MANAMA: The Middle East's aluminium sector is in an advantageous position and can play a key role in industry consolidation and the development of new globally active players, a new report by Boston Consulting Group (BCG) reveals.
"The GCC aluminium market's cost advantage is supported by its proximity to Europe, Asia and Africa and growing aluminium demand from the construction, packaging, transportation and industrial sectors," said BCG partner and co-author of the report Thomas Bradtke.
"We are seeing local players make strategic movements both upstream and downstream as they build viable value chains and further aluminium-driven manufacturing," he added.
To re-ignite the value-creation engine and restore investor confidence, chief executives and their management teams can pursue aggressive action plans that will turn around the industry, according to The Aluminium Industry CEO Agenda, 2013-2015: Understanding the Challenges and Taking Action.
"Our analyses show that the industry's crisis can't be traced back to an unexpected drop in demand caused by the global economic downturn or sudden changes in the value chain's upstream or downstream segments," said Mr Bradtke.
"The crisis arose from the supply side, driven by China's strategy to increase its capacity for producing primary aluminium.
"Producers in the rest of the world misinterpreted China's moves and did not adjust their own strategies fast enough in response.
To address overcapacity outside China, the report proposes that key players work together to create an industry leader through mergers and acquisitions, establish a new company to acquire marginal assets, and obtain regulatory support for their concerted actions.
To alleviate overcapacity within China, the report recommends that Western companies work with their Chinese counterparts to accelerate the removal of the country's high-cost capacity while also encouraging Chinese companies to relocate their capacity to other countries.
The report advises individual companies to explore upstream opportunities in bauxite and alumina and focus on high-value or lowest-cost downstream businesses.
It also recommends that companies substantially raise their game in three critical dimensions of business performance: operating and overhead costs, management of large-capex projects, and commercial activities.