Aluminium moves ahead

How are shifting commodities prices affecting the aluminium sector and what does this mean for construction industry firms? Construction Week investigates. Aluminium is one of the most utilised materials in the construction industry, with virtually no major projects today completed without its use. But why is the material so popular and how are commodity price fluctuations and the downturn in the construction sector affecting the aluminium market? More importantly, what does this mean for end-users in the construction industry? Aluminium advantages Aluminium is a highly versatile commodity, with products manufactured from the material ranging from formwork to window frames and cladding, making its use applicable to all stages of the construction process. “The chemical composition and physical characteristics of the material are major advantages,” stresses Youssef Khachan, commercial manager of curtain walling firm Alico. “First of all it does not rust, second it is lightweight, and it has no reaction to the external environment,” adds Khachan. In addition to its non-corrosive properties, aluminium’s ease of handling is a major factor for its popularity in the construction industry. “It is very easy to cut, reshape and maintain; if it needs to be cut to a new length this is simple and requires unskilled labour. The only way to damage it is to bend the product,” explains Aluma Systems Middle East, business development manager (Abu Dhabi) Daniel Taylor. “Another major benefit is it’s quicker and easier to install and requires less labour to use. With shoring equipment, for example, steel weighs twice as much and needs more time and labour to install [equivalent quantities] – 100m? of aluminium table-form can be moved by crane, but you couldn’t do that with steel due to the weight, you would need four pieces for 100m?,” Taylor stresses. “The demand for aluminium products is increasing as aluminium is used in a lot of new applications,” explains Gulf Extrusions managing director Modar Al Mekdab. Its versatility in architectural design is another benefit. Mekdab explains, “[It can be specified in] different colours or with surface treatments such as anodising or powder coating.” In addition to benefits while in use, aluminium products have another advantage over those manufactured from materials such as wood and steel – it maintains its scrap value regardless of age due to its non-corrosive properties and slow reaction to air. Cost control The price of aluminium, like many other raw materials, has been fluctuating greatly over the past year due both to the global economic recession and the price of oil. “The price of aluminium is directly correlated to that of oil,” explains Taylor. “It is primary aluminium that is mainly used in the construction industry,” adds Aluma Systems Middle East area manager Geoff Tydeman. “The price of this commodity over the last five years or so has been somewhat volatile with prices peaking in August 2008, prices being affected by supply and demand and energy costs,” he adds. London Metal Exchange lists the price of primary aluminium in January 2009 as US $1413 per tonne (AED5190/tonne), falling slightly to $1330/tonne in February before rising to $1420/tonne in April. In July 2009 the price of primary aluminium was $1667/tonne, it then fell by 5% to $1561/ tonne between in mid-July reports global construction consultancy Davis Langdon. “Prices receded dramatically over the period to February/March 2009; since that period prices are again on the increase, but at a slower rate,” confirms Tydeman. “The prices of finished aluminium extruded products have followed the same trend.” “The aluminium price was down 60% at the end of 2008, compared to mid-2008 it has gone up again by 50% over the last few months,” reports Khachan. This sudden change in price is linked to the oil price rather than demand for the material. “The commodities price rises seen this year are not justified on market fundamentals (real demand and production), but have mainly been driven by technical factors i.e. investment demand, stock building at low prices etc, which led to suggestions that as in 2008, speculation could exacerbate market moves,” explains a Davis Langdon spokesperson. “In mid-July, oil prices fell below the $60/barrel-mark, after Opec predicted a slow recovery in global oil demand in its 2009 World Oil Outlook. Opec said that oil prices could take five years to recover to pre-crisis levels.” The effect of construction industry slowdown is also playing a part in the prices that aluminium contractors and manufacturers can command. “There was a big change in demand for aluminium in the GCC [in late 2008] due to the number of projects that were cancelled or put on hold,” states Khachan. “The rates we are seeing now in our aluminium and glazing contracts are 40% less than in 2008 and this is associated with demand as well as the metals price,” he reports. “Everything in the market at the moment is over-supplied because during the 2008 boom, companies from around the world were attracted [to begin work in the region], so now because so many projects in Dubai are on hold there are more suppliers of products than are needed,” adds Taylor. “If it had not been for the booming five years prior to this, business would have been down, but not by as much. What we’re seeing is a micro-effect due to past oversupply in the market.” Another micro-economic reason for the market oversupply and slower demand for aluminium products in the region is the larger than average amounts that firms have purchased over the past few years, while the construction industry boom was at its peak. Formwork is just one sector for which this is the case, as clients find they have sufficient quantities of the reusable product for forthcoming work. Taylor explains: “In the last five years we have sold more than one million m? of formwork in this region, so many of the clients now own a lot of equipment. At the peak of construction work there were not enough suppliers in the market, which led to firms acquiring so much; they bought enough to meet their [projected] needs, but now that clients have fewer projects they need less. “The first thing that contractors say is they must use every piece of equipment [they own] before buying more,” adds Taylor. Despite these issues, the larger aluminium contractors are reporting relatively strong order books over the short to medium-term. Fa?ade sub-contractor Alumco Qatar announced in late August that it has won a major contract to provide aluminum cladding, curtain walls and glazing works for Building Type 5 within the Barwa Commercial Avenue mega project in Doha. The contract will include the installation of 31,000m? of aluminium cladding and 48,500m? of stick system curtain walls, windows and doors, with work due to begin on site in April 2010. Other firms are also reporting successful operations. “Alico has ongoing work until at least Q3 of 2010, with most of our business now in Abu Dhabi” reports Khachan. “And [the rates] are now picking up with this increase in metals prices,” he adds. The prices of aluminium products are however expected to remain relatively low compared to 2008 prices. Global movements With the global economic recession generally expected to continue for the remainder of 2009, aluminium product manufacturers and contractors are taking several steps to maintain their income over the forthcoming period, when demand and materials prices are expected to remain volatile. Gulf Extrusions is diversifying its products range to tap other markets. “We are developing profiles for various industrial applications including transport,” reports Mekdab. For many of the major aluminium product suppliers, the solution to a drop in local demand is to expand their operations geographically. “We have got the full range of products already; there is not a niche market waiting to be discovered,” explains Taylor. Aluma is seeking to expand into Saudi, Qatar and Bahrain and has already deployed a team into Saudi Arabia and won contracts for two mega projects in the Kingdom including Saudi Oger’s Riyadh Women’s University. “We are also investigating various partnership options which will give us a good foothold in the Saudi market for many years to come,” adds Taylor. The firm plans to confirm these arrangements by the end of 2009. Alico is now refocusing on markets in which it operated prior to the construction boom in Dubai. “Before the boom in Dubai [Alico was] active in all the GCC countries and we did projects in more than 25 countries worldwide; when the boom started in 2003/2004 we concentrated our works in the UAE because of the high demand for facade work, but we are now investing in markets in the GCC, Africa, Asia and Europe,” explains Khachan. The firm is currently discussing potential partnership arrangements in Saudi Arabia, Qatar, Bahrain and Libya. “We are trying to focus on export now our focus will be more on the GCC countries because following the boom [in this region] over the past five years it makes sense to pursue in this area,” adds Khachan. Local aluminium firms cite other factors that are leading them to look further afield for work. “Competition from the Far East is a major concern for all local major aluminium contractors,” he stresses. “The energy needed to produce the material is less, plus the cost of labour and resources are cheaper [in the Far East],” he explains. The influx of firms from this region is putting further pressure on local producers that have higher overheads. Future product availability Positive signs for both local aluminium manufacturers and contractors, plus end-users of aluminium products is the continuing expansion of the aluminium smelter industry in the Middle East. Several large-scale plants are currently under construction and once complete the local availability of aluminium will also rise, with predicted falls in product prices. Abu Dhabi-based Emal International has reportedly completed 50% of its new $5.6 billion aluminium smelter in Abu Dhabi, with production due to begin in April 2010. The Qatar-based Qatalum smelter is also scheduled for completion next year.