bauxite & alumina market fundamentals
TRANSCRIPT
Bauxite & Alumina Market Fundamentals
(1)
Jørgen Melbye
Bauxite Alumina Energy Primary Casting Products
Rolling
Extrusion
Recycling
Recycling
Hydro - an integrated aluminium company
MRNBauxite Mine
Hydro ParagominasBauxite Mine
Hydro AlunorteAlumina refinery
Aluminium smelters
CAP Project
Alumina refinery
(2)
Hydro’s global reach
Continental Europe• Leading position in aluminium and
rolled aluminium products
• Recycling
Aluminium profiles• 50% ownership in Sapa, world leader
in aluminium profiles and building systems
North America• Aluminium production in Canada
• Recycling
Brazil• World-class bauxite and alumina production
• Bauxite and alumina expansion projects
• Albras aluminium plantMiddle East• Qatalum 1 aluminium plant
• Possible expansion Australia• Aluminium production
Norway• Aluminium production
• Hydropower production
(3)
(4)
High-quality bauxite and alumina asset portfolio
Alunorte alumina refinery
Paragominas bauxite mine
CAP alumina refinery project
Bauxite licensesRefining and mining competencies
External supply contracts
Sales contract portfolio
• 60% ownership, full financial exposure, increasing ownership to 100% by 2016
• One of the world’s largest bauxite mines
• Nameplate capacity of 9.9 million mt
• Possible expansion to 15 million mt
• Long-life resource
• 81% ownership
• Paragominas expansion to be developed in parallel
• Full utilization of the existing bauxite pipeline
• 92% ownership
• World’s largest alumina refinery
• Nameplate capacity of 6.3 million mt
• Bauxite supplied from Paragominas and MRN
• World-class conversion cost position
MRN bauxite mine
• 5% ownership
• Volume off-take agreement for Vale’s 40% stake
• Capacity 18 million mt
Chinese alumina production developmentFuelled by enormous growth in domestic production and imported Indonesian bauxite
(5)
-
5
10
15
20
25
30
35
40
45
50
0
20
40
60
80
100
120
140
160
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Mill tons aluminaMill tons bauxiteChina production and import
Bauxite Production Bauxite import Alumina prod
Source: CRU, China Customs, Roskill, Hydro
Indonesia bauxite export ban
• As of Jan 12th 2014, all exports of bauxite
has been banned, the world’s biggest
bauxite exporter
• Masterplan for Acceleration and Expansion
of Indonesia's Economic Development
targets local aluminium industry
• During the last decade, Indonesia has
exported ~200 million tons bauxite
accumulated to China
• Some market participants are expecting
bauxite export rights during refinery
construction phase.
Full ban on bauxite and nickel exports Jan-2014 implementing 2009 Mining Law
(6)
Traded bauxite volume, 2013
0 5 10 15
CBA
Sumber Prima
Lobindo Nusa
Hydro
Telega Bintan
Fajar Mentaya
MKU
AWAC
Mekko
Danpac
Harita
RTA
Million tons
Source: CMGroup
Indonesia
ROW
As a consequence, China is diversifying its bauxite import sources
76%
22%2%
2010
Indonesia Australia Other
(7)
Total imports: 30 mt
68%
20%
12%
2013
Indonesia Australia Other
Total imports: 72 mt
24%
44%
32%
2014est
Indonesia Australia Other
Total imports: 37 mt
Source: China Customs, Hydro
China developing new bauxite import sourcesIndonesia ban translating to higher prices average CIF China
(8)
Import volume by origin, million tons «Value in use» increasing more
-
10
20
30
40
50
60
70
80
2011 2012 2013 2014est
Mill tons
Indonesia Australia Other Pacific Atlantic
Delta 2014 vs 2011:Australia +8Other Pacific +7Atlantic +4
40
45
50
55
60
65
70
75
80
USD/t
Avr CIF China Value in Use
Source: China Customs, CMgroup, Hydro
New bauxite sources translating to higher costChinese bauxite import excluding Indonesia and Australia
(9)
Import volume by origin, million tons Avr price CIF China by origin, USD/t
-
2
4
6
8
10
12
2011 2012 2013 2014est
Mill tons
India Malaysia Fiji Brazil Guinea DomRep Ghana
40
50
60
70
80
90
100
USD/t Avr CIF China Indonesia
Australia India
Malaysia Fiji
Brazil Guinea
DomRep Ghana
Source: China Customs,
Short term, new sources and inventory offer reliefEnough volume, but higher cost – Long term Weipa is part of possible solution
(10)
• Large imported inventory built up during
2012-2013, reached a maximum around
40 mln tons vs historic normal level
around 10-15 mln tons
• New bauxite sources have pushed
Chinese bauxite import to around 2-3
million tons per month, which is keeping
China with sufficient supply short term.
• Medium term, potential export projects
in Guinea and Australia in addition to
the proposed Weipa expansion(s),
could balance China’s import demand.
Inventory and import ex Indonesia No short/mid term bauxite squeeze
0
0,5
1
1,5
2
2,5
3
3,5
0
5
10
15
20
25
30
35
40
45
Import ex Indonesia
Millon tons
Inventory Import ex Indonesia
Source: China Customs, CMGroup, Hydro
Chinese bauxite demand and domestic production growing on medium term horizon
(11)
40
60
80
100
120
140
160
180
2013 2014 2015 2016 2017 2018 2019
Million tons
Bauxite demand Domestic bauxite supply
CAGR 9.9% CAGR 4.3%
CAGR 6.3% CAGR 5.9%
But, domestic supply is expected to level off end of decade
Source: CRU
New sources balancing China medium term
-
10
20
30
40
50
60
2014 2019
New Guinea
New Australia
Current export mine
Demand
CRU foresees balanced Chinese import market for 2019
(12)
Medium term:China balanced before adding potential Weipaexpansion or return of Indonesian bauxite/alumina
Medium term:China balanced before adding potential Weipaexpansion or return of Indonesian bauxite/alumina
Short term:Imported bauxite inventories bridging period until new bauxite projects are completed
Short term:Imported bauxite inventories bridging period until new bauxite projects are completed
Source: CRU, China Customs
(13)
Plenty of uncertainties: several factors might change and impact the expected gap for bauxite
Decrease the gap Increase the gap
Lower investments in Australia and Guinea
Less bauxite reserves in
China
Competing cost alternative
technologies
New “Indonesia”
Successive Indonesian export ban
Softer Chinese primary demand
World ex China alumina market largely balanced as China swings import levels
(14)
-30
-20
-10
0
10
20
30
40
0
1
2
3
4
5
6
7
8
9
ArbitrageUSD/t
Monthly annualized import, mio tons
Annualized import Arbitrage
• China will continue to respond to ROW alumina price changes by adjusting imported volume. The pivot point will balance around Chinese cost of producing alumina.
• Over time, increased bauxite prices to Chinese refineries could move the pivot point upwards.
RoW
pri
ce
lo
we
rR
oW
pri
ce
hig
he
r
Source: China Customs, Platts, Hydro
What about long term bauxite price FOB/CIF China?Product quality and freight market key for project competitiveness
(15)
FOB?
FOB?
FOB?
(16)
Alumina price longer term, China defining price level
40
50
60
70
80
90
100
250
270
290
310
330
350
370
Nov-1
1
Dec-1
1
Jan
-12
Feb-1
2
Mar-
12
Ap
r-12
May-1
2
Jun
-12
Jul-1
2
Au
g-1
2
Se
p-1
2
Oct-
12
Nov-1
2
Dec-1
2
Jan
-13
Feb-1
3
Mar-
13
Ap
r-13
May-1
3
Jun
-13
Jul-1
3
Au
g-1
3
Se
p-1
3
Oct-
13
Nov-1
3
Dec-1
3
Jan
-14
Feb-1
4
Mar-
14
Ap
r-14
May-1
4
Jun
-14
Jul-1
4
Au
g-1
4
Se
p-1
4
Oct-
14
Bauxite, USD/tAlumina, USD/t
Alumina price Bauxite, Value-in-use
Increasing
bauxite
costs
Source: CMGroup, Platts
CAP – an attractive project when time is right
• Brazil alumina is competetive to Middle
East with large shipments
• CAP project
− Competitive cost position
− Ready to go ahead as soon as there is a clear need in the market.
Utilize large bauxite reserves in Paragominas
(17)
(18)