Alan Clark, CM Group. Value-in-Use Considerations in Bauxite Pricing

Transcription

1 Alan Clark, CM Group Value-in-Use Considerations in Bauxite Pricing 1

2 DISCLAIMER This release has been prepared on the basis of original, independent research by the CM Group. It is based on information available at the time the release was compiled, from sources believed to be reliable. While the CM Group has taken care in preparing the release, unless specifically implied by law, it does not make any representation or warranty that the material in this release is accurate, complete or up to date. Users should make its own enquiries to satisfy itself as to the correctness and currency of the material presented. This release does not constitute a recommendation, invitation or offer to buy or sell any security, stock, business or other product or service in any jurisdiction, or to engage in or refrain from engaging in any other transaction. The CM Group estimates costs and market changes by evaluating industry market conditions and gathering available information and data from third party sources, as operating companies do not generally disclose their positions for individual operations. Available data varies greatly between projects. In particular, forecast costs and market volumes embody a number of significant assumptions with respect to exchange rates and technical variables. Because of these factors, direct comparability between individual forecast project costs and markets may be limited, and such cost and market estimates must be treated with caution. Without limiting the foregoing, this release contains forward-looking statements which are identified by words such as may, could, believes, estimates, targets, expects, intends and other similar words that involve risks and uncertainties. These statements are based on an assessment of present economic and operating conditions, and on a number of assumptions regarding future events and actions that, at the date of this release, are expected to take place. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties, assumptions and other important factors, which are beyond the control of the CM Group and which could cause the actual outcomes to differ materially from the outcomes expressed or anticipated in the forward-looking statements. The CM Group cannot and does not give any assurance that the results, performance or achievements expressed or implied by the forward-looking statements contained in this release will actually occur and the Client is cautioned not to place undue reliance on them. To the extent permitted by law, none of the CM Group or its officers, directors, employees, agents, information providers, consultants or suppliers accepts any liability (in negligence or otherwise) for any loss or damage, whether direct or indirect, special, incidental, consequential or punitive, sustained or incurred by the Client or any other person as a result of reliance on all or any part of this release. 2

3 Presenta+on Structure ViU Pricing China Bauxite and Alumina Industry Metrics 3

4 The Idea of ViU Pricing 4 4

5 Bauxite Imports: Sources, Volumes and Prices Source(s): China Customs, CM 5 5

6 CBIX Index Calculation 6 6

7 How to compare the value of different bauxites? Many different bauxites all with different quality characteris+cs and processing costs to alumina. All from different regional loca+ons How can the value of each bauxite be assessed? What is a fair market price for each? Source: CM Group 7 7

8 Value in Use (ViU) Bauxite Calcula+on The only way to properly compare the landed prices of each bauxite cargo is to perform a Value in Use conversion, or value- normalisa+on. Rather than compare individual cargos with each other, all cargos are compared with a standard theore+cal bauxite: 50% reac+ng alumina, 5% reac+ng silica, 10% moisture, 100% gibbsite. Each cargo is bayer- processed to alumina at a produc+on cost specific to its unique grade and quality. Then, holding the produc+on cost to alumina constant, we calculate the equivalent price for the theore+cal bauxite. This price then becomes the CBIX price for that par+cular cargo. In this way each bauxite cargo can be compared, and all bauxite cargos can be included in a single index. 8 8

9 Value in Use Bauxite: Example Cargo A: Indian bauxite CFR $55/t Cargo B: Ghanese bauxite CFR $80/t Given this price, what is the implied price for CBIX bauxite to give the same alumina cost per tonne? Given this price, what is the implied price for CBIX bauxite to give the same alumina cost per tonne? ViU Calcula+on : $61 ViU Calcula+on : $69 These become the index inputs for each cargo 9 9

10 Factors accounted for in the CBIX calcula+on: Exchange rates Updated weekly Bauxite mineralogy Updated as required Refinery Processing Parameters Updated as required FOB è CFR adjustment Cargo specific using weekly updated ship charter rates, fuel prices, port charges CBIX Incoming Cargos Collected weekly Caus+c & Energy Prices in Shandong Updated monthly 10 10

11 Coverage of the CBIX Index Country data 2014: Australia Brazil Dominican Rep. Fiji Ghana Guinea India Indonesia Malaysia Turkey Around 40% of all 2014 cargos have been collected on a tonnage basis Cargos per week 2014 Key ports covered 2014: Longkou Qingdao Lianyungang Yantai 11 11

12 CBIX Flow Chart available at thebauxiteindex.com Source: CM Group 12 12

13 What to do with it? Introducing The CBIX Index What to do with it? Introducing The CBIX Index Price Calculator Price Calculator Industry News Industry News Industry Overview Industry Overview CBIX Price Index CBIX Price Index Freight Rates Freight Rates Explanatory Notes Explanatory Notes CBIX index presents a VIU- adjusted bauxite price index CFR Shandong port, as well as a simple tool to generate an indicaave price for different bauxite types. CBIX index presents a VIU- adjusted bauxite price index CFR Shandong port, as well as a simple tool to generate an indicaave price for different bauxite types

14 China Bauxite and Alumina Industry Metrics 14 14

15 Apparent bauxite Consump+on (mln t per month) Source(s): CM Group 15 15

16 End of Presentation Enjoy the cocktails and think of CBIX! Thanks to CM B&A Team Metal Bulletin Conference Sponsors IAI