Dubai — ALBA is planning to sell around 20% of production from its new $3 billion Line 6 expansion project on the spot market, CEO Tim Murray told S&P Global Platts.

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Once completed, the expansion project will position ALBA as the world's largest single-site aluminium smelter.

"We commissioned it on December 13, so we are ramping it up now and we hope to get it ramped up by mid-year," Murray said.

The new smelter is the first since 2014 and ALBA's sixth line arrives at a time of market supply deficit. Aluminium demand is growing at an annual rate of 3.5% and despite market fears of a global economic slowdown, Murray expects demand to continue to grow at a similar rate over the coming years.

ALBA will spend $2.1 billion of its Line 6 capex on a new smelter and the remaining $900 million on funds for a 1,800 MW power station. ALBA generates its own power, with a capacity of around 3,500 MW, and it sources its gas from Bahrain at the standard industrial rate of around $3.25/MMBtu. Once completed, Line 6 will increase ALBA's total output by 50%.

"In Line 6 in terms of energy consumption it should be about 12.8 MW/mt, whereas today our newer lines are probably about 13.1 [MW/ton], so that's a very big difference in cost," Murray said.

ALBA's primary market continues to be Bahrain, which absorbs some 40% of the company's production. Murray said the demand mix from Line 6 will remain largely the same, with Europe (20%), Asia (15%), North America (15%) and other buyers (10%) absorbing the remainder of supply.

The company could move into upstream, but at the moment it purchases all of its alumina. Murray says a supply overhang in alumina is helping to reduce costs for the production of aluminum.

"We tend to stay away from [downstream] because you don't want to compete with your customers and the margins are best in the upstream mining and then the midstream and the worst is in the downstream," Murray said.

MARKET DYNAMICS

Market demand for aluminium will be driven by growth in the automotive, aerospace and production industries, particularly as economies such as China and India begin to increase their consumption, Murray said. Aluminum consumption rates in China and India are a fraction of what they are in Western nations.

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Murray said the US-China trade war was having little impact on market fundamentals, though it was affecting the financial markets, which was causing volatility in aluminum prices. The aluminum supply deficit could around 2 million mt, Murray said, quoting industry forecasts.

"People talk of China oversupplying exports, [but] the reality is that we need their exports," he told Platts. "The market balance is actually short even with China's exports."

Regionally, ALBA views the Middle East as a solid demand growth area, with neighboring Saudi Arabia using aluminum to build new schools, hospitals and roads.

"If you look at markets like Iraq, Syria, Yeman, once they start rebuilding they're going to have massive consumption," Murray told Platts.

(Corrects capacity of power plant in paragraph 5 of story published January 29)

-- Miriam Malek, miriam.malek@spglobal.com

-- Edited by Jonathan Fox, newsdesk@spglobal.com