Dubai: The Dubai- and Abu Dhabi-government owned Ducab has set up a separate company to handle all of its copper and aluminum rod manufacturing and trading interests.
The new entity, DMB (Ducab Metals Business), has an installed capacity for 175,000 tonnes of copper rods a year, conservatively valued at $1 billion, and of 50,000 tonnes for aluminum rods, and valued at $100 million.
Hiving off its copper and aluminum interests into a standalone entity – and separate from Ducab (Dubai Cables) – will allow for greater flexibility in operations. As such, overlaps between the two businesses are negligible.
Within the Ducab fold, the company had been manufacturing copper rods for 10 years now, and aluminum for the last three. Setting up a new entity now to manage these interests makes for perfect sense.
“They have now got their own size, their own dynamic,” said Andrew Shaw, CEO of Ducab. “If we look at their external sales, they are big enough. The Ducab Metals Business (DMB) will have sales of over Dh2 billion.
“That’s large enough to have its own organisation and legal entity. And Ducab Metals sells to a different set of customers than Ducab's cables.” (The copper rod manufacturing facility is located in Mussaffah.)
Commodities heading into a downturn?
The DMB creation comes at an interesting moment in the global metal commodity business, with worries about the state of the Chinese economy in the near term and what this could mean for demand and price of metals. But for Shaw, the new entity is more than equal to the task of managing “commodity cycles”.
“In this business, you have to learn to live with it… if not, you are out,” said Shaw. “It doesn’t faze us whether copper goes up or down - we run quite a sophisticated hedging operation to protect the business from movements in commodity prices. From a company point of view, it protects our own business and gives confidence to our customers.
“Because if we are able to manage the vagaries in the commodities market, we don’t have to take crazy risks. It means we will be around to support them (clients). If we sign a one-year contract, they can be confident we will execute it.”
China isn’t a threat
The CEO also ruled out the possibility of Chinese made rods flooding global markets and hurting the interests of DMB or other regional entities.
“As far as we know, there isn’t much trade in Chinese-made rods, copper or aluminum, in the Middle East,” said Shaw. “But the reduction in Chinese demand is going to change prices - they will be a lot more volatile over the next few months.
“Already, there is volatility coming in as people try to work whether there will be more metal (supply) available in the market should prices go down. Or whether production will go down in China and prices go up as a result. Yes, there will be lots of uncertainty.”
For DMB, the biggest competition are from mills in Saudi Arabia and India, with those in Turkey and Egypt also playing spoilsport to an extent. The company exports 75 per cent of its production to more than 30 countries. (As of now, half of the copper rod output and 95 per cent of aluminum are shipped out.)
“For the aluminum part, it’s almost a global business - we have customers in north and south Americas, Europe as well as within this region,” said Shaw. “Copper, though, is more of a regional business; we have a strong presence in Saudi Arabia and in India. And growing our business in Africa on both copper and aluminum.
“Our metals business is arguably more export-oriented than cables.”
"For aluminium, we are already running full for the moment. This is only the third year of operations and we are still consolidating our position.
"There could well be opportunities in the aluminium market… but that's still a few years away."