Bahrain industry to receive a boost from smelter expansion

On June 10, Aluminium Bahrain (Alba) announced it had been granted approval to begin work on a new production line, with the project set to make the plant the world’s largest single-site smelter when completed in 2019.

The $3.5bn Line 6 expansion is forecast to increase the company’s annual output by 514,000 tonnes to reach 1.45m tonnes per year when at full production. Alongside construction and installation costs, the budget also covers the building of a new 1350-MW power station, the fifth linked to the Alba complex. The last major upgrade of the Alba plant was in 2005, when the fifth production line was rolled out at a cost of $1.7bn.

Additional capacity at the plant, which is already the sixth-largest aluminium smelter site in the world by output and the second-largest in the Middle East, is expected to act as a significant driver for economic growth and job creation in Bahrain. It will also spur further profit growth at Alba, which reported a 21% jump in net profit in 2014 to BD96.4m ($257m), according to a report issued in May by state-owned holding company Mumtalakat, which has a 69.4% stake in the firm.

Value addition

Alba’s growth has encouraged the clustering of several downstream businesses in Bahrain. Next to the Alba foundry is the Gulf Aluminium Rolling Mill Company (Garmco), the Middle East’s largest facility for making aluminium sheets and coils. Around half of Alba’s output feeds into the domestic market, with the remainder exported.

According to Jean-Baptiste Lucas, CEO of Garmco, the expansion plan is good news. “Bahrain’s downstream aluminium industry is very happy to see the approval of Alba’s Line 6 expansion plans,” Lucas told OBG. “This will put Alba back in the game as a global player and revitalise the industry, unlocking growth opportunities for downstream companies,” he said, noting how the move will also enable expansion amongst downstream players.

Beyond the immediate advantages for local industrial companies, the Alba expansion could also serve to attract industrial foreign direct investment, despite rising competition − both in the region and globally. “Bahrain is still competitive in industry and has a good chance at attracting international companies who are interested in the Middle East,” said Lucas. “Factories with a small- or mid-sized footprint like auto parts suppliers could find many advantages in coming to Bahrain.”

The construction of the Alba extension, which is scheduled to start next year, is also expected to support growth in other sectors. According to Marco Neelsen, the CEO of port operator APM Terminals Bahrain, which manages the Khalifa Bin Salman Port, the Line 6 project is expected to bring new business to transportation and logistics companies. Up to 700,000 tonnes of imports are estimated to be required for the building of the new Line 6, he told OBG.

Further diversification

Many of the same competitive advantages that drove the creation of Alba in 1968 – the low cost of raw materials, competitive energy prices and skilled labour – continue to draw manufacturing interests to Bahrain. Serving as a platform for the Saudi Arabian market, in addition to the rest of the Middle East, Bahrain’s ease of doing business and access to international markets has led to a thriving sector.

Indeed, manufacturing continues to be a major contributor to growth in the kingdom. Bahrain’s headline real GDP expanded 2.9% year-on-year (y-o-y) in the first quarter, according to a report issued by the Economic Development Board in June. Growth in the non-oil economy, which constitutes more than 80% of the kingdom’s GDP, reached 5.0%, while manufacturing grew 5.9% y-o-y in the quarter, after a 4.2% rise in 2014.

According to other industry participants, the country must push to strengthen and diversify the economy as well as look to streamline some of its bureaucratic procedures to speed up new developments. “Bahrain should look beyond oil for income,” Jalal Mohammed Jalal, managing director of mixed activity conglomerate Mohammed Jalal & Sons Group, told OBG. “Gulf Petrochemical Industries Company was a great step in the right direction but since then, new industry has slowed and this is the major problem we're facing today.”