Market Outlook. Kathrine Fog, SVP Corporate Strategy & Analyses

Transcription

1 Market Outlook Kathrine Fog, SVP Corporate Strategy & Analyses

2 1 Macro and trade

3 Macro sentiment still moderately positive despite trade tensions Increasing uncertainty on GDP-effects from trade disputes Manufacturing PMI s Annual GDP-growth, key regions 65 USA ISM Eurozone 8% 6 China NBS China Caixin 7% 6% Increasing production 55 5% 4% 5 3% Contracting production 45 2% 1% 4 Sep-11 May-12 Jan-13 Sep-13 May-14 Jan-15 Sep-15 May-16 Jan-17 Sep-17 May-18 % Global US Eurozone China India Brazil E Source: Thomson Reuters, IHS Global Insight

4 Trade sanctions and tariffs impacting global flows of aluminium US Section 232: aluminium Section 232: auto (potential) Section 31 Common alloy sheet and foil USMCA* Europe Monitoring of aluminium imports Potential safeguards India Russia Rusal sanctions Duties on primary and scrap imports Potentially more/higher duties China Limitations on scrap imports Indonesia Safeguard investigation into aluminium foil Source: Hydro analysis *USMCA = United States Mexico Canada Agreement

5 Section 232 impacting US metal premiums Premiums reflecting high underlying metal deficit US primary demand and production ( t) Ingot premiums USD/t Section 232 1% duty on aluminium imports The US has a large underlying metal deficit and needs to attract large metal volumes Some US restarts so far however, limited overall restart potential Restart of Hawesville and New Madrid adding volumes in E Jan-16 May-16 Sep-16 Jan-17 May-17 Sep-17 Jan-18 May-18 Sep-18 Demand Production US Mid West Japan Europe (duty-paid) Source: Hydro analysis, Metal Bulletin, Platts, Republished under license from CRU International Ltd

6 Rusal sanctions leading to price volatility Large producer of value added products, impacting regional product premiums LME 3m (USD/t) Rusal primary production per product (total 217: 3.8 million tonnes) Rusal sanctions 2,7 2,6 2,5 2,4 Rusal sanctions announced % 8% 2% Deadline for imposition of UC Rusal sanctions further extended to 7 January Supply contract deals for 219 are permissible provided they were similar to 218 deals 2, % Uncertainty still lingers on VAP sales and overall market premiums 2,2 2, % Aughinish is an important supplier of alumina to European smelters 2, 4 1, % 1,8 jan. 18 mar. 18 mai. 18 jul. 18 sep. 18 nov LME 3m PAX Ingot Billett Slab PFA Rod Liquid Source: Hydro analysis, Thomson Reuters, Platts, Republished under license from CRU International Ltd

7 Chinese limitations on scrap imports leaving more scrap in North America and Europe Chinese scrap imports, monthly ( tonnes) Scrap prices as a percentage of Regional ingot price Chinese limit scrap imports YTD: -23 % 9% 85% 8% 75% 7% 65% 6% 55% Stricter import policy and 5% import duty on US scrap has led to a sharp fall in scrap imports More scrap left in the US, putting pressure on scrap prices US scrap exports to alternative destinations such as Malaysia and India increasing Scrap imports to the US not affected by % 45% jan. 16 jul. 16 jan. 17 jul. 17 jan. 18 jul. 18 4% Jan-15 Oct-15 Jul-16 Apr-17 Jan-18 US Other countries European MLC Sheet scrap as % of Regional ingot price US MLC Sheet scrap as % of Regional ingot price Source: Hydro analysis, Republished under license from CRU International Ltd

8 Chinese semis exports increasing in 218, less volumes going to the US US imports of sheet and plate from China s tonnes Semis exports (monthly, kmt) Chinese semis exports Increasing volumes in 218 amid higher export arbitrage YTD + 19% Export arbitrage supported by weak RMB Asia key destination More than 5% of export volumes in 217 AD and CVD against Chinese foil and Chinese common alloy sheet have led to sharp declines in US imports from China Gross semis exports Net semis exports Source: IHS Market, 766: sheet and plate, Thomson Reuters, Antaike

9 2 Downstream

10 Aluminium continues to be the fastest growing base metal Gaining market share from other metals in key segments Global metal demand Index 2=1 New segments and applications supporting aluminium demand Offshore / Marine applications, e.g. fish farms Railway, including new technologies like maglev HVAC&R Aluminium primary Copper Crude Steel Zinc Nickel Global GDP Aluminium formwork for B&C Automotive, strong drive towards EV Middle and high voltage cables, wire and cable for electrical applications Source: Hydro analysis, Republished under license from CRU International Ltd, Zhongwang, World-aluminium.org

11 Substitution trend in automotive progressing Positive US demand despite moderate auto sales, Europe gaining ground Aluminium vehicle penetration* Rolled products demand in transport Extrusions demand in transport Demand per vehicle, kg/car (annual growth) (annual growth) 3 Estimate 15% 15% % 1% % 5% % North America Western Europe % North America Western Europe US and Canada Europe ex. Russia E 219E E 219E Source: Hydro analysis, Republished under license from CRU International Ltd *Aluminium demand per vehicle (captures the consumption from the sector. The amount in a vehicle will be less due to fabrication losses)

12 Extrusion demand in US & Canada strongly impacted by expected moderation in truck & trailer Extrusions demand in transport (cars & trucks*), segment split (Average share ) Extrusions demand per transport (cars & trucks) segment (annual growth) 15% Extrusions demand in transport (cars & trucks) (annual growth) 15% 37% 1% 1% 53% 5% 1% % 5% -5% E 219E Passenger car & light truck Trucks & buses Trailers & semitrailers -1% Passenger car & light truck Trucks & buses Trailers & semitrailers % US & Canada Western Europe E 219E *Transport segment also include some other transport (e.g. railway), cars & trucks make up >7% of total transport demand Source: Hydro analysis, Republished under license from CRU International Ltd

13 E-mobility trend favourable for aluminium demand High aluminium content in BEVs, increasing share of total car sales Electric vehicle* share of new car sales (%) Net increase in aluminium content in electric vehicle s Average kg aluminium per vehicle type in 218 3% Rolled Castings ~2 25% ~155 Extrusions 2% 15% 1% 5% % ICE 1) Loss Potential gain BEV 2) Source: Hydro analysis, Republished under license from CRU International Ltd * Battery electric vehicles & plug-in-hybrid vehicles 1) ICE= Internal Combustion Engine, 2) BEV= Battery Electric Vehicle Forecast based on 1 different sources including CRU, Wood MacKenzie, JP Morgan, IEA, Bloomberg New Energy Finance and others

14 Emerging softness in key housing market indicators, moderating growth rates Housing market indicators Index, Jan 2= Extrusions demand in B&C (annual growth) 6% 4% 2% Rolled products demand in B&C (annual growth) 6% 4% 2% US Building permits US Housing starts % North America Western Europe % North America Western Europe EU construction order book E 219E E 219E Source: Hydro analysis, Thomson Reuters, Republished under license from CRU International Ltd

15 Rolled products demand driven by transport segment Transport share increasing in total rolled products demand General rolled products demand, selected regions YoY-growth 8% 6% 4% Global segment composition, rolled products (217) 5% 4% 2% Packaging 8% Transport Construction Machinery & Equipment 14% 5% Consumer durables Electrical Other 17% 2% Expected market development Continued substitution trend in transport main demand driver % E 219 E Growth in packaging driven by can stock and foil in emerging markets North America Europe ex. Russia Source: Hydro analysis, Republished under license from CRU International Ltd

16 Moderating extrusion demand growth in Western Europe and North America, improving in Asia Extrusion demand, selected regions YoY-growth European segment composition, extrusion (217) 1% North America 1% Western Europe 1% China 5% 5% 5% 5% 5% 5% % E 219E % E 219E % E 219E 12% 44% 15% Africa 1% South America 1% 1% Asia ex. China 28% 5% 5% 5% % E 219E % E 219E % E 219E Construction Transport Machinery & equipment Electrical Consumer durables Other Source: Hydro analysis, Republished under license from CRU International Ltd

17 89 3 Primary metal market

18 Recap CMD 217: Global primary market expected to be largely balanced in 218 Primary supply and demand growth expected to be largely similar Global ( mt) Global growth expectations 218 7, Supply Demand Supply and demand: 4-5 % 65, 6, 55, 5, 45, 4, Supply influences 218 Winter shutdowns SOE projects in China Limited growth for private companies in China US restarts Indian projects Demand influences 218 Gradual slowdown in Chinese construction and transport sector Continued strong transport segment European and US growth continues 35, 3, E 218E Source: CRU, Hydro Analysis

19 Global primary market in deficit in 218 Demand progressing largely as expected, supply growth falling short of expectations Global ( mt) 7, Happened to a limited extent Supply Demand Happened to a large extent Global growth 218 Supply: 1 % Demand: 4 % 65, 6, 55, 5, 45, 4, Supply influences 218 Winter shutdowns SOE projects in China Limited growth for private companies in China US restarts Indian projects Demand influences 218 Gradual slowdown in Chinese construction and transport sector Continued strong transport segment European and US growth continues 35, 3, E Source: CRU, Hydro Analysis

20 Global primary market expected to be in deficit also in 219 Supply growth picking up, demand growth slowing Global ( mt) Global growth 219 7, Supply Demand Supply: 3 4 % Demand: 2 3 % 65, 6, 55, 5, 45, 4, Supply influences 219 Projects World ex. China Disrupted smelters restarting Chinese ramp-ups US restarts Demand influences 219 Continued growth in transport segment Gradual slowdown in China European and US growth moderating 35, 3, E 219E Source: CRU, Hydro Analysis

21 High input costs challenging smelter profitability Higher end of the cost curve dominated by Chinese smelters Input costs aluminium production Index: Q1 216 = 1 3 Business operating cost (BOC) USD/t 2,8 25 2, , 1,6 1, Cost pressure in 218 1) Nov 218 spot Continued high coal prices Higher alumina prices Higher carbon costs Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 1, 2, 3, 4, 5, 6, Chinese steam coal Alumina PAX Pet coke FOB US Gulf Source: Hydro analysis, IHS, Platts, Republished under license from CRU International Ltd 1) Average cost factors 218 versus average costs 217

22 High input costs challenging smelter profitability Higher end of the cost curve dominated by Chinese smelters Input costs aluminium production Index: Q1 216 = 1 3 Business operating cost (BOC) USD/t 2,8 25 2,4 2 2, Current LME 1,6 15 1, Cost pressure in 218 1) Nov 218 spot Continued high coal prices Higher alumina prices Higher carbon costs Q1-16 Q2-16 Q3-16 Q4-16 Q1-17 Q2-17 Q3-17 Q4-17 Q1-18 Q2-18 Q3-18 1, 2, 3, 4, 5, 6, Chinese steam coal Alumina PAX Pet coke FOB US Gulf Source: Hydro analysis, IHS, Platts, Republished under license from CRU International Ltd 1) Average cost factors 218 versus average costs 217

23 Primary supply in China impacted by policy and cost, captive power market reform influencing power cost Chinese primary supply forecasts Million tons E 219E 22E CRU Oct 217 CRU April 218 CRU Oct 218 Shandong power price for captive power plants Power price in real 218 USD/MWh E 219E 22E Shandong Shandong incl. extra fees fully implemented Primary supply growth moderating Supply-side reform and winter shutdowns reducing primary supply growth Limited impact from winter shutdown expected in 218/19 Ramp-up speed of new projects subdued by replacement quotas and high input cost SOE gaining share versus private companies Shandong Provincial Price Bureau have issued a notice on improving the price policy of captive power plants Weiqiao and Xinfa have captive coal fired power plants in Shandong, with a total production of 8 million tons Weiqiao have announced that they want to negotiate with the local government on these additional charges Source: CRU, Hydro analysis

24 China expected to be largely balanced in 219, global market in deficit World ex. China 219 (mill t.) 1-3 % Estimated primary market balance 219 ( t) 3-4 % ~ ~ Production Demand 1 China 219 (mill t.) 2-4 % 2-4 % -1 ~ ~ Production Demand -2 China World ex. China Global Source: CRU, Hydro analysis %: Growth from 218 to 219

25 Stocks outside China continue to decrease Inventory days approaching pre-crisis levels world outside China China World ex. China ( t) ( t) Reported Unreported Reported Unreported Source: CRU, Hydro analysis

26 98 4 Bauxite and alumina market

27 Volatile alumina market due to supply disruptions Alunorte embargo and Rusal sanctions lead to increased volatility Alumina price (PAX) and share of LME USD/t 75 Supply tightness, Alcoa strike Alunorte 1% curtailment 65 Rusal sanctions 32% 55 PAX % of LME 3m Alunorte disruption 27% 45 22% % 15 12% Source: Platts, Hydro analysis

28 PAX increase triggers Chinese exports Chinese alumina required to balance the global market China alumina export arbitrage (USD/t) Chinese alumina trade balance by month (kt) to date.1 Mt alumina net exports Total Mt alumina imports Challenging port logistics related to de-bagging alumina Quality issues Exported alumina incurs VAT (16%), logistics costs, port fees Shortage of domestic bauxite causing refinery curtailments Source: Platts, Antaike, Hydro analysis 1) Alumina export arbitrage formula: Ex.works Shanxi + Transport to port + Port Fee & Loading cost PAX Freight differential

29 Limited new capacity ex-china expected short term Chinese additions continue to dominate China (3-5) Point Comfort (2.3) Al Taweelah (2.) Alpart (1.6) Friguia (.6) Anrak (1.5) Curtailed Restarted capacity 5% Alunorte (3.2) Kendawangan Phase II (1.) Capacity additions during 219 Chinese additions Chinese additions outside China Atlantic curtailments Atlantic market in deficit Capacity additions ex. China Middle East adding capacity to supply own value chain Chinese additions Domestic capacity additions, of which half located coastal Additions ex-china Bubble size represents capacity 1 Mt India projects slow to realize Friguia (Rusal) restart in Guinea Q2 218 Chinese companies increasing production in Jamaica, Indonesia, eventually Guinea Source: Company reports, Hydro analysis, CM Group

30 Higher alumina costs in 217 and 218 Upper half of cost curve dominated by Chinese refineries Input costs alumina production Index: Jan 216 = Site Operating Costs (USD/t) in 218 real $ Q , 4, 6, 8, 1, 12, 14, Fuel Oil, US Gulf Caustic US Gulf Caustic China Bauxite Henan Cost pressure in 217 and 218 High caustic prices, Chinese bauxite prices Source: Bloomberg, IHS, CM, CRU

31 China increasingly reliant on bauxite imports Guinea bauxite increasingly filling Chinese demand Growing need for bauxite imports amid domestic depletion Mt Guinea bauxite production increasing, but still need for other sources Mt Domestic prod Alumina import Bauxite imports % imports Forecast 8% 7% 6% 5% 4% ROW China CAGR: +36% Indonesia Chinese imports split (ytd 218) Other Guinea 1 5 3% 2% 1% Australia % E 219E 22E Increasing Chinese bauxite prices triggering more bauxite imports Chinese quality deteriorating Unlicensed mines closures Guinea bauxite production increasing dramatically Includes non-chinese players Atlantic-sourced seaborne bauxite continues to grow, adding freight exposure Source: CM,China customs, Hydro analysis

32 More imported bauxite going to inland refineries Delivered bauxite prices 1) 218 refinery production forecast: total ~73 Mt Guangxi 11% Henan 15% Guizhou 7% 4 5 refineries 8 refineries Other 4% 4 16 refineries Shanxi 3% 7 refineries (imported bauxite) Shandong 33% Guizhou Shanxi Guangxi Henan Shandong Extremely tight domestic bauxite market leading to price escalations for poor quality (high silica) Not economic for some refineries to operate on local bauxite YTD September; 2.6 million tonnes of bauxite imported to 9 refineries in Henan and Shanxi Incurs additional inland freight of ~ $25/t Refinery processing issues when switching bauxite type Costs partially offset by low silica of imported (Guinea) bauxite Henan Shanxi Imported CIF inland Source: China customs, CM, CRU, Hydro analysis 1) Prices index delivered at refinery (Henan = 1 in Jan 216. Bauxite quality: Henan A/S 4. to 5., Shanxi A/S 4.5 to 5., Guangxi A/S 7. to 8., imported prices by CM Group)

33 15 5 Long-term outlook and summary

34 Strong growth drivers across segments providing solid demand outlook Still encouraging demand outlook from strong base converging demand China and outside China Strong demand drivers in key aluminium segments Global semis demand per segment, CAGR Transport Construction Growth in automotive vehicle production Aluminium content in cars increasing Growth in other transport modes, e.g. railway Urbanization Housing market recovery in mature regions Energy neutral buildings 5.1 % 6.2 % 3 4 % 2 3 % China 13.8 % Global semis demand (CAGR -18) ROW 2.4% Electrical Machinery & equipment Packaging &foil Urbanization Copper substitution Improving industrial sentiment in mature regions Manufacturing activity and industrial growth in emerging countries Urbanization Environmentally-friendly solutions 5.6 % 6.4 % 4.1 % 2 3 % 3 4 % 2 3 % 5.4 % China and ROW ~3 % Global semis demand (CAGR 18-28) ~3 % Source: CRU, Hydro Analysis

35 Growth in global semis demand creates opportunities for both primary and recycled material Solid growth for semis, primary and recycling Semis Primary Recycling1) ~3 % 2-3 % ~4 % Source: CRU, Hydro Analysis 1) Post-consumer and fabrication scrap

36 Better Bigger Greener Summary Solid long-term demand outlook, trade disputes and geopolitical tensions adding uncertainty Global primary market in deficit in both 218 and 219 Chinese metal exports facing headwinds in key consumer regions China increasingly dependent on imported bauxite, Guinea as key supplier Recycling growth accelerating with increased generation of post-consumer scrap