With aluminium prices rising well above their average 2009 level, Sohar Aluminium would like to get on with its second phase, but uncertainty about the availability of gas supplies remains an obstacle.

The $2.4 billion smelter, part owned by a unit of global miner Rio Tinto, is operating at its full capacity of 360,000 tonnes per year (tpy). When it completed construction in February of 2009, the company indicated it was keen on the second phase at the same capacity as the first one, a desire it still entertains.

Demand for Oman’s gas is rising locally and estimates are that it needs to increase gas supplies by 48 per cent to 7.2 billion cu m per year by 2013 to fuel power and desalination plants, the Oman Power and Water Procurement Company said in 2008.

Gas demand would increase to 20 million cu m per day by 2015, it estimated.

“There have been no formal discussions as yet related to starting work on Phase 2,” said Sohar Aluminium chief executive Bruce Hall.

The smelter would have to compete with other companies that produce urea, methanol and LNG and who need gas, and it would be expensive to import gas through the UAE’s Dolphin energy pipeline, he said.

“Sohar Aluminium Phase 2 remains one of the most attractive expansion propositions in the aluminium world but the decision to go ahead with further construction would be based on more than a market price at a given point in time.”
As much as 48 per cent of the smelter’s metal goes to Oman Aluminium Processing Industries Ltd for the production of cables and wires.  Contribution to the local market could increase as several other new downstream partners are in the pipeline, Hall said.

The smelter: first greenfield operation in 25 years in the Gulf

Sohar Aluminium has an MoU with Bahrain’s Garmco for developing a sheet aluminium and foils facility in Sohar. “Bahrain has a highly developed aluminium downstream sector thanks to three decades of aluminium production at Alba and their accompanying investment. It is a downstream business model we would hope to replicate in Sohar over time,” commented Hall who served as CEO of Alba five years ago.

Challenges

Reviewing some of the challenges of the past year, Hall said the obvious one was the relative inexperience of the company’s workforce in aluminium smelting considering that it was Oman’s first aluminium producer. That necessitated making a significant investment in on-the-job training. “However,” he said, “I am proud to say our training is fast becoming one of our strengths as a company after the implementation last year of  a ‘competency framework’ to track and reward individual progress.”

The other issue the company faced at the outset was the lack of a supporting industry and infrastructure in the immediate area. Initially it had to import spares from overseas suppliers when they were needed, which hampered turnaround times on repairs. The situation has since improved. “In line with our policy of supporting local industry we have been able to partner with a number of local businesses to support our operation.”

Hall said his company had no current plans to take a stake in mining companies or other smelters.

Discussing trends in the Gulf’s aluminium industry, he said: “In my opinion, I see these increases taking place as brownfield expansions of existing smelters rather than as yet undeclared greenfield developments. I exclude Iraq and Iran in that comment since both these countries have huge potential once political issues are settled.”