opportunities and challenges in the global b&a market · silvio porto, evp bauxite &...
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Silvio Porto, EVP Bauxite & Alumina Metal Bulletin Bauxite and Alumina Conference, Miami, March 14-16
Opportunities and challenges in the global B&A market
Hydro – a fully integrated aluminium companyWorld class assets, high-end products and leading market positions
Bauxite
& AluminaEnergy Primary Metal Metal Markets Rolled Products Sapa JV (50%)
Primary aluminium production,marketing and recycling
Raw materials processing and energy
Aluminium in products
2
• Market capitalization ~USD 12 billion
• Annual revenues ~USD 11 billion
• Global provider of alumina, aluminium and aluminium products
• Leading businesses along the value chain
• 13 000 employees involved in activities in more than 40 countries
CAP
Hydro in Brazil: Uniquely positioned as #1 in aluminium in South-America
No.1 inbauxite
No.1 inalumina
No.1 inaluminium
• 100% equity in Paragominas (11 mtpy), 5% equity and 45% off-take of MRN (18 mtpy)
• Total access to bauxite in Brazil: ~19.5 mtpy
• Hydro owns 92.13% of Alunorte (6.3 mtpy), Brazil’s
and the world’s largest alumina refinery
• Hydro owns 51% of Albras, Brazil’s and South-America’s largest aluminium smelter in operation
• Hydro has 50% market share in Brazilian bauxite 3rd party trading and refines more than half of Brazil’salumina
Alunorte
Paragominas
CAP
MRN
Albras
3
Our first priority – conducting business the Hydro Way
Corporate responsibilitySafety and environment
Safety performance
(TRI) at industry benchmark
2.6*
Close the rehabilitation gap
by 2020
2020 ambition of a TRI rate
below 2.0 and zero fatalities
Carbon-neutral from a
life-cycle perspective
* TRI rate for own employees YTD end-October 2016 – total recordable incidents per million hours worked
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Opportunities and challenges
in the global bauxite and alumina landscape
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Aluminium demand continues to outpace other base metals Driving bauxite and alumina demand
Source: CRU, Hydro analysis
Aluminium continues to be the fastest growing base metal
Index 2000=100
Global demand base metals
70
120
170
220
270
2000 2002 2004 2006 2008 2010 2012 2014 2016
Aluminium primary Copper Lead Zinc Nickel
6
Global semis
demand:
3-4 %
CAGR 2016 – 2025
Chinese primary production dependent on resource importsAround 36% of production based on imported raw material (average 2013-2016)
Source: CRU, China customs, 2016 forecast
0
10
20
30
40
50
60
70
80
90
100
Primary production Alumina Bauxite
100 %93 %
7 %
64 %
29 %
% of Primary Production
Imported
Imported
Domestic
Domestic
7
Bauxite production in China to level off, higher bauxite imports from the Atlantic increases freight exposure
Source: CM Group, China customs
Mtpy
Chinese bauxite production and imports
8
0
1
2
3
4
5
6
7
8
Australia India Brazil Guinea Malaysia Indonesia Other
Monthly Chinese bauxite importsMillion mt
0
50
100
150
200 Imports (incl. alumina as bauxiteequivalent)
Forecast domestic
Historical domestic
Alumina curtailments reduce oversupply outside ChinaCapacity curtailments in the Atlantic basin, offset by growth in Pacific
Source: China customs, CRU, Hydro analysis
* Alumina Atlantic discount is the difference between Alumina Price Index FOB Western Australia and Atlantic Basis index (ABP) FOB Brazil
0
20
40
60
2015 2016 2017e
Atlantic Pacific Demand
Curtailment
Addition
Bubble size represents capacity 1 Mt0
2
4
6
2013 2014 2015 2016 2017e
China alumina imports
Mill. tonnes
Mill. tonnes
World ex-China alumina supply/demand balance
Corpus Christi
Point Comfort
Kendawangan
Paranam
Ras Al Khair
9
Nhan Co
-5
0
5
10
15
20
25
Jan-12 Jan-13 Jan-14 Jan-15 Jan-16 Jan-17
Alumina Atlantic discount*, USD per mt
Alumina prices rising amid smelter restarts and cost inflation
Source: Platts, Bloomberg
Market balances
• Smelter restarts and new projects ramping up in China
• Tight markets ex. China amid curtailments
Cost inflation
• Rising coal prices
• Higher caustic soda costs
• Higher transport costs (road & rail)
Other factors
• Transport bottlenecks
• Environmental issues
Recent alumina price drivers Platts alumina index (PAX)
USD/t
10
150
200
250
300
350
400
450
Au
g 2
01
0
Ja
n 2
011
Ju
n 2
011
No
v 2
01
1
Ap
r 2
01
2
Au
g 2
01
2
Ja
n 2
013
Ju
ne
201
3
No
v 2
01
3
Ap
r 2
01
4
Au
g 2
01
4
Ja
n 2
015
Ju
ne
201
5
No
v 2
01
5
Mar
20
16
Au
g 2
01
6
Ja
n 2
017
Hydro Bauxite &
Alumina – strong operational and
commercial performance
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Paragominas: Lifting and stabilizing production
Record high 2016 production
• Successfully implemented Bauxite & Alumina Business System
• Improved equipment conditions, operating standards and process control
• Improved ore quality control in the mining process
• Long term bauxite resources
Tailing dam investments on track Reforestation ambition well on track, our license to operate
9.0
7.1
6.0
8.3
9.19.5
9.1
10.2
8.79.0
10.9
11.7
10.6 10.410.8
12.2
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Q416
Paragominas production annualized, in milion mt
• Close the rehabilitation gap by 2020
• Research partnerships creates basis for state-of-the-art approach to mining rehabilitation
• BRL 600 million investment - on time and budget
• Improved safety of disposal areas, reduced environmental footprint and cost due to higher solid concentration of
tailings
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5.5
5.0
5.2
5.8 5.8
6.1
5.96.0
5.95.8
5.9
6.3
6.16.2
6.5 6.5
1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 Q416
Significantly improved production stability
• 6.3 million mt last 12 months production at nameplate capacity
• Improved equipment effectiveness and process stability based
on Bauxite & Alumina Business System
• Further debottlenecking needed for 6.6 million mt target
• Exploring switch from fuel oil to natural gas
Alunorte production annualized, in milion mt
Alunorte: Record 2016 production above nameplate capacity
Red mud deposit investments on track
• BRL 1 billion investment - on time and budget
• State-of-the-art dry disposal of bauxite residue using press filtration
• Reduced required storage area, environmental footprint and cost
Competitive cost position
13
Alumina BOC curve by company (2016)
USD/mt
0
100
200
300
400
0 20,000 40,000 60,000 80,000 100,000 120,000
Exposure to index pricing increasing for Hydro’s alumina sales
35% 50% 65% 75% 75% 85%
0%
20%
40%
60%
80%
100%
2015 2016 2017 2018 2019 2020
Internal index Internal LME External index External LME Index exposure
Hydro alumina sales
14
Index %
Alumina sales
• Large majority of new contracts
priced on index
• External sales 3-4 million mtpa
Bauxite sales
• Mostly 3-4 year contracts based on
% of PAX + fixed USD/mt element
• External sales 2.5-3.5 million mtpa:
• Reduced demurrage cost on optimized
scheduling
• Strategic sales and purchases to capture long-term value
• Supply chain optimization
• Utilizing China domestic entity to gain market intelligence
and increase flexibility
Strong commercial organization maximizing value of B&A assets
Improvements in NOK million Improvement categories
BetterBauxite &Alumina
BNOK 1.0
Strong progress on operational and commercial efforts
Alunorte
• Support production above nameplate
capacity • Improve energy consumption and matrix
• Reduce fixed costs
Paragominas
• Support production above nameplate
capacity
• Reduce fixed costs
Commercial
• Reduce demurrage costs
• Lift optimization margin
Further strengthening the competitiveness of Bauxite & Alumina
15
800
500
600
900
300
400
200
100
1 000
700
02016 actual 2019 Total programme20182017
Process
improvements
Volume
Commercial
Fixed
cost
Original planUpdated target
Challenges and opportunities for Hydro in Brazil
• Deforestation
• Red mud handling
• Social impact
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• Close the rehabilitation gap by 2020
− Research partnerships creates basis for state-of-the-art
approach to mining rehabilitation
• Installation of press filter at Alunorte
− Best available technology for bauxite residue filtration and
disposal implemented
− Reduced environmental footprint and improved caustic recovery
• Actively engaging with local communities and other stakeholders
Main challenges Hydro response
Hydro’s strategic priorities for the bauxite and alumina areaAiming for operational and commercial leadership
• Strive for an injury free environment
• Continue operational improvement drive, ensure world class operations
• Price bauxite and alumina on own
fundamentals
• Further improve organizational capabilities and HSE performance
• Closing the rehabilitation gap by
2020
• Secure and develop resources for future decades
• Further mature CAP alumina
project and Paragominas expansion for when time is right
• Develop production creep potential at Alunorte
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