap rewards in revenues and new jobs when global commodity prices start to rise again. The government also wants to see a more vibrant downstream aluminium cluster growing around the smelter.

FUELLING PROGRESS: When the sixth potline opens in early 2019, it will be the world’s largest single-site smelter with an annual production capacity of 1.5m tonnes, 56% higher than the existing capacity of 960,000 tonnes. By this time several key developments will have taken place to support the project. In November 2015 Alba signed a 10-year gas supply contract with state-owned Bahrain Petroleum Company, and a month later it announced a consortium had been formed to build and operate a new BD250m ($663.1m) liquefied natural gas import terminal, with the government’s National Oil and Gas Authority (NOGA) Holding owning a 30% stake. These two gas deals, and NOGA Holding’s control of gas output from the Bahrain Field through its 100% ownership of Tatweer Petroleum, should ensure continuity of supply for the energy-hungry smelter. In April 2016 Bechtel was selected for the engineering, procurement, construction and management (EPCM) contract of the sixth potline. In August 2016 Alba awarded the EPCM contract for the construction of Alba’s fifth power station, a 1792-MW, gas-fired combined-cycle plant, to a consortium of GE and GAMA.

DOWNSTREAM INVESTMENTS: As Alba was completing its negotiations on finance for the new expansion plan, its majority shareholder, Mumtalakat, was making investments that would help to drum up demand for Alba’s forthcoming increase in output. The holding company will own 49% of a new joint venture with Synergies Castings of India that will open a $150m factory in Bahrain in 2017. That deal was struck in November 2015, and in March 2016 Mumtalakat acquired 49% of the Spanish manufacturer of aluminium grain refiners and master alloys, Asturiana de Aleaciones.

DOWNSIDE RISKS: However, despite its willingness to drive and support Alba’s biggest expansion since 2005, there are factors beyond the control of the government and its commercial entities. In 2015 Alba saw its profits fall by 38%, as the global price of aluminium on the London Metal Exchange (LME) dropped from $2054 per tonne in November 2014 to $1466 in November 2015, averaging $1663 for the year. In October 2016 the cash buyer price was $1621, and it rose to $1790 by mid-January 2017. In June 2016 Alba announced its second-quarter profits had fallen 45% year-on-year (y-o-y) and its first-half profits were down 70% on the same period in 2015. While its 2015 annual report pointed towards global oversupply prompted in part by increased Chinese output, there were also problems closer to home. In January 2016 the Gulf Aluminium Council reported a 7% rise in production by GCC countries to 5.27m tonnes, with 40% used in downstream industries in the Gulf and 60% going in to other world markets. In the first half of 2016 Alba’s sales revenues from the MENA countries fell by 46%, from BD76.5m ($202.9m) to BD41.7m ($124.9m), a decline prompted by increased domestic production in countries such as Saudi Arabia, which were previously key customers.

Despite challenging market conditions, in January 2017 Alba announced it had exceeded its sales and production targets in 2016. The firm’s sales volume for 2016 was up by 2.3% y-o-y to 974,014 tonnes, while production volume reached 971,420 tonnes, up 1.1% y-o-y.

According to Mohammed Al Aali, managing director of United Enterprises, Bahrain will continue to be a leader in the aluminium industry. “I find it likely that we will be able to capitalise on the strong upcoming demand from countries such as India,” Al Aali told OBG.