Increased metals production capacity in Saudi Arabia ties in with steadily rising demand

Ambitious plans to develop and expand automotive manufacturing are being drawn up, with a view to capitalising on the increasing availability of raw materials and a strong domestic market for cars and trucks. In August 2018 the Ministry of Energy, Industry and Mineral Resources (MEIM) announced that the Kingdom “is currently developing a city for the automotive industry and providing many benefits to investors in this sector”.

The announcement added that the availability of aluminium sheets, liquefied aluminium, rubber and plastics at competitive prices would be a strong value proposition for automotive manufacturing firms. The industry’s requirements will draw on the resources of multiple segments overseen by the MEIM, including petrochemicals, and the mining and smelting of aluminium, enabling the ministry to drive the diversification of the economy.

In the same month the Saudi international conglomerate Abdul Latif Jameel (ALJ) signed a memorandum of understanding with the Japanese company Kosei Aluminium and the Saudi government’s National Industrial Clusters Development Programme (NICDP) to explore the possibility of manufacturing aluminium automotive wheels and other components in the Kingdom. The NICDP revealed that the plans would include the development of a factory in Ras Al Khair Industrial City. A press release from ALJ said the project would aim to produce automotive components for worldwide markets. It is the first Saudi Arabian venture in largescale automotive components manufacturing for export, and is very much in line with Vision 2030 plans to diversify the economy.

The agreement also draws on ALJ’s expertise in the sector. The company’s eponymous founder formed the business in 1955 and established the Kingdom’s Toyota distributorship. Toyota would go on to become the most popular brand in the Saudi auto market, with a 35% share in 2018, according to PwC. ALJ has also run Toyota and Lexus dealerships in China for 20 years, selling a cumulative total of 100,000 cars by the end of 2018.

Aluminum Assets

The development of an automotive manufacturing cluster in Ras Al Khair forms part of the long-term strategy of Saudi Arabia’s aluminium industry. The development of the mineto-market ecosystem was completed in 2014. It consists of a bauxite mine at Al Ba’itha in the Al Qassim region, which is connected by rail to Ras Al Khair, 90 km north of Jubail on the Gulf, where an alumina refinery, aluminium smelter and rolling mill have all been built. These facilities, which cost SR40bn ($10.7bn) to construct, are owned by a joint venture established in 2009 between the Saudi Arabian Mining Company (Ma’aden), the national mining and minerals company, and US-based Alcoa.

The Public Investment Fund, a sovereign wealth fund owned by Saudi Arabia, holds 65.44% of shares in Ma’aden with the rest floated on the Saudi Stock Exchange. According to Ma’aden’s 2017 annual report, the rolling mill has an annual capacity of 430,000 tonnes of food-, automotive- and construction-grade aluminium sheets. The mill is owned by a subsidiary, Ma’aden Rolling Company, of which Ma’aden owns 74.9% of the equity, with the remaining share being held by Alcoa. It produced 153,000 tonnes of flat-rolled products in 2017.

Plastic Parts

While Saudi Arabia’s rapidly growing mining industry is able to supply companies making metal car parts, another recently built mega-project is producing the raw materials needed for many of the plastic components in modern vehicles. The Sadara Petrochemicals Complex in Jubail Industrial City II is a joint venture between Saudi Aramco and the Dow Chemical Company. It consists of an integrated complex of 26 chemical-manufacturing facilities with an annual capacity of 3m tonnes of product, some of which is being produced in the Middle East for the first time. The 12-sq-km PlasChem Park adjacent to the facility is a greenfield site that has been created for businesses converting Sadara’s output into a range of products.

In 2017 Saudi National Automobiles Manufacturing (SNAM) and Sadara signed a co-operation agreement for the 1-sq-km auto cluster within the park. Its tenants will include original equipment manufacturers as well as tier-one and tier-two automotive parts manufacturers. It was revealed that the cluster will include a press and facilities for welding, spraying, assembly and warehousing, as well as a test track and an administration building. SNAM’s president underlined the importance of building a sustainable automotive industry ecosystem, and of using locally sourced parts as far as possible.

Also located in Jubail is the Kemya factory, a $3.4bn joint venture between SABIC and ExxonMobil that began producing elastomers in 2016. The elastomer plant has the capacity to produce 400,000 tonnes annually of halobutyl rubber, polybutadiene and styrene butadiene rubber, ethylene propylene diene monomer rubbers, thermoplastic elastomers and carbon black. SABIC has five decades of experience working with car manufacturers around the world, and its products are used in bodywork, exterior and interiors fittings, glazing and lighting.

Ecosystem

The availability of cheap raw materials and components makes Saudi Arabia a potentially attractive location for automotive production. However, given the just-in-time management philosophy in the industry, which requires a reliable supply on demand for all components, automotive manufacturers have to be confident that all the pieces of the jigsaw are in place before investing.

Toyota says that 30,000 parts and components are used in the manufacture of each of its vehicles, with 550 parts in the engine alone. In addition to the robots that work on the assembly line at a Toyota plant, technicians are required to carry out 2000 safety checks on each car before it leaves the production line. To meet these needs, the MEIM and the NICDP must coordinate with multiple stakeholders to ensure manufacturing capability is developed and skilled staff are available.

Local Market

Data on new vehicle sales and registrations compiled by the International Organisation of Motor Vehicle Manufacturers shows 548,250 new vehicles were registered or sold in Saudi Arabia in 2017. This ranks the Kingdom 24th in the world in terms of sales volume. There are only two countries with higher sales volumes that do not have an automotive manufacturing industry: Australia, where 1.2m were sold, and Belgium, with 634,111 new registrations. However, both have manufactured cars in the past, and Belgium is a significant exporter of vehicles and manufactures components. Also of note is the fact that both countries also have smaller populations than Saudi Arabia. According to a 2017 industrial survey published by the General Authority for Statistics (GaStat), there were 339 businesses engaged in the manufacture of motor vehicles, trailers and semi-trailers in Saudi Arabia in 2017, including five firms that employ more than 250 people. There are four factories in Saudi Arabia producing trucks for Mercedes, Man, Volvo and Isuzu. In the third quarter of 2018 vehicles and vehicle parts worth SR5.2bn ($1.4bn) were exported, a figure that is up 46.4% on the same period in 2017 and that constituted 8.9% of all non-oil exports. In the same period SR20.6bn ($5.5bn) of vehicles and vehicle parts were imported, up 4.7% on the third quarter of 2017 and constituting the second-largest import category, valued at 16.1% of all imports. In 2017 as a whole the Kingdom exported SR17.8bn ($4.7bn) of vehicles and imported SR79bn ($21.1bn). 

The lifting of the prohibition on female drivers is expected to result in 3m women motorists by 2020, and increase new car sales by 9% per annum until 2025

Female Drivers

In a report published in March 2018, PwC predicted a significant boost for investors in Saudi Arabia’s auto market after the lifting of the prohibition on female drivers, which is expected to result in 3m women motorists by 2020. The report predicted new car sales would increase by 9% per annum until 2025, compared to 3% per annum in the four years before the change in the law.

However, the legal change may also result in those women using the same family vehicles they had previously been driven in by employed male drivers. In the second quarter of 2018 GaStat reported that there were 1.36m drivers employed by Saudi households, representing 56.1% of a total of 2.4m domestic servants currently working in the Kingdom. robots that work on the assembly line at a Toyota plant, technicians are required to carry out 2000 safety checks on each car before it leaves the production line. To meet these needs, the MEIM and the NICDP must coordinate with multiple stakeholders to ensure manufacturing capability is developed and skilled staff are available.