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First with Financial Comment from Arabia

Dubal shows Dubai core economic strength but profits halve

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Healthy profit and revenue figures from the giant Dubai Aluminium Company yesterday are a reminder that the emirate has an economy beyond its failed real estate and construction sector.

Production crossed one million tonnes, up seven per cent. Revenues grew eight per cent to $1.9 billion. But profits halved from 2008 to $299 million in 2009.

$5.7bn Emal start-up

Dubal is also an equal shareholder with Abu Dhabi state fund Mubadala in the $5.7 billion Emirates Aluminium Smelter start-up at Al Taweelah. This project is 80 per cent complete and production will rise from 300 tonnes per day to 700,000 tonnes per annum by December, officials told MEED.

Once Emal is fully operational Dubal is set to become an even bigger contributor to the GDP of Dubai. By 2013-14 Emal is set to boost its capacity to 1.4 million tonnes per annum.

That would roughly double the contribution of Dubal to the GDP of Dubai from four to five per cent to nearer 10 per cent – actually around the contribution that Dubal used to make to Dubai GDP before the recent oil boom.

It is not surprising then that Dubal officials say they are bullish about the outlook for the aluminium market in 2010. They have a lot riding on a recovery in the global economy that will increase demand for their basic industrial metal.

Of course this is also the problem. What if the global economic recovery does not come through? Demand for US autos and housing – both big consumers of aluminium – remains stubbornly down.

Global boom or bust?

Indeed the US housing market seems set for more distress with mortgage resets coming up over the next couple of years. Then there is the Chinese economic bubble that could burst, instantly depressing demand for industrial metals and depressing the price.

Dubal has already seen its profits cut in half in 2009 by the global economic recession. But large fixed capital investments like aluminium plants always have to plan for the business cycle. Their investments are phased over many years and not all will be in the good times.

That said energy is the main cost input into aluminium production and the UAE has an abundance of cheap power, so if aluminium production is going to make a profit anywhere it will do so here.

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Written by Peter Cooper

March 18, 2010 at 8:41 am

Posted in Banking, China, UAE Stocks

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