aluminium industryand market - norsk hydro · pdf file(5) aluminium is the metal of the future...

(1)

Aluminium industry and market

Torkil Sletten, Head of Strategy and Industry Analysis

18 September, 2012

(2)

Agenda

•Hydro and the aluminiumindustry

•Macro and end-use demand

• Primary aluminium market

•Bauxite and alumina market

(3)

1Hydro and thealuminium industry

(4)

The big challenges of our generationGrowth must be sustainable

Climate changeMillions climb out ofpoverty

Increasing energydemand

(5)

Aluminium is the metal of the future

• Formability• Extrusion, rolling, casting

• Low melting point vs. steel

• Excellent conductivity• Thermal – electrical

• Alloying technology• Gives wide range of physical properties

• Lightweight• 1/3 density of steel

• Recyclability• 5% of original energy consumption

• 75% of all aluminium produced still in use

• Corrosion resistant• Oxide layer

Properties leadto increasedmarket share

• Aluminium intensive urbanization and infrastructure• Climate challenge – aluminium as part of the solution• Recyclability more important with high energy prices

(6)

53

45

35

49

36

23

0

20

40

60

80

100

120

2010 2015 2020

World outside China China

Aluminium is part of the solution

Source: CRU

Global trends

Capabilities

Demand for semisMillion mt

5-7% annual growth

Share of semis consumption2011 – 62 million mt

Electrical 12%

Machinery & equipment

10%

Transport 25%

Construction 24%

Other 6%

Foil stock 8%

Packaging 9%

Consumer durables

6%

(7)

”Worth its weight in aluminium”

(8)

Strong positions across aluminium value chain

Bauxite Alumina Energy Primary Casting Products

Rolling

Extrusion

Recycling

Recycling

(9)

Continental Europe• Leading mid and downstream position

Asia• Growing metal marketing position

• Extrusion expansion in China

Norway• 900 000 tonnes (capacity) hydro-powered aluminium production

• Technology centre, R&D for next-generation smelter

• Hydropower developments

• New recycling centreNorth America• Alouette aluminium smelter in Canada

• Leading position in US Extrusion

• Growing metal marketing position

Brazil• World-class operations and resource base

• Bauxite and alumina growth projects

• Albras aluminium smelter

Middle East• Qatalum 1 in production

• Qatalum expansion opportunityAustralia• Primary aluminiumproduction


(10)

Raw materials

41 %

Metal

36 %

Downstream

23 %

• Bauxite & Alumina

• Alumina priced globally

• Brazilian production portfolio

• Primary Metal

• Aluminium is a global commodity (LME)

• Regional premiums

• Global production portfolio

• Downstream

• Majority of sales to Europe

• Increasing global reach

• Energy

• Net long position in liquid Nordic power market

Capital employed, as per June 30, 2012

Graph excludes NOK 8.0 billion in negative capital employed in Other and eliminations


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0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

Alcoa Rio Tinto Alcan UC Rusal Norsk Hydro BHP Billiton Dubal Aluminium Bahrain Century Vedanta

Alumina Aluminium

Global industry structure

Source: CRU, Hydro

Production in 2011 in aluminium equivalents excl. China, thousand mt

(12)

2Macro and end-usedemand

(13)


Rolling

Extrusion

Recycling

Recycling

(14)

Source: CRU/Global Insight

Stronger development than IP and GDP last 10 years

Strong aluminium demand

North America

-1

12

Aluminium demand

IPGDP

2

01

76

5

19

15

11

CAGR last 10 years (%)

Western Europe Asia China Global

Aluminium demand

IPGDPAluminium demand

IPGDPAluminium demand

IPGDP

6

23

Aluminium demand

IPGDP

(15)

Synchronized global slowdown – central banks come to the rescue

Europe United States China

• GDP-growth fell in Q2 and the Euro-zone is likely in recession

• Weak PMI-figures point to poor industrial activity going forward

• Plans for bond-buying programs established

• IP fell in August and PMI indicates further lower growth in production

• Weak consumer sentiment in August

• QE3 initiated on the back of insufficient job growth

• GDP growth Q2 at 7,6%, the sixth consecutive quarter of falling growth rates

• Weak IP growth in August

• Fall in exports to the EU

• Low inflation may lead to more policy measures

Macro economic development

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40

60

80

100

120

Jan-

08

Jul-

08

Jan-

09

Jul-

09

Jan-

10

Jul-

10

Jan-

11

Jul-

11

Jan-

12

Jul-

12

US car sales

Eurozone cars registrationGerman export motor vehicles, new orders

Automotive Construction

January 2008=100

40

60

80

100

120

Jan-

08

Jul-

08

Jan-

09

Jul-

09

Jan-

10

Jul-

10

Jan-

11

Jul-11 Jan-

12

Jul-

12

US architectural billings index

EU order book construct ion

US new private housing starts

January 2008=100

Source: US Department of Commerce, Deutsche Bundesbank, American Institute of Architects, ECB, Directorate General for Economic and Financial Affairs

Automotive indicators picking up - still weak construction activity

(17)

3Primary aluminium

(18)


Rolling

Extrusion

Recycling

Recycling

(19)

Two markets for primary metal

SHFE

LMELME

LME

LME

VATTolling

Export dutiesTransport Premiums

3m: 2175 USD/t

3m: 2490 USD/t

(20)

18 000

19 000

20 000

21 000

22 000

23 000

24 000

25 000

26 000

27 000

28 000

jan. 08

mar. 08

mai. 08

jul. 08

sep. 08

nov. 08

jan. 09

mar. 09

mai. 09

jul. 09

sep. 09

nov. 09

jan. 10

mar. 10

mai. 10

jul. 10

sep. 10

nov. 10

jan. 11

mar. 11

mai. 11

jul. 11

sep. 11

nov. 11

jan. 12

mar. 12

mai. 12

jul. 12

KT

onnes

Quarterly demand Production world ex China

Global ex China (annualized)

Market deficit in world ex. China in Q2, expected to narrow in Q3

Source: CRU

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1 000

1 400

1 800

2 200

2 600

3 000

3 400

2001 2003 2005 2007 2009 2011 2013 2015 2017

LME (3-month avg.) LME forward Sept 17, 2012

Strong pick-up latest weeks

USD per tonne

Source: Reuters Ecowin

• Volatile aluminium price

• Reflecting uncertain macro-economic outlook

• High inventories from long period of oversupply

• Industry profitability challenge

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95

110

125

140

155

170

185

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

Yearly consumption. Index. 2000=100

Source: CRU/Global Insight

Despite strong demand, aluminium is the price laggard

0

100

200

300

400

500

600

700

800

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

TinIP GDP Copper Lead Aluminium Nickel

3m LME price. Index. 2000=100

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Rolling

Extrusion

Recycling

Recycling

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Standard ingot – a product that has to be remelted

Value added products

Extrusion ingot Foundry alloy Sheet ingot Wire rodStandard ingot

Extrusion 21%

Foundry 9%•42 % of casthouse production is standard ingot

Sheet 17%

Wire 5%

Standard 42%

Other 6%

Source: CRU

World ex. China composition

(25)

0

1 000

2 000

3 000

4 000

5 000

6 000

7 000

8 000

Q1

00

Q1

01

Q1

02

Q1

03

Q1

04

Q1

05

Q1

06

Q1

07

Q1

08

Q1

09

Q1

10

Q1

11

Q1

12

0

10

20

30

40

50

60

70

80

IAI Other LME China registered Global inventory days

Source: CRU/Hydro*Latest figures: August 2012

World reported primary aluminium inventories*

1 000 mt Days

Source: Metal Bulletin, MW/MJP: Platts

USD per mt

0

25

50

75

100

125

150

175

200

225

250

275

Jan-

08

Jul-

08

Jan-

09

Jul-

09

Jan-

10

Jul-

10

Jan-

11

Jul-

11

Jan-

12

Jul-

12

US Mid West Japan Europe (duty-paid)

Regional ingot premiums, monthly averages

Ingot premiums continue to riseInventories remain tied up in financial deals

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Why are financial deals attractive?

Warehouse rents

The attractiveness of financial deals is dependant on the following equation;

Interest rate for locking up metal(US LIBOR+)

< LME contango+

• The equation above currently gives holders of metal a risk-free return

• Central bank liquidity pushing interest rates to record-low levels

The current situation Low interest rates

Projected

interest rates

0 %

1 %

2 %

3 %

4 %

5 %

6 %

7 %

8 %

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jan-

13

Jan-

14

Jan-

15

OECD US Eurozone UK

Source: Global Insight, August 2012

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9 000

11 000

13 000

15 000

17 000

19 000

21 000

23 000

25 000

jan. 08

mar. 08

mai. 08

jul. 08

sep. 08

nov. 08

jan. 09

mar. 09

mai. 09

jul. 09

sep. 09

nov. 09

jan. 10

mar. 10

mai. 10

jul. 10

sep. 10

nov. 10

jan. 11

mar. 11

mai. 11

jul. 11

sep. 11

nov. 11

jan. 12

mar. 12

mai. 12

jul. 12

KT

onnes

Consumption China Production China

China (annualized)

Production and consumption growth in China remains strong

Source: CRU

(28)

New capacity in North-Western provinces

Primary aluminium capacity development 2011-2015

Source: CRU, Hydro Analysis

WEST83 % of new capacity

CENTRAL3 % of new capacity

NORTH0 % of new capacity

EAST14 % of new capacity

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Present LME/SHFE difference

-800

-600

-400

-200

0

200

400

600

jan. 08

apr. 08

jul. 08

okt. 08

jan. 09

apr. 09

jul. 09

okt. 09

jan. 10

apr. 10

jul. 10

okt. 10

jan. 11

apr. 11

jul. 11

okt. 11

jan. 12

apr. 12

jul. 12

US

D/tonne

Difference LME / SHFE

Source: Reuters Ecowin / Hydro

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-5

0

5

10

15

20

* Bauxite/alumina to aluminium conversion factor: 5.4/1.925

Fabricated SemisScrapBauxite Alumina Primary aluminium

Annualized aluminium equivalents*, million mt

Source: CRU/Antaike/Hydro

Import

to China

Export

from China

2006 2007 2008 2009 2010 2011 2012

China exporter of downstream products and balanced in primary

• Primary aluminium

• Expected to remain broadly balanced short term

• Fabricated and semis

• Exports at 2011 levels

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4Bauxite and alumina

(32)


Rolling

Extrusion

Recycling

Recycling

(33)

Absolute alumina prices remain low

Platts index in USD

Source: Platts

200

250

300

350

400

450

500

Aug-10Nov-10Feb-11May-11Aug-11Nov-11Feb-12May-12Jul-12

12,0

13,0

14,0

15,0

16,0

17,0

18,0

Alumina price % of LME

PercentUSD per mt

• Alumina market outside China in balance, supported by imports to China

• Significant increase in Chinese alumina imports

• Supported by uncertainty around bauxite exports from Indonesia

• Alumina price outside China remains below Chinese domestic prices

• Global alumina market oversupplied

• Assuming Chinese stockpiling

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Concentrated global bauxite reserves -options for China highly uncertain

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)***) Potential reserves = current reserves (economically extractible) + 70% of mine site resources. Undeveloped resources are excluded.Source: Roskill and Hydro analysis

Big-league (Top- 3)

Mid-league (Top- 11; 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 ***

9.5

5.9

Australia

1.60.4

India

1.0 0.5

Indonesia

4.7

0.4

Vietnam

3.8

0.9

China1)

8.2

2.0

Brazil

1.80.3

Venezuela1.1

0.5

Jamaica

41.0

4.0

Guinea

1.20.0

Mali

1.20.0

Cameroon

Atlantic Pacific

Billion mt

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Around 1/3 of Chinese alumina capacity is based on imported bauxite

Alumina capacity based on imported bauxite

27

17

TotalInner Mongolia

5

5

0

Chongqing

1

0 1

Henan

1

0 1

Shandong

21

4

Expansions

Existing capacityIn mt

• Refineries constructed to import of bauxite is not able to use Chinese bauxite due to quality issues, and can therefore not replace imported bauxite with local bauxite

Source: C&M

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-5

0

5

10

15

20





Import

to China

Export

from China

2006 2007 2008 2009 2010 2011 2012

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-5

0

5

10

15

20





Import

to China

Export

from China

2006 2007 2008 2009 2010 2011 2012

Chinese imports of bauxite over last months affected by Indonesian export ban

• Bauxite and alumina

• Strong increase in imports in April and May, but low levels of import in June and July

• Significant growth in alumina imports compared to 2011

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-0,5

0

0,5

1

1,5

2

Jan Feb Mar Apr May Jun Jul



Aluminium equivalents* for each month in 2012, million mt


Import

to China

Export

from China

Chinese imports of bauxite over last months affected by Indonesian export ban

• Bauxite and alumina

• Strong increase in imports in April and May, but low levels of import in June and July

• Significant growth in alumina imports compared to 2011

(39)

Indonesia - major bauxite supplier to China Exports restricted short term, not sustainable long term

Current Bauxite import to China (mt)

Indonesia largest supplier of gibbsite bauxite to China by far..

China

Australia

India

Indonesia

..but future production is expected to decrease significantly

• Short term: Government will restrict export

• Licenses to be given to certain companies

• Announced increased export tax to 20% in 2012 and 50% by 2013/2014

• Announced ban of export from 2014, uncertainties regarding implementation

• Long term: Production will decrease due to: (independent of policies)

• Scattered resources depleting over time

• Inefficient mining practices

• Competition from more profitable palm oil production

Which alternatives exist for China going forward?

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49

36

23

0

10

20

30

40

50

60

2010 2015 2020

China’s demand for semis expected to increase substantially going forward…

Demand for semis, China, million mt

Fabricated SemisScrapBauxiteAlumina Primary aluminium



Importto China

Export from China

2006 2007 2008 2009 2010 2011

…which translates to increased net imports for China upstream in the

aluminium value chain

Illustrative development


Increased Chinese dependency on import

2012

- 5

0

5

10

15

(41)

Summary

(42)

• Increase value of energy business

• Develop current base

• Global approach to power sourcing

• Reposition

• Keep solid cash flow in current assets

• Expand in first quartile assets

• Improvement efforts and cost reduction

• Commercialize

• Attractive growth projects

Strategy for further value creation

• Adjust capacity and cost base to market

• Continue proven high-end product strategy

• Expand selectively in emerging markets

Bauxite & Alumina Primary Metal Energy Mid- and downstream

(43)

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aluminium industryand market - norsk hydro · pdf file(5) aluminium is the metal of the future...

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