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Abu Dhabi: Rio Tinto Group, the world's second-largest aluminum company, said a planned $3 billion smelter in Abu Dhabi is "dead" after the UAE decided to use its natural gas in more-profitable industries.
Middle Eastern nations are using their gas in the chemical, fertiliser and liquefied-natural-gas industries to benefit more from their reserves, said Dick Evans, chief executive officer of Rio Tinto's aluminum unit. The shift is reducing supplies available to the energy-intensive aluminum industry, he said.
"Abu Dhabi is for all practical purposes dead at this point, and we don't see it coming back," Evans, 60, said in a July 22 interview.
"That's because of this policy shift and how the emirates are seeing the use of their gas."
Rio spokesman Nick Cobban said on May 28 that the project was "on hold" while the government reviewed its energy requirements.
Abu Dhabi Basic Industries Corp Chief Operating Officer Jim White said in October the smelter there would be able to produce about 700,000 tonnes a year at a cost of $3 billion.
Rio Tinto earlier this year delayed plans to build a $2.7 billion smelter in Coega, South Africa, because state-owned utility Eskom Holdings Ltd couldn't guarantee power supplies for the facility's estimated 720,000 metric tonnes of annual production.
Aluminum prices have risen 24 per cent this year, in part because of supply disruptions in South Africa and China.
"We've seen capacity come out of the system, and demand remains strong," Tim Ghriskey, chief investment officer at Solaris Asset Management LLC, said in a July 23 interview.
"Fundamentally, we are extremely bullish on aluminum. We have seen production cutbacks in a number of geographies."
Rio rose 10 pence to 5,100 pence yesterday in London trading. The shares have declined 4.1 per cent this year.
Rio Tinto's aluminum venture in Saudi Arabia with state-owned metals producer Ma'aden will be fuelled with heavy oil rather than natural gas, Evans said.
Ma'aden Finance Vice-President Abdullah Al Fallaj said in May that natural gas is "too valuable" to use at the $2 billion plant that will power the smelter.
Power accounts for about a third of the cost of producing aluminum, and companies including Rio Tinto have closed smelters in Europe and North America after they were unable to secure cheap supplies.
Analysts had expected increased smelter construction in the Middle East because of the region's abundant gas supplies that could be used to generate power.
The company is "likely" to close a 148,000-tonne smelter in Anglesey, Wales, if it can't secure a new power contract when its present agreement expires in September 2009. That follows the closing of similar plants in Switzerland and France.
Rio is talking with Libya and Algeria because these countries still have available gas supplies.
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