* Doubt is due to current economic squeeze
* Excess aluminium capacity in the region
(Adds Ma'aden, analyst, background)
By Amena Bakr and Souhail Karam
DUBAI/RIYADH, May 11 (Reuters) - A UAE-based firm threw into doubt on Monday plans to develop a $5 billion aluminium smelter in Saudi Arabia, dealing the second blow in less than six months to the kingdom's industry ambitions.
An executive of state-owned smelter Dubai Aluminium Co (Dubal) said the future of an aluminium plant project at Saudi Arabia's King Abdullah Economic City was "uncertain" in the current economic climate.
Dubal held talks with Saudi Arabian Mining Co (Ma'aden) in April over the plan, 13 months after it signed an initial agreement with the Saudi Arabian General Investment Authority (SAGIA) and Emaar Economic City to develop the 700,000 tonne per year smelter.
The plant, to be built in King Abdullah Economic City -- the largest of four business and industry hubs under construction in the kingdom -- was hailed as a vote of confidence in the world's top oil exporter efforts to diversify its economy.
"Plans for the King Abdullah Economic City plant are uncertain because of the economic conditions," Walid al-Attar, Dubal's vice president for marketing and sales, said in Dubai.
Attar was not more specific, while Ma'aden said no deal had been reached yet.
"A number of companies including Dubal have expressed an interest in applying for a licence to build a smelter in Saudi Arabia and Ma'aden maintains an interest in hearing about such projects," Ma'aden Chief Executive Abdullah Dabbagh said in response to Reuters' questions.
"However, all such dialogue remains very general in nature and therefore there is no news to be given at this time."
CHALLENGES
Dubal's announcement comes months after mining giant Rio Tinto in December said the global crisis made it impossible to finance its 49 percent stake in an aluminium joint venture with Ma'aden which was projected to cost $10 billion.
Maaden holds the remaining 51 percent in the capital of AlumCo, the company formed with Rio Tinto to develop the 740,000 tonnes per year aluminium smelter using bauxite from Saudi mines.
John Sfakianakis, chief economist at HSBC's Saudi affiliate, said Dubal may have seen the need to opt out of the project because of the impact of the crisis on the United Arab Emirates.
"The UAE has its own financial problems and challenges and the aluminium industry has its own problem because of a lack of feedstock, gas and fuel oil.
"There is also the question of whether there is economic sense in developing extra aluminium capabilities in the region"
Dubal's announcement could push Ma'aden to explore the option of doing it alone. "Ma'aden now should think of acquiring the know-how and the technology. Dubal did it on their own. Maaden has the capital to buy the technology, they need to go out and buy it" Sfakianakis said.
Maaden is investing 60 billion riyals ($16 billion) in projects including phosphate, bauxite, gold and industrial minerals. The investments are a crucial part of government plans to diversify an economy heavily reliant on oil export income. (Writing by Souhail Karam; editing by James Jukwey)