How Saudi Arabia’s plans to increase base metals production, consumption will affect markets

Saudi Arabia, through its spearheading of a mining and minerals production and consumption push in the Middle East, a region usually associated with oil and gas, is leading neighboring countries to increase their presence in the base metals markets

Copper

Saudi Arabia is believed to hold huge copper deposits and the red metal – along with gold and zinc – is the target in an ongoing exploration campaign.

Additionally, Manara Minerals – a joint venture between Saudi Arabian miner Ma’aden and Saudi Arabia’s Public Investment Fund – bought a 10% stake in Vale’s base metals unit for $2.5 billion in 2023, with Vale expecting the extra investment from the partnership to help increase its copper production to more than 900,000 tonnes per year from around 350,000 tpy.

On the demand side, copper consumption in Saudi Arabia is yet to pick up, despite growing expectations that the region should be a hub of copper usage.

Various sources have highlighted to Fastmarkets that large infrastructure projects tied to Vision 2030 in Saudi Arabia could be copper intensive.

An Invest Saudi document from 2020 stated that “the Kingdom planned and initiated multiple gigaprojects that drive demand for copper rods”. The document also said that demand for copper in the country was expected to increase by 3.7% annually.

Glencore announced in March that it is part of a project to build Saudi Arabia’s first copper smelter, with a planned capacity of 400,000 tpy.

Recent data, however, is yet to show significant increases in Saudi Arabian copper demand, which has been stable when compared with pre-pandemic levels. 

Market participants are uncertain what impact the Saudi Arabian investment plans will have on the global copper market, sources said.

“Saudi Arabia have their ambitious projects, don’t they? So they are trying, but I don’t think it really moves the needle in the grand scheme of things,” an analyst source said, adding that the country’s overall copper demand was limited compared with other nations.

It is also possible that raw copper trade data does not reflect Saudi Arabian demand for copper goods, sources told Fastmarkets.

“Saudi Arabia is more likely to buy finished products,” the analyst said. Consumption of products like washing machines, which will likely increase copper usage in Saudi Arabia, will not be reflected in raw data because the products will be made elsewhere, they added.

Saudi Arabia has a population of roughly 36 million, while the United Arab Emirates (UAE) has a population of about 9 million. Both countries’ relatively small populations will limit their impact on global copper consumption, sources said.

Construction [in Saudi Arabia and the UAE] just won’t have the same impact that we have seen in nations like China,” a second analyst source said.

Nickel

Saudi Arabian plans could boost nickel demand and increase funding for new mines, however.

The country’s ambitious plan to diversify away from oil and into metals will increase local nickel consumption and fund international mining projects, given recent massive investments in nickel-intense industries, sources said.

Meanwhile, Manara Minerals’ investment in Vale’s base metals unit could lead the firm’s nickel production to increase to 3000,000 tpy from around 175,000 tpy, according to Vale.

Saudi Arabia’s Vision 2030 project is also another potential driver for nickel demand.

The country has announced multibillion-dollar investment plans for new steel and electric vehicle (EV) plants. This includes $6 billion for the construction of new steel plate and hot-rolled coil plants, and an EV battery factory, according to a 2022 announcement.

The investment will increase demand for nickel given that the two industries are responsible for more than 80% of demand for the metal. According to Fastmarkets analyst Olivier Masson, approximately 66% of all nickel is consumed by the stainless steel industry, while 15% goes into batteries.

New infrastructure projects have the potential to be the biggest driver for Saudi steel demand. Yet according to local steel sources in Saudi Arabia, there has not been a serious uptick in steel consumption to date, despite the announcement of gigaprojets such as The Line, Trojena and The Red Sea.

Zinc

Several zinc mining projects that aim to increase Saudi Arabia’s zinc concentrate and refined zinc production are underway, and Saudi Arabian zinc production could reach the market by 2025.

The largest mining exploration site in the country is the Khnaiguiyah zinc-copper project, which is located 170 kilometers southwest of Riyadh.

Khnaiguiyah is co-run by UK mining company Moxico Resources and Ajlan & Bros Mining. It has ore reserves of approximately 25 million tonnes and is expected to reach a production of 55,000 tpy of ore concentrate by late 2025, when it is due to reach full capacity.

Saudi Arabia is also investing in smelting.

Moxico Resources and Ajlan & Bros Mining are developing a copper and zinc smelter in Yanbu, in western Saudi Arabia. At full capacity, the smelter is expected to produce 200,000 tpy of zinc alloy and 100,000 tpy of copper.

This investment into zinc mining comes at a time when there is continued tightness in the global zinc concentrates market due to the closure of multiple zinc mines in the recent year.

This resulted in falling treatment charges (TCs), which increases costs for smelters and benefits miners financially.

Fastmarkets assessed the zinc spot concentrate TC, cif China at $(10)-$20 per tonne on June 14, down from $195-230 per tonne on June 9 last year.

New LME warehouse in the Middle East

Meanwhile, the London Metal Exchange (LME) announced in March plans for registration of a new copper and zinc warehouse in Saudi Arabia.

There are currently no tonnages of zinc in LME registered warehouses in the Middle East region. In addition, there is no Saudi Arabia-origin zinc in LME warehouses, according to the latest country origin stock data released by the exchange.

The introduction of this warehouse could help ease the significant imbalances in the location of on-warrant zinc stock worldwide, which is disproportionately located in Asian warehouses.

Aluminium

Market participants have noted growing demand for primary aluminium in Saudi Arabia, despite an otherwise lackluster global picture.

Aluminium ingot demand has reportedly increased amid rising cable and electrical needs. Demand for aluminium billet is also up, although not to such a great extent, sources told Fastmarkets.

In other regions, namely Europe, aluminium demand, particularly from the construction sector, has been subdued in recent years due to high-cost pressures and mounting inflation, with several market participants indicating that the Middle East and other emerging market regions like India were points of interest.

“Easier access to capital in the Middle East-North Africa (MENA) region as well as government support are key to higher consumption,” Fastmarkets’ analyst Andy Farida said. “In Europe, they do have the scale, but the amount of red tape and consequently larger area to serve has made it trickier. Europe will continue to consume aluminium, but perhaps in high tech goods, EVs and white good appliances, more than just infrastructure.”

Aluminium consumption in the MENA region has been steadily increasing, while European consumption has experienced a slight dip.

MENA aluminium supply surplus

Supply from producers in the MENA region has also become increasingly important for the European market following several domestic energy and demand related capacity curtailments in recent years, sources said.

Primary aluminium premiums in Europe have increased since the beginning of 2024 despite slow regional demand due to rising freight costs and supply tightness. Ongoing disruption to some trade routes via the Red Sea has also supported higher premiums, with market participants relying more on imported tonnes for the domestic market.

Fastmarkets assessed the aluminium P1020A premium, in-whs dp Rotterdam at $325-350 per tonne on Tuesday June 18, unchanged from the previous week’s assessment, but rising from $190-215 per tonne at the beginning of the year.

Middle Eastern alumina producers expanding to Guinea

The region’s alumina producers are securing international supplies to fuel their growth plans.

There are currently only two alumina refineries in the Middle East due to the limited domestic availability of bauxite.

Emirates Global Aluminium (EGA) operates the Al Taweelah alumina refinery in Abu Dhabi, the first of its kind in the UAE and the second in the Middle East.

Al Taweelah began producing alumina in 2019 and meets almost half of EGA’s alumina requirements – it has an annual capacity of around 2.48 million tonnes. Bauxite for the refinery is imported entirely from Guinea.

As a result of limited local bauxite supply, much of the focus for EGA is on bauxite reserves in Guinea and the development of a alumina refinery in the West African nation.

Guinea dominates bauxite exports globally because it is home to 40% of the world’s known deposits.

EGA has made significant progress on its long-promised Guinean alumina refinery, reaching a number of key milestones this month.

In 2016, when EGA’s presence in the West African country began, the refinery was promised to be completed by 2022, in line with the company’s upstream growth plan.

But it was only on June 8 that EGA’s subsidiary Guinea Alumina Corp (GAC) signed a term sheet with the Government of Guinea for the development of the facility.

This followed the completion of a framework agreement between EGA and the Aluminium Corporation of China (Chalco) for the Guinean refinery on June 3.

The recent announcements are the first sign in years that the refinery may finally come to fruition.

Saudi Arabian alumina

The second alumina refinery in the Middle East is operated by Saudi Arabian Mining Company (Ma’aden), which has close access to domestic bauxite reserves, unlike Al Taweelah.

Saudi Arabia has 180,000,000 tonnes of bauxite reserves, only 4,600,000 tonnes of which were produced in 2023, according to the US Geological Survey.

Ma’aden’s refinery exclusively uses domestic bauxite and has capacity of almost 2 million tpy.

About 80% of its production is used internally – feeding all of Ma’aden’s smelting needs – and the remainder exported to third parties.

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