Andrew Wood, Manager Corporate Strategy & Development Alumina Limited. Global Trends in Alumina

Transcription

1 Andrew Wood, Manager Corporate Strategy & Development Alumina Limited Global Trends in Alumina

2 Disclaimer This presentation is not a prospectus or an offer of securities for subscription or sale in any jurisdiction. Some statements in this presentation are forward-looking statements within the meaning of the US Private Securities Litigation Reform Act of Forward-looking statements also include those containing such words as anticipate, estimates, should, will, expects, plans or similar expressions. Forward-looking statements involve risks and uncertainties that may cause actual outcomes to be different from the forward-looking statements. Important factors that could cause actual results to differ from the forward-looking statements include: (a) material adverse changes in global economic, alumina or aluminium industry conditions and the markets served by AWAC; (b) changes in production and development costs and production levels or to sales agreements; (c) changes in laws or regulations or policies; (d) changes in alumina and aluminium prices and currency exchange rates; (e) constraints on the availability of bauxite; and (f) the risk factors and other factors summarised in Alumina s Form 20-F for the year ended 31 December Forward-looking statements that reference past trends or activities should not be taken as a representation that such trends or activities will necessarily continue in the future. Alumina Limited does not undertake any obligations to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements which speak only as of the date of the relevant document. 2

3 AWAC JV world s largest bauxite and alumina producer Alcoa Inc. 60% (and manager), Alumina Limited 40% Eight refineries 15.6 million tonnes of alumina production in 2012; seven+ bauxite mines Two smelters production of 358,000 tonnes of aluminium Mine and refinery (1.8m t) project in Saudi Arabia JV with Ma aden (AWAC 25.1%) under construction Position of AWAC on Alumina Cash Cost Curve San Ciprian Guinea AWAC Ma aden mine/refinery Point Comfort Suralco MRN Jamalco Sao Luis Kwinana Huntly Pinjarra Willowdale Wagerup Portland Point Henry Juruti Bauxite Mines Refineries Smelters Location Million tonnes Cost curve: CRU April

4 Alumina demand growth driven mainly by China, Middle East and India Third party world metallurgical alumina demand estimate/forecast Source: Metal Bulletin Research, IAI October

5 Global Alumina Excess (thousand tonnes) China reducing excess and rest of world near market balance China and Rest of World Alumina Balance 1,600 1,400 1,200 1, Risks of lower demand on more smelter curtailments Potential delay or cancellation of a number of refining projects within this period Otherwise will require alumina curtailments China alumina balance Rest of the world alumina balance Chart: CRU April

6 Most of planned capacity is from Asia risk of further delays due to bauxite and infrastructure gaps Alumina Output Expansions Scheduled for (effective increase in capacity in the year; thousand tonnes p.a.) REGION COUNTRY COMPANY REFINERY 2013f 2014f 2015f 2016f 2017f TYPE Comments Asia ex. China Saudi AWAC-Ma'aden Ras Al Khair 1, Greenfield Arabia Commissioning on track Commissioned and ramping up to full capacity India Hindalco Utkal - Salampur, Orissa 1,500 Greenfield by mid Anrak Anrak Alumina Greenfield Vedanta Lanjigarh 2,035 Brownfield Hindalco - Aditya Orissa 1,500 Greenfield Commissioning expected for 2H 2013 after some delays. It will only produce at half of capacity. The expansion is on hold due to inability to secure long term bauxite supply. Nalco Damanjodi 1,000 Brownfield Approval for mining lease received from Govt. of Odisha. DPR under preparation. Production started this year after various Vietnam Vinacomin Lam Dong Greenfield delays. Producing at 50% of capacity amid insufficient transportation infrastructure. Vinacomin Nhan Co 650 Greenfield Likely to experience delays. Indonesia PT Antam Hongqiao Group Mempawah, West Kalimantan Well Harvest Winning Alumina 1,200 Greenfield 1,000 1,000 Greenfield The project is on feasibility study. Estimated to start commercial operation in Likely delay to Partner sought. First phase due to start in 2016 with 1.0 M mtpy. Second phase for 2017 with a further 1.0 M mtpy. Query bauxite export link. Bosai Group - Greenfield Project canceled in June 2013 Latin America Brazil Hydro Aluminum CAP 1,860 Greenfield TOTAL 2,550 3,200 2,800 4,060 3,035 The project has been shelved by the company amid "market conditions". Commissioning year highly likely to be beyond Table: HARBOR Aluminum October

7 Long term demand prospects positive, potential supply gap given incentive price Metallurgical Alumina Long Term Capacity Requirements (million tonnes) CAPACITY REQUIREMENTS Long Term: 107 million mt/yr of extra alumina capacity required for ANNOUNCED PROJECTS PRODUCTION FORECAST CAPACITY CREEP EXISTING CAPACITY (ASSUMING NON-UTILIZED) Long lead times and construction costs outside China lead to incentive price for new capacity well above current market price Without significant Government or infrastructure support (or price change) hard to see many new large refinery projects being started outside China Chart: HARBOR Aluminum October

8 The global alumina industry cost curve has shifted downward in the last year Global Metallurgical Alumina Industry Output Cash Cost Curve By Company* ($/mton of alumina) 500 Q Q Q AVG Q AVG *Cash cost = raw materials + energy + labor + other operating costs Source: HARBOR Aluminum, October

9 mainly as a result of lower energy and caustic soda costs, FX rates also helping to reduce costs for refineries in Australia and Brazil Global Metallurgical Alumina Industry Output Cash Cost Bridge ($/mton of alumina) Lower caustic soda prices across the board -36 Lower coal and fuel oil prices CASH COST Q RAW MATERIALS ENERGY LABOR OTHER CASH COST Q Source: HARBOR Aluminum, October

10 Caustic soda and energy prices 500 Caustic Soda FOB North-East Asia (US$/t) + $130 Brent Crude (US$/bbl)* $ $ Jan-12 1-Apr-12 1-Jul-12 1-Oct-12 1-Jan-13 1-Apr-13 1-Jul Sep-13 $85 1-Jan-12 1-Apr-12 1-Jul-12 1-Oct-12 1-Jan-13 1-Apr-13 1-Jul Sep Henry Hub (US$/MMBtu)* Jan-12 1-Apr-12 1-Jul-12 1-Oct-12 1-Jan-13 1-Apr-13 1-Jul Sep Source: Platts, October 2013 * Source: Thomson Reuters, October

11 Companies focusing on lowering energy costs ahead by switching to cheaper energy sources like natural gas or coal Global Metallurgical Alumina Industry Output Cash Cost Curve by Refinery* (3Q 2013; $/mton of alumina) 500 1ST QUARTILE 2ND QUARTILE 3RD QUARTILE 4TH QUARTILE CURRENT CASH COST ESTIMATED NEW CASH COST IF ENERGY SOURCE IS SWITCHED TO NATURAL GAS Gove, Australia Ewarton, Jamaica Kirkvine, Jamaica 290 Alpart, Jamaica *Cash cost = raw materials + energy + labor + other operating costs Source: HARBOR Aluminum, October

12 Successful alumina-related indices developed CRU Alumina Indices Data gathered on actual spot transactions for price assessment calculations Index midpoint of the resulting price range US$ FOB Australia, FOB Caribbean and Chinese domestic RMB published weekly Platts Alumina Price Assessments FOB Australia, CFR China, ExW China alumina prices, Australia-China freight daily FOB Northeast Asia and CFR Southeast Asia caustic prices weekly If not liquid, prices assessed where spot transactions would have been concluded Transactions from other FOB regions not used directly Metal Bulletin Alumina Prices MB includes bids, offers and market assessments by participants in its evaluation FOB Australia US$ and Chinese domestic DDP RMB indices weekly CM Group/Aladdiny CMAAX, CBIX Liquid spot market; volume weighted average of spot transactions, published daily ExW price (US$ and RMB) Bids, offers and long term trades not included Daily spot prices for bauxite quoted: Shanxi, Henan RMB, Australia, Indonesia FOB US$, China CFR Pricing off indices in RoW and China All of the above are used as reference points in setting alumina prices, whether alone or in a basket Source: CRU, Platts, Metal Bulletin, CM Group April

13 Some differences in methodologies of analysts but consistent prices reported CRU, Platts and Metal Bulletin FOB Australia alumina prices compared (US$/t) Platts Alumina FOB Australia Metal Bulletin alumina index CRU Alumina Index Price Chart: CRU, Platts, Metal Bulletin data April

14 Index LME aluminium vs spot alumina Spot-based alumina prices have been less volatile than the LME aluminium price Jan-12 1-Apr-12 1-Jul-12 1-Oct-12 1-Jan-13 1-Apr-13 1-Jul Sep-13 Platts alumina - FOB Australia prices 3 month LME Aluminium Source: Alumina: Platts, October LME Aluminium: Thomson Reuters, October

15 RoW index prices reflect alumina fundamentals Platts FOB Australia Alumina Prices (US$/t) US$/t $360 $340 Jan-June 2012 Chinese imports spike China bauxite shortages, cuts alumina High Chinese alumina prices make Aust attractive (Apr-Aug) - Caustic price spike (Jan-Mar) -LME Al jumps $300/t Jun-Jul 2012 Atlantic surplus (smelter curtailments) Atlantic discounted by $10/t to Australia Brent crude falls $31/bbl (May-June) LME Al drops nearly $500/t (March-June) Aug-Dec 2012 Atlantic surplus evaporates India, Guinea, Jamaica cut alumina output Chinese buyers absorb Atlantic longs Brent crude regains $28/bbl June-August Sep 2012-Feb 2013 Caustic soda weakens Jan-Feb 2013 Queensland (floods) shortages Gove closure concerns Mar-Apr 2013 Australia normalizes, supply worries ease Low Chinese prices (importers resell contracted cargoes) LME Al pressured by macroeconomic woes Apr-Jul 2013 Gove cut, port delays lift price Smelter cuts (India, Malaysia) Vedanta restarts alumina China imports fall, reselling LME Al falls to 4-year low Alunorte refinery cuts Aug-Oct 2013 Smelter cuts (US, Russia, Brazil) Atlantic cargoes Weather delays (Bunbury, Kwinana) $320 $ Jan Apr Jul Oct Jan Apr Jul Oct-13 Source: Platts October

16 US$/t Different alumina fundamentals affect Chinese prices Independent refineries mee ng to raise Aa price - Primary Al price hit all year high in early May CMAAX (China ex-works) Alumina Prices (US$/t) - Produc on Cost down - Primary Al price rebound in Aug/Sep - Subdued Primary Al price - Lower produc on cost (lower caus c and coal prices) - Lower primary Al capacity release hence demand - Increasing alumina produc on from newly commissioned plants in Shanxi, Guizhou and Guangxi - New smelters commissioned in northwest - Pre-winter stocking of alumina Jan Produc on cut, espeically in Shandong, amid fear of Indonesia Bx export shutdown - Higher produc on cost (Higher caus c, coal cost ) Feb-2012 Mar-2012 Apr-2012 May Primary Al price down - New Aa capcity release in Shanxi and Guizhou - Increase in imported Aa - Destockig of Northern Refineries Jun-2012 Jul-2012 Aug-2012 Sep-2012 Oct-2012 Nov-2012 Dec-2012 Jan-2013 Feb-2013 Mar-2013 Apr-2013 May-2013 Jul-2013 Aug-2013 Sep-2013 Oct-2013 Chart: CM Group, CMAAX October

17 Two distinct markets but Chinese arbitrageurs impact RoW pricing US$/t tonnes '000 Chinese vs. Aust. Alumina Prices (CMAAX less Aust. FOB adjusted) (US$/t) and Import Volumes (thousand tonnes/month) Total alumina imports 200 Import Premium Import Inducement Premium Jan-11 Apr-11 Jul-11 Oct-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 2,000 1,800 1,600 1,400 1,200 1, Import prices tracking import inducement premium for most of 2013, resulting in lower imports (cf 2012) Sufficient bauxite stock in Chinese refineries contributes to the drop in alumina import as well Source: CM Group, CMAAX, Platts, China Customs September

18 China not expected to export much alumina Very few exports of alumina from China historically Exports unlikely for extended periods or large volumes as: no VAT export rebate (unlike Australia) land and sea freight cost disadvantage logistical issues: most Chinese alumina is bagged alumina quality variance risks for non-chinese smelters high operating costs generally policy of value-adding 18

19 World marginal cost producers in Shandong - Henan and Shanxi may move up curve China Alumina Cash Cost Curve Q (excluding VAT) Shandong capacity is now at 20 million tpa with ~85% using imported bauxite Henan and possibly Shanxi costs could increase towards Shandong as grades deplete and allocation restricts bauxite movements Source: CM Group October

20 Bauxite costs have surged on Chinese demand for imports and the possibility of lower (or costlier) shipments from Indonesia starting 2014 Chinese Bauxite Cost by Province ($/mton of alumina) 200 Q Q MAIN BAUXITE IMPORTERS $ $ $70 $77 $75 $78 $80 $87 $72 $97 50 $56 $56 $52 $56 0 Yunnan Guangxi Shanxi Guizhou Henan Chongqing Shandong Source: HARBOR Aluminum, October

21 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Chinese import prices have increased 20% since Indonesian export restrictions started and remain high with long distance imports Chinese Bauxite Cost by Province ($/mton CIF China) BAUXITE FROM THE ATLANTIC BASIN HAS HIGHER FREIGHT COST BAUXITE FROM THE PACIFIC BASIN HAS LOWER FREIGHT COST AUG 2013 BRAZIL 85.9 GHANA 76.1 GUINEA 71.1 INDIA 63.4 AUSTRALIA 57.2 INDONESIA Source: HARBOR Aluminum with China Customs Data, October

22 Chinese bauxite import volumes expected to continue to grow Forecast Chinese Bauxite Imports by Destination Province to 2023 (mln t/yr) Xinjiang Inner Mongolia Shanxi Shandong Henan Chongqing Guizhou Yunnan Guangxi Shandong to remain the major merchant bauxite-consuming province over the period to 2023 Under-utilised logistics allow Inner Mongolia (rail) and Chongqing (barge) to become new entrants Henan and Shanxi refineries likely to import significant bauxite tonnes (due to local allocation and quality issues) Source: CM Group October

23 New projects needed on-stream for future demand; even so, a supply-demand gap will develop Possible Speculative projects needed to fill about 99m tonnes of bauxite demand in 2035 Source CRU Probable Committed Existing Demand Source: CRU's Bauxite Long Term Market Outlook, 2013 edition 23

24 Global bauxite economic reserves China 0.8 Bt Guinea 7.4 Bt India 0.9 Bt Laos 2.0 Bt Indonesia 1.0 Bt Vietnam 2.1 Bt Jamaica 2.0 Bt Fiji 0.4 Bt Guyana 0.9 Bt Suriname 0.6 Bt Brazil 3.4 Bt Australia 5.4 Bt Source: Metal Bulletin Research,

25 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-15 Jan-16 Jul-16 Jan-17 Jul-17 Jan-18 Jul-18 Jan-19 Jul-19 Jan-20 Jul-20 As the freight market has probably bottomed out, bauxite importers could suffer higher freight costs in 2014 and Baltic Dry Index and Leading Indicator (units) 5, ,000 3,000 2,000 LEADING INDICATOR 1,000 BALTIC DRY INDEX 0 Source: HARBOR Aluminum, October

26 Potential technology developments Chinese bauxite quality issues could be improved by blending, flotation, sintering etc. but at a high cost 11 flyash projects being pursued in China a long way to prove commercial viability Flyash plants not likely to be competitors on cost with Bayer process with current flow sheets Higher energy usage, capital costs and potential SGA quality issues Orbite pilot producing high purity alumina from clay via HCL competitive in high purity alumina, query jump to SGA production Other projects underway (e.g. AMMG) but may be too early to judge 26

27 Summary Alumina supply-demand between oversupply and balanced outside China for next 2-3 years some upside and downside risks expect consolidation at low point in cycle through M&A will need to be further cuts outside China to match smelting cuts Development of alumina and related indices progressing well better reflecting alumina fundamentals Current alumina price does not provide enough incentive for many producers to commit to new large refinery projects given construction costs, timing and risks outside China current drive to reduce cash costs, including by energy conversions This is a significant alumina supply shortfall risk in medium-long term Chinese domestic bauxite issues worsening quality, depletion, allocations Likely increase in bauxite imports into China at higher cost Shandong likely to remain the world s marginal cost producer possibly to be joined by other provinces 27

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