Alumina Refining Under Review Analysis of Global Supply and Demand

Transcription

1 Alumina Refining Under Review Analysis of Global Supply and Demand 2015 Metal Bulletin International Aluminium Conference Simon Storesund, SVP Commercial, B&A 23 September 2015 (1)

2 Cautionary note Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management s plans, objectives and strategies for Hydro, such as planned expansions, investments or other projects, (c) targeted production volumes and costs, capacities or rates, startup costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by expected, scheduled, targeted, planned, proposed, intended or similar statements. Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro s key markets and competition; and legislative, regulatory and political factors. No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. (2)

3 Healthy demand growth outlook for primary aluminium Strong demand drivers in key aluminium segments Global primary demand estimates Transport Construction Growth in 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 Million tonnes 4-5% annual growth Electrical Urbanization Substitution from copper China 27 Machinery & equipment Packaging Improving industrial sentiment in mature regions. Manufacturing activity and industrial growth in emerging countries Urbanization Environmental friendly solutions World ex-china A 2019 E Source: CRU, Hydro Analysis (3)

4 Alumina market short & long players Total smelter grade alumina production million mt (capacity ~130 mil. mt) North America 5,4-3,5 Europe 4,3-2,9 Russia & Eastern Europe 7,1 4,4-3,2 51,0 Africa, Middle East & Asia -5,3 China Net Export Net Import Total production Central & South America 13,5 10,5-12,3 20,4 16,4 Australasia Source: CRU

5 According to CRU, ~16-18 % of World ex. China smelter production is currently cash negative Source: CRU (5) 9/23/2015

6 Most of the marginal smelter capacity world-ex China is in the Atlantic according to CRU BoC (USD/t) Pacific Altantic Potential closure announced for end October Al LME 3m ($1 625/t) Source: CRU (6) 9/23/2015

7 According to CRU, ~15 % of World ex. China alumina production is cash negative Cash costs 2015 (USD/t) Altantic Pacific PAX ($272/t FOB Australia) Source: CRU (7) 9/23/2015

8 CRU expects one third of World ex. China alumina capacity has cash costs >$250/t, mostly in the Atlantic Cash costs (USD/t) Pacific Curtailment announced Altantic CRU ABP (USD 256/t FOB) PAX ($272/t FOB Australia) Source: CRU, Platts (8) 9/23/2015

9 Alumina trade from Atlantic to Pacific basin Source: Chinese customs, SENCEX, CRU Note: * 2015 to July

10 China export China import China aluminium units trade balance Short of bauxite and alumina Annualized aluminium equivalents*, million mt YTD 2015** Bauxite and alumina China successful in bauxite source diversification, increasing volumes from Malaysia Alumina imports lower than in ( 5) ( 10) Primary aluminium No significant import or export in 2015 However, some primary exports disguised as semis Scrap Increased imports on first quarter back-log Semis and fabricated Continued high export levels Bauxite Alumina Scrap Primary aluminium Fabricated Semis Total aluminium imports Source: CRU/Antaike/Hydro * Bauxite/alumina to aluminium conversion factor: 5.0/1.925 **April and May annualized

11 Chinese alumina production and imports Million mt 16 Chinese alumina production & imports 14% 100% Percentage share of Chinese alumina and bauxite imports USD/t CIF 65 12% 12 10% 80% Indonesia ban Malaysia entrance % 6% 60% % 40% 0 2% 0% 20% 50 0% 45 Shandong Shanxi Guangxi Imports Henan Guizhou Other Imports % (rhs) Bauxite Alumina (in bauxite equivalent) Bauxite price (rhs) Source: CRU, Chinese customs, CM Group Note: alumina/bauxite conversion 2.67 (11)

12 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12 Jun-12 Aug-12 Oct-12 Dec-12 Feb-13 Apr-13 Jun-13 Aug-13 Oct-13 Dec-13 Feb-14 Apr-14 Jun-14 Aug-14 Oct-14 Dec-14 Feb-15 Apr-15 Jun-15 Aug-15 RoW price lower RoW price higher World alumina price kept in a range due to flexible Chinese imports will this continue? Monthly annualized import, ktons 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 Arbitrage USD/t Annualized import Arbitrage Even price level China vs RoW China could continue to respond to ROW alumina price changes by adjusting imported volume. The pivot point would balance around Chinese price level. Availably of relatively cheap bauxite (Malaysia) has lowered the cash production cost of the marginal Chinese alumina producers in Over the medium term, Chinese alumina production costs could increase if bauxite prices increase Chinese alumina prices expected to determine ROW price also for the future. Source: China Customs, Platts, Hydro analysis (12)

13 According to CRU, China alumina cost curve has shifted down On lower bauxite and energy costs USD/mt Ex-works Henan alumina price Sep 10 (USD 361/t) cash cost 2015 cash cost million mt Source: CRU (13)

14 Currency & commodity movements Shifting cost curves downwards USD appreciation against currencies of major alumina producing countries USD appreciation/(depreciation) between 2014 and 2015 to date* 30% 25% 20% 15% 10% 5% Chinese domestic coal price trends similar to international seaborne traded prices USD/t % -5% 2014 avg China Brazil Australia ** ARA CIF (6'000kc NAR) Shanxi Dantong FOR (6'000kc NAR) Source: Bloomberg, IHS McCloskey Note: * 2015 to September 10 ** 2015 to end August (14)

15 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 China developing new bauxite import sources Malaysia emerged as new source of cheap bauxite supply Million t Bauxite import volume by origin USD/t Bauxite prices Avr CIF China Value in Use e * 45 Indonesia Australia India 40 Malaysia Other Pacific Atlantic Source: China Customs, CM Group, Hydro analysis * 2015e Jan-July 2015 annualised (15)

16 According to CM, China s bauxite production will fall short of demand China s bauxite import demand forecast million tons Imports for refineries currently using domestic bauxite Additional imports for Shandong refineries Imports for existing Shandong refineries Source: CM Group (16)

17 Large and concentrated bauxite resources But many challenges for future developments Billion mt Guinea China 2.9 Jamaica Venezuela Brazil India 1.0 Malaysia Australia 9.5 Vietnam Indonesia Bauxite suppliers short/medium term Atlantic Pacific Big-league (Top- 3) Mid-league (Top- 10; each > 2% of world total) Total bauxite, billion tonnes: reserves, mine site resources*, and undeveloped resources** Potential reserves, billion tonnes: associated with currently operating mines*** 1) Official reported resources in China (Not CM estimates) *) Mine site resources are known bauxite resources that do not currently qualify as reserves for various reasons **) Undeveloped resources might or might not became feasible for new mines (quality, size, access, etc.) (17) ***) Potential reserves = current reserves (economically extractible) + 70% of mine site resources. Undeveloped resources are excluded. Source: Roskill, CM Group and Hydro analysis

18 Key Take Aways Current alumina surplus in the Atlantic, however potential curtailments could rebalance the market ROW alumina industry dependant on China imports to balance the market Chinese alumina import demand drivers Relative price of imported bauxite and alumina Arbitrage between domestic and imported alumina price Availability and cost of bauxite (18)

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