Post on 28-May-2018
Market outlookKathrine Fog
Capital Markets Day 2015
Agenda market outlook
• Macroeconomic and downstream outlook
• Primary metal market
• Bauxite and alumina market
• Long-term outlook
1
2
3
4
2
01
Macroeconomic and
downstream outlook
3
Source: Global Insight, Markit, Thomson Reuters
Real GDP, annual growth
(%)Forecast
-6
-4
-2
0
2
4
6
8
10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
World Industrialized countries Emerging markets
Manufacturing Purchasing Manager Indexes
40
45
50
55
60
Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15
Eurozone US ISM China Caixin Brazil India
Macro outlook affected by emerging markets slowdownImproving global economic growth medium term
4
Source: CRU, Hydro Analysis
0%
1%
2%
3%
4%
5%
6%
7%
2014 2015 E 2016 E 2017 E 2018 E
CRU estimate October 2014 CRU estimate October 2015
• Solid momentum in building & construction
• F-150 production lifting semis demand in transport
• Eurozone semis demand stable
-6%
-4%
-2%
0%
2%
4%
6%
Aluminium semis Zinc Copper Tin Steel
• Aluminium demand more diversified than other base metals
• Steel and copper more affected by construction market
Demand for selected base metals, China 2015 Semis demand, North America
Aluminium demand holding firm despite macro economic volatilityBoth macro and substitution effects driving demand growth
5
Annual growth Annual growth
• Moderating export levels during last
months on the back of reduced
arbitrage opportunity
• Some semis exports regarded as
semis for remelt
• Further shifts in Chinese surpluses
and liquidity issues might increase
export levels
Source: CRU, Antaike, Hydro Analysis
*Annualized YTD net semis exports (incl. October)
0
200
400
600
800
1000
1200
Q1 Q2 Q3 Q4
Min/max 2011-13 2014 2015
0%
2%
4%
6%
8%
10%
12%
0
5
10
15
20
25
30
35
40
45
50
2007
2008
2009
2010
2011
2012
2013
2014
2015 E
Net semis exports (LHS)
Semis demand domestic (LHS)
Net exports as share of total semis production (RHS)
Quarterly net semis exports Net semis exports as share of
total semis production
Comments
Increased Chinese semis exports over the last year
driven by arbitrageLargely stable development as share of total semis production
Thousand tonnes ShareMillion tonnes
6
Source: Hydro Analysis, Antaike
• 15 % export tax on primary
• VAT-rebates on semis exports
47%
10%
13%
11%
10%
7%3%
Asia key region for Chinese semis exportsTrade regulations and duties impacting trade flows
Chinese semis exports by destination
(2014)
Asia
Africa
North America
Europe
Middle East
Latin America
Oceania
7
US
• 3 – 6 % import duties
on semis
Asia
• In general low duties
• India assessing
higher duties
Europe
• 7.5 % import
duties on semis
• Turkey introducing
EU duties
41%
23%
14%
8%
8%
4%3%
Packaging
Transport
Construction
Consumer durables and other
Machinery & Equipment
Electrical
Other
Transport segment continues to drive demand for rolled productsTransport increasing its share of total rolled products demand
General rolled products demand,
selected regions• Strong demand contribution from increased
aluminium usage in transport segment
• Healthy growth expected in packaging segment
driven by end-consumer packaging
(2015)
-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2012 2013 2014 2015 E 2016 E
North America Europe*
Global segment composition, rolled products
Source: CRU, Hydro Analysis
*Total EU27+EFTA
YoY-growth
Expected market development
8
65%
13%
12%
4%3%3%
Construction
Transport
Machinery & equipment
Consumer Durables
Electrical
Other-10%
-8%
-6%
-4%
-2%
0%
2%
4%
6%
8%
10%
2012 2013 2014 2015 E 2016 E
North America Europe*
Solid uptake in the US extrusion marketGradual improvement expected in Europe
Extrusion demand,
selected regions• US housing market sustaining positive momentum
• Construction activity in peripheral Europe showing
recovery signs, although from low levels
• Growth in transport segment
(2015)
Global segment composition, extrusion
Expected market development
YoY-growth
9
Source: CRU, Hydro Analysis
*Total EU27+EFTA
02
Primary metal market
10
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 E 2015 E
Supply Demand
Recap Capital Markets Day 2014: Expectations for modest
inventory decline also in 2015 Tight market balance continuing
World ex-China
Thousand tonnes
Source: CRU, Hydro Analysis
Supply
influences
Few new projects
India & other Asia
Potential restarts
and curtailments?
Demand
influences
Transport segment
Sustained US momentum
Mixed development
in Eurozone
Semis export
from China
Demand growth
base case: 3-4 %
11
10,000
12,000
14,000
16,000
18,000
20,000
22,000
24,000
26,000
28,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 E
Supply Demand
Market balance progressing largely in line with expectations
Source: CRU, Hydro Analysis
Happened to a limited extent Happened to a large extent
Weaker demand in some emerging markets, semis for remelt exports from China limiting market deficit
World ex-China
Thousand tonnes Demand growth:
1-2 %
Supply
influencesDemand
influences
12
Few new projects
India & other Asia
Potential restarts
and curtailments?
Transport segment
Sustained US momentum
Mixed development
in Eurozone
Semis export
from China
Global surplus expected to moderate in 2016Surplus moderating from ~1 million tonnes to 0-1 million tonnes
Source: CRU, Hydro Analysis
30,000
35,000
40,000
45,000
50,000
55,000
60,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 E 2016E
Supply Demand
Global
Thousand tonnes
Supply
influences
Key regions in China
adding capacity
Indian projects
Further curtailments
Demand
influences
Chinese construction sector
Continued strong transport segment
Sustained US momentum
Emerging markets weakness
Regional effects from
Chinese semis exports
13
Global growth
expectations 2016:
Demand: 4-5 %
Supply: 2-4 %
Aluminium costs affected by lower energy cost and FX developmentsOil and coal prices trending lower, large movements in currencies vs USD
Source: Thomson Reuters
Coal price
Oil price
14
90
110
130
150
170
190
210
aug. 14 nov. 14 feb. 15 mai. 15 aug. 15 nov. 15
NOK
BRL
RMB
CAD
AUD
RUB
Currencies Indexed vs USD, Aug 1st 2014=100USD/barrel
USD/tonnes
0
50
100
150
200
2003 2006 2009 2012 2015 2018 2021
Historical Price BrentBlendCurrent fwd curve
Fwd curve 1 year ago
Fwd curve 5 years ago
0
50
100
150
200
250
2003 2006 2009 2012 2015 2018 2021
Historical Price CIF ARAcoalCurrent fwd curve
Fwd curve 1 year ago
Fwd curve 5 years ago
0
400
800
1,200
1,600
2,000
2,400
0 10,000 20,000 30,000 40,000 50,000 60,000
2014 2015
Source: CRU, Hydro Analysis
15
(thousand tonnes)
• USD denominated
smelters losing relative
competitiveness
• Chinese smelters to a
larger extent benefitting
from lower coal prices
• Lower premiums pushing
business operating
costs up
Global Business operating cost, 2015
USD/tonne
Currency movements influencing relative positions on global cost curve
Lower costs
Lower premiums
400
60 000
1 600
2 000
0
800
2 400
1 200
35 00025 000 40 0005 000 20 000 30 0000 55 00010 000 15 000 50 00045 000
(‘000 ktpy)
Most Chinese smelters in the 3rd and 4th quartile on the
global cost curve
Source: CRU, Hydro Analysis
USD/t
China
Rest of World
• Roughly half of global smelter
capacity currently cash
negative, most of this located
in China
Current LME 3m ~1475 USD/t
16
Market balance in China remains uncertain
Source: Hydro Analysis, Thomson Reuters
• Large capacity increases of past years unlikely to be repeated
• Focus shifting from top-line growth to bottom-line profitability
• Slower demand growth not yet impacting investments
• Continued focus on supporting local employment, but financial
positions are becoming constrained
Uncertain
supply growth
Softer demand
growth
Upstream
positioning
• Depleting domestic bauxite resources affecting costs
• Investment focus may shift from inland (Xinjiang / Inner
Mongolia) to coastal areas (Shandong)
• Power market reform reducing power cost
• Construction activity still weak, but housing prices picking up
• Transport sales rebounding, moderate car production
• Government stimuli
17
5000
10000
15000
20000
25000
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
RMB/tonne
SHFE 3 month prices at all-time low
Global reported stocks decreasing, uncertain unreported volumes
Source: CRU, Hydro Analysis
Re
po
rted
Global reported stocks and inventory days
18
Total global stocks and inventory days
0
20
40
60
80
100
120
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
200
5 Q
1
200
6 Q
1
200
7 Q
1
200
8 Q
1
200
9 Q
1
201
0 Q
1
201
1 Q
1
201
2 Q
1
201
3 Q
1
201
4 Q
1
201
5 Q
1
Global estimated unreported
Global reported
Total inventory days
• Reported stocks decreasing over last
year
• LME stocks lowest since the financial
crisis
− Influenced by new LME warehousing
regulations
• High uncertainty regarding absolute
level of unreported volumes
Inventory daysInventory days
0
20
40
60
80
100
120
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
200
5 Q
1
200
6 Q
1
200
7 Q
1
200
8 Q
1
200
9 Q
1
201
0 Q
1
201
1 Q
1
201
2 Q
1
201
3 Q
1
201
4 Q
1
201
5 Q
1
Reported China
Other reported ROW
LME stocks
Global reported inventory days
Thousand tonnes Thousand tonnes
Regional standard ingot premiums falling back to historical levels,
all-in price fall in NOK moderated by currency effect
Source: CRU, Hydro Analysis
Regional standard ingot premiums
0
100
200
300
400
500
600
Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15
US Mid West Japan Europe (duty-paid)
11,000
12,000
13,000
14,000
15,000
16,000
17,000
18,000
1,000
1,200
1,400
1,600
1,800
2,000
2,200
2,400
2,600
2,800
3,000
Jan 11 Mar 12 May 13 Jul 14 Sep 15
LME cashLME cash + Europe duty paidLME cash + Europe duty paid NOK (RHS)
NOK/mt
19
All-in price
USD/tonne USD/tonne
03
Bauxite and
alumina market
20
Chinese primary production dependent on imported resourcesAround 40% based on imported raw material in 2012-2014
Source: CRU, China customs
21
0
10
20
30
40
50
60
70
80
90
100
Primary production Alumina Bauxite
100 %~90 %
~10 %
60-70 %
30 -40 %
% of Primary Production
Imported
Imported
Domestic
Domestic
Chinese bauxite import dependency expected to increase
Chinese bauxite import requirements remain high
• New domestic resources not sufficient to meet demand
longer term
• Domestic bauxite resources with lower quality and
higher costs
• Current new investments and announcements in
alumina refineries in coastal areas dependent on
imported bauxite
Domestic bauxite production not keeping pace with demand
Source: CM Group
0
20
40
60
80
100
120
140
160
180
200
2006 2009 2012 2015 2018
Bauxite equivalent imports
Domestic bauxite production
Million tonnes
22
Malaysia emerging as largest bauxite exporter to China in 2015
23
Source: China Customs
40
50
60
70
Ja
n-1
3
Ma
r-13
Ma
y-1
3
Ju
l-1
3
Sep
-13
Nov-1
3
Ja
n-1
4
Ma
r-14
Ma
y-1
4
Ju
l-1
4
Sep
-14
Nov-1
4
Ja
n-1
5
Ma
r-15
Ma
y-1
5
Ju
l-1
5
Sep
-15
Lower freight
Indonesia ban Malaysia entrance
USD/tonne
Bauxite price CIF China
Brazilian bauxite traded at a premium on the back of higher freight, but also higher value in use
0
10
20
30
40
50
60
70
80
90
100
2009 2010 2011 2012 2013 2014 2015
Indonesia Australia India Brazil Guinea Malaysia
Bubble size represents volume = ~5 million tonnes
USD/tonne CIF
China bauxite imports, volume and price by country
Alumina prices falling on the back of oversupply and lower costs
24
Source: China customs, CRU, Hydro analysis
100
150
200
250
300
350
400
450
0 20,000 40,000 60,000
2014 2015
0
200
400
600
800
1000
1200
1400
1600
1800
Q1 1
0
Q3 1
0
Q1 1
1
Q3 1
1
Q1 1
2
Q3 1
2
Q1 1
3
Q3 1
3
Q1 1
4
Q3 1
4
Q1 1
5
Q3 1
5
Cost curves shifting down
Chinese alumina imports
quarterly, thousand tonnes
Alumina price falling
World ex. China
USD/tonne
12%
13%
14%
15%
16%
17%
18%
19%
20%
200
250
300
350
400
450
Au
g 2
010
Se
p 2
011
Se
p 2
012
Se
p 2
013
Se
p 2
014
Oct
20
15
PAX % of LME
USD/tonne Share of LME
Lower Chinese alumina imports
creating oversupply ex. China
Alumina prices falling on the back of oversupply and lower costs
Cost curves shifting down …but falling less in BRL
World ex. China
USD/tonne
BRL/tonneUSD/tonne
0
200
400
600
800
1 000
1 200
200
250
300
350
400
450
aug
. 1
0
sep
. 11
sep
. 12
sep
. 13
sep
. 14
sep
. 15
PAX (USD/mt) lhs
PAX (BRL/mt) rhs
Source: China customs, CRU, Hydro analysis
100
150
200
250
300
350
400
450
0 20,000 40,000 60,000
2014 2015
25
Lower Chinese alumina imports
creating oversupply ex. China
Chinese alumina imports
quarterly, thousand tonnes
0
200
400
600
800
1000
1200
1400
1600
1800
Q1 1
0
Q3 1
0
Q1 1
1
Q3 1
1
Q1 1
2
Q3 1
2
Q1 1
3
Q3 1
3
Q1 1
4
Q3 1
4
Q1 1
5
Q3 1
5
Few new alumina projects seen world ex-China in the coming years
(26)
Source: CRU, China customs
*CIF China bauxite relative to Chinese alumina price (Ex-Henan). Proxy for November using actual alumina data and CIF bauxite for October
Further curtailments probable
Bauxite/Alumina Price* (%)
• Alumina prices falling, while bauxite prices have
remained largely stable over the last months
• Chinese refineries using imported bauxite facing
margin pressure
10%
11%
12%
13%
14%
15%
16%
17%
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
Oct-
15
World ex. China
50
60
70
80
Million tonnes per year
Capacity 2020Curtailments
Announced
2015/16
Projects
2016-2020
Capacity
increase
2008-2015
Capacity 2007 Curtailments
2008-2015
Pacific ex. China
Atlantic
04
Long-term outlook
27
Strong demand drivers in key aluminium segments
Strong growth drivers across segments providing solid
demand outlook
Source: CRU, Hydro Analysis
Urbanization
Copper substitution
Urbanization
Housing market recovery in mature regions
Energy neutral buildings
Improving industrial sentiment in mature regions
Manufacturing activity and industrial growth in emerging countries
Urbanization
Environmentally-friendly solutions
Transport
Construction
Electrical
Machinery &
equipment
Packaging
Growth in automotive vehicle production
Aluminium content in cars increasing
Growth in other transport modes, e.g. railway Global semis
demand:
4 – 5 %
Short-term macroeconomic volatility, long term fundamentals still in place
5 – 6 %
3 – 4 %
5 – 6 %
4 – 5 %
3 – 4 %
Semis demand CAGR 2015 – 2025
28
Global demand outlook
Growth in global semis demand creates opportunities for both
primary and recycled material
Source: CRU, Hydro Analysis
*Post-consumed and fabrication scrap
0
20
40
60
80
100
120
2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
Primary Recycled material* Semis
Recycling share increasing, primary demand growth remains firm
Million tonnes
CAGR 2015 – 2025
Semis
4 – 5 %
Primary
3 – 4 %
Recycling
5 – 6 %
29
• Demand in mature regions boosted by
transport segment, short-term softness in
emerging markets
• Lower aluminium prices amid lower input
costs, FX developments & market surplus
• Roughly half of global smelter capacity
currently cash-negative; most of this located in
China
• Chinese bauxite import dependency continue
to increase
• Solid long-term demand outlook supported by
strong growth drivers across segments
30