Bauxite & Alumina Market Update. Demian Reed Vice President Commercial Bauxite and Alumina Rio Tinto Alcan

Transcription

1 Bauxite & Alumina Market Update Demian Reed Vice President Commercial Bauxite and Alumina Rio Tinto Alcan

2 The outlook for the alumina market starts with metal Global Aluminium production (mtpa) grew strongly ~5% in China RoW However production growth was from China, RoW production was flat Source: CRU

3 LME price decline despite capacity cuts, premiums strengthen 3 Capacity cuts Premiums as a percentage of LME Region Million tonnes 3,500 20% W Europe 0.2 North America 0.6 Latin America 0.3 E Europe 0.4 Africa 0.0 Other 0.0 Rest of World 1.5 China 3.1 3,250 3,000 2,750 2,500 2,250 Average MP LME Cash Premiums (% revenue RHS) 18% 16% 14% 12% 10% 2,000 8% A further 3.8Mt of smelting capacity remains idled outside of China 1,750 1,500 6% 4% 1,250 2% Source: LME, Platts, Metal Bulletin 1, %

4 4 Alumina market and pricing performance Alumina prices high as a percentage of LME, (~19%) however modest considering current premiums (~16% of Cash LME plus Midwest premium) Alumina prices seen some support in light of Gove suspension Potential for further price volatility considering: Gove suspension complete in August and flow on impacts from Indonesian Bauxite into domestic Chinese Alumina production are uncertain Alumina $440 $420 $400 $380 $360 $340 $320 $300 $280 Platts FOB Aus, US$/t 16 Aug Oct Dec Feb Apr Jun Aug Oct 11 9 Dec 11 7 Feb 12 7 Apr 12 6 Jun 12 5 Aug 12 4 Oct 12 3 Dec 12 1 Feb 13 2 Apr 13 1 Jun Jul Sep Nov Jan Mar 14 Alumina Price Linkage Gove curtailment Pricing levels remain insufficient to incentivise refinery investments Platts, LME

5 Refining production growth Limited growth outside China 5 Between 2013 and 2018, 70% to 80% of new alumina production will be from China China 4,724 3,384 3,220 3,351 3,507 3,333 Rest of World ,850 1,393 1,435 2,717 Total Incremental production 4,016 3,471 6,070 4,744 4,942 6,050 Source: CRU, SGA only

6 6 China bauxite imports New record for bauxite imports in 2013 at >71Mt. Some imports report to stocks as China stockpiled ahead of Indonesia ban in Jan Indonesia remains the largest supplier of bauxite into China (70% of supply). However as of 12 Jan 2014, Indonesia banned the exports of bauxite. The ban adds significant supply concerns for the Chinese refineries as Indonesian bauxite accounts for 14Mt of alumina production. Million Tonnes Million Tonnes Cumulative Chinese Bauxite Imports Jan Source: GTA Source: GTA 0 8 Feb Mar 5 2 Apr May 4 5 Jun Jul Aug Sep Chinese Bauxite Imports by Source Oct Nov Dec Annualised Indonesia Australia India Malaysia Vietnam Fiji Jamaica Guyana Brazil Guinea Ghana

7 Bauxite market The uncertainty in 2014 and beyond 7 What happens in Indonesia? Extent of the ban remains uncertain. General and Presidential elections. Newmont and Freeport exemption to 2017 although steep export tax. Nickel and bauxite may be casualties. Who could fill the gap in the short term? LAW OF THE REPUBLIC OF INDONESIA NUMBER 4 OF 2009 CONCERNING MINERAL AND COAL MINING Article 170 Holders of contracts of works as intended by Article 169 that have made production must conduct refining/smelting as intended by Article 103 section (1) at the latest 5 (five) years of the promulgation of this Law Ratified in Jakarta on January 12, 2009 PRESIDENT OF THE REPUBLIC OF INDONESIA, Sgd. DR. H. SUSILO BAMBANG YUDHOYONO Potential Suppliers RTA Various Various Origin Gove/Weipa Atlantic origin e.g. India Supply gap will be difficult to close

8 8 Bauxite China typically runs a bauxite surplus and this increased in Estimated Consumption Range Source: China Customs

9 Indonesian bauxite inventory in China Likely Indonesian consumption ~30mtpa Source: RTA estimate

10 Gove suspension 10

11 11 Industrial balance RTA Still industrially long after Gove Curtailment Bauxite optionality created Total Alumina Balance Kt Balance flat beyond Before Gove After Gove

12 12 Summary Persistently soft LME prices despite capacity cuts. Despite higher linkage rates for alumina prices, prices remain insufficient to support existing capacity hence the decision to suspend Gove. Rio Tinto Alcan average cost position improving Gove curtailment, weakening Australian dollar and caustic prices in the pacific. Present alumina prices will not incentivise new capacity in the west. Indonesia s ban on its raw material creates uncertainty for 14Mt of Chinese refining capacity : There are few short term alternative supply options to fill this gap if Indonesia maintain its current position. RTA well positioned in the Pacific with optionality on bauxite exports in the near term. The next 12 months will be an interesting period for the industry as the market absorbs the news of the Gove suspension and as bauxite stocks are consumed in China.