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industry overview
John Hannagan
Chairman UC RUSAL Australia
May 2014
Key regions
78
+50 mln.t
37
41
45
48
52
55
58
61
64
66
34
28
2003
2008 2009 2010 2011 2012 2013 2014f 2015f 2016f 2017f 2018f
World ex-China
2023f
China
6%
3%
China
10%
India
5%
Middle East
Asia ex,China
5%
3%
N.America
3%
Others
3%
Europe
3%
Population growth
and Urbanization
Construction
+ 4 mln mt
Electrical
+ 2 mln mt
Transportation
+ 5 mln mt
Al/Cu substitution
66 mln mt
by 2018
(+27%)
Income increasing
Consumer
durables
+1 mln mt
Consumer behavior
development
Automotive
production growth
Aluminium content in
cars increasing
Engineering &
Machinery
+ 1 mln mt
Packaging &
Foil stock
+ 1 mln mt
Industrialization,
Technological
development
750
750
600
600
450
450
300
KMT
KMT
Downstream 2012
165
250
kmt
215
310
175
300
400
150
0
WR
Bahrain UAE
Rolled
Extruded
Cast
58
90
+32
Secondary
Extruded
503
621
+118
Rolled
245
1,045
+800
WR
425
500
+75
EMAL 50 kmt
(liquid, sow)
WR
Cast
Rolled
Extruded
Cast
Total
Metal Source
160
80
Bahrain UAE
Add
310
175
150
2012 2015
Kmt
4 300
4 100
3 900
3 700
3 500
3 300
3 100
2 900
2 700
2 500
2012
2013
2014
2015
2016
2017
2018
Further strong growth in aluminum downstream industry in ME to increase local primary metal demand
4
Source: Strategic Session 10-11 December 2013, Special Report by McKinsey & Company (ARABAL 2013)
kt
2300
21%
15%
913
647
100%
9%
13%
8%
2200
2100
2000
609
1900
313
1800
Alcoa
RUSAL
(1)
Klesch +
Ormet
Rio Tinto
280
Norsk Hydro
377
Others
% of total capacity
95%
$/t
LME cash
CRU FOC
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
70%
Jan-11
1 000
Jul-10
75%
Jan-10
1 500
Jul-09
80%
Jan-09
2 000
Jul-08
85%
Jan-08
2 500
Jul-07
90%
Jan-07
3 000
Aluminum industry ex-China made sufficient capacity curtailments for sustainable upward trend in price
Source: Bloomberg, CRU, Companies announcements and reports
Notes: (1) UC RUSAL actual production cuts of 316,000 tonnes due in 2013;
kt
9 600
5000
9 400
4000
9 200
3000
9 000
2000
1000
8 800
0
Jan-12
Feb-12
Mar-12
Apr-12
May-12
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
Sep-13
Oct-13
Nov-13
Dec-13
Jan-14
Feb-14
8 600
CancelledWarrants
OnWarrants
Global aluminum stocks outside China decline steadily since beginning of 2012 by more than 1,1 mtpa YTD mainly due
to decline in off-warrant stocks, producers and consumers stocks supporting our view on tight physical market supply.
High physical market premiums also support this argument
High physical market demand , as expected, will make more metal outflow from LME locations mainly to off-warrart
stocks. Good indication of this is soaring canceled warrant stocks reaching 47% of total LME registered stocks
Whilst total stocks are relatively unchanged, the amount on warrant has significantly reduced. Suggests that deliveries
in have been reduced whilst warrants have been cancelled for delivery out.
We expect LME visible stocks continue steady decline in main LME locations Vlissingen & Detroit during 2014 and will
fall below 3,74 million by end of 2014 tonnes taking into consideration increasing physical market tightness.
As estimated total stocks are to decline by 2,7 mln.tonnes by 2015
Aluminum visible stocks will continue declining following off-warrant stocks decline on physical market deficit
6
Production ex-China is
projected to go down by
89 kmt in 2014 vs 2013
-89
N.America
-382
Russia
-329
Oceania
-143
Others
-180
Europe
-164
Middle East
679
India
277
SE Asia
153
-600
Highlights 2014
-400
-200
200
400
600
800
Region
Smelter
Production
2013
Production
2014
Incremental
Comments
Saudi
Arabia
Maaden
190
550
+360 kmt
Alcoas
projection
UAE
EMAL
800
1100
+300 kmt
In full operation
from summer
Malaysia
Press
Metal
300
438
+138 kmt
India
Angul
310
416
+106 kmt
India
Hirakud
140
189
+49 kmt
India
Korba
250
309
+59 kmt
Mln mt
29
-188
0
CENTRAL & SOUTH AMERICA
-306
-200
28
INDIA
-400
27
2014F
-600
26
-948
-985
25
-1 135
2013
NORTH AMERICA
-800
2012
-1 104
-1 000
EUROPE
-1 199
24
-1 200
OTHER ASIA
23
-1 400
2012
2013
2014f
Production
2015f
Consumption
2016
2017
2018
-5 000
-4 000
-3 000
-2 000
-1 000
1 000
Aluminum consumption (Ex. China) is expected to grow at 4% CAGR in 2013-15 with consumption predicted to increase by 2 mln
tonnes during this period
More that 1,2 mln. tonnes of aluminum capacity (Ex. China) has been cut in 2013(according to official announcements) another
1-1,5 mln. tonnes as expected to be cut in 2014
This supports our view that the aluminum market (Ex.China) will be in deficit of 306K in 2013 to 1,2 mln.t. in 2014 and 1 mln.t. in
2015, supporting aluminum price growth
Most aluminum deficit growing regions are South East Asia, Europe and North America increasing further deficit in 2015
Russian Government is considering the opportunity of establishing up to a 1 million tonne state reserve facility in order to support
future consumption growth on domestic market
Continuing aluminum capacity curtailments & consumption growth will significantly improve balance in 2013-15
Source: CRU, UC RUSAL estimates
Source: MB
Global premiums to be supported by improved market fundamentals and strong financial demand
Source: LME, UC RUSAL estimate
(1) As of 01 03 2014
US$/t
2 400
2 398
2 173
3100
2 079
2 019
1 945
1 867
1 865
1 850
2900
1 700
2700
2500
2300
Bearish forecast for 2014
Price in 2013
LT price forecast
2100
1900
1500
Ex.China balance
US$/t
2800
2500
LME/Alloy -$102/t
2200
1900
1600
1300
Apr-14
Oct-13
Jan-14
Jul-13
Apr-13
Jan-13
Jul-12
Alloy cash
Oct-12
Apr-12
Oct-11
Jan-12
Jul-11
Apr-11
Jan-11
Oct-10
Jul-10
Apr-10
Oct-09
Jan-10
Jul-09
Apr-09
Jan-09
1000
LME cash
Current price
1700
2 000
1 500
1 000
500
-500
-1 000
-1 500
-2 000
-2 500
-3 000
Current low level of aluminum price locked for 2014 guarantee an LME price below past levels & consensus
estimate
10
Source: Actual global balance is based on data from CRU, BrookHunt, Metal Bulletin and Aladdiny, UC RUSAL estimates for future Ex.China S/D balance, Harbor
27 292
-1 389
1 928
230
Kt
33000
30000
90%
88%
88%
87%
27000
85%
86%
24000
84%
21000
82%
18000
15000
80%
2012
Capacity Dec
2013
Idled
New
commissioning
Resumed
capacity
Capacity Mar2014
Production
2013
Capacity
2014*
Average capacity utilization rate
Chinese aluminum market was facing deep transformation and imbalance in 2013 that will likely to continue in 2014
11
leading
RMB/t
18000
-27%
17000
16000
15000
14000
13000
12000
11000
10000
0
5000
10000
15000
20000
25000
Sources:Aladdiny,SMM,MBandUCRusal Research
According to Aladdinys data, Chinas daily average aluminum production in March 2014 fell by 5.3%M-M to 75.3 kt Annualized
production decreased by 1524 kt to 27.5 Mt in March on the monthly basis and rose by 2501 kt from March 2013
Capacity utilization fell to 83.8% in March from 88.8% in February 2014 and versus 90.5% in March 2013
The strong rise in apparent consumption and production decrease in March led to 26 kt supply deficit after big surplus in Jan-Feb
2014
Net operating capacity rise was only 771kt as of March 2014 due to 1,4 mln tonnes of capacity cuts. We expect this trend to be
continued with possibility of negative rise in 2H14
Chinese aluminum market recovery is underway with expected strong recovery in 2H2014
13
On Nov-5, 2013 Chinas central ministries sent a stern message in support of the key State Council document implementation
According to Hu Zucai, deputy director of the NDRC, local governments will be held accountable regarding overcapacity.
Those who continue to violate these guidelines will be heavily punished
30 000
-200
-220
25 000
-300
-339
20 000
-400
-500
15 000
-600
10 000
-700
5 000
-800
-750
-700
-800
-900
2013
Production
2014F
2015E
2016E
Apparent consumption
2017E
Balance
Chinese aluminum growth will slow down, capacities will move to the North-western parts of the country, only
modern and integrated players will survive. China is not likely to have a surplus before 2015
15
Shanxi
Henan
Guizhou
Guangxi
Indonesian bauxite ban to increase Chinese aluminum cost by USD80-100/tonne through the alumina chain
15
Source: Ministry of Land and Resources, China Non-ferrous Metals Association, Aladdiny, SMM, China Customs, UCR research
Heilongjiang
Jilin
Inner Mongolia
Liaoning
Beijing
Tianjin
Hebei
Xinjiang
Shanxi
Ningxia
Gansu
Shandong
Henan
Jiangsu
Shaanxi
Anhui
Qinghai
Hubei
Tibet
(Xizang)
Shanghai
Zhejiang
Sichuan
Jiangxi
Chongqing
Hunan
Fujian
Guizhou
Guangdong
Yunnan
Guangxi
Hainan
Developing Xinjiang as a smelting hub increases the overall distance of the bauxite-alumina-aluminium-market
supply chain from 4,000 km to 11,000km, 2/3 of which is by rail transport
116
10
75
65
70
8
7
60
6
55
50
45
17
40
2012
2013
2014e
Consumption
2015f
2016f
Own production
2017f
Import
2018f
3 200
(USD/t)
550
450
2 700
350
250
150
2 200
50
EU
-50
1 700
-150
USA
China
-250
Aluminium ingot
Aluminium scrap
Aluminium alloys
Net balance
Product: Al extrusions
Duty: 32.8%-33.3%
Jan-14
Jul-13
Jan-13
Jul-12
Jan-12
Jul-11
Jan-11
Jul-10
Jan-10
Jul-09
Jul-08
Jan-09
1 200
Jan-08
-350
Aluminium semis
LME (rhs)
Australia
Product: Al extrusions
Duty: 3.8%-33%
(Mt)
70
(Kt)
30 000
29 000
28 000
60
27 000
50
26 000
40
25 000
30
24 000
23 000
20
22 000
10
21 000
20 000
2005
2006
2007
2008
2009
2010
2011
2012
2013e
Further growth of Chinese semis is limited by LME/SHFe price arbitrage and global protectionism measures
Source: Macquarie research, CRU, China Customs, Press releases
2012
67 406
67 268
139
2013
70 260
70 960
-700
2014
74 032
75 658
-1 626
2015
78 286
80 383
-2 097
2016
82 590
84 755
-2 164
2017
87 148
88 683
-1 536
2018
91 471
92 538
-1 068
2012
133
737
-2 444
3 146
-2 410
-772
-5 013
3 215
1 135
2 086
326
139
2013
85
754
-2 806
2 834
-2 979
-617
-4 982
3 457
1 279
1 990
285
-700
2014
-464
643
-3 215
2 493
-2 945
-539
-5 041
4 085
1 240
1 816
300
-1 626
2015
-481
436
-3 456
2 619
-3 450
-280
-5 043
4 433
1 157
1 649
320
-2 097
2016
-671
427
-3 630
2 745
-3 385
-81
-5 183
4 437
1 148
1 688
340
-2 164
2017
-747
524
-3 785
2 878
-2 900
-7
-5 326
4 592
1 192
1 694
350
-1 536
2018
-651
524
-3 873
3 190
-2 650
-143
-5 406
4 763
1 156
1 673
350
-1 068
19
2012
65957
98,1%
2013
69525
98,0%
2014
73994
97,8%
2015
78583
97,8%
2016
83156
98,1%
2017
87000
98,1%
2018
90850
98,2%
20237
21634
15094
7343
1649
21394
22668
15815
7980
1668
22687
24074
16782
8714
1737
23977
25560
17911
9323
1812
25248
27105
18987
9940
1876
26325
28473
19977
10325
1900
27350
29700
21000
10700
2100
As expected total
aluminum market
balance to be in
significant deficit in
2014 and beyond
Secondary
aluminum will not
significantly
influence the
balance based on
current tightness
and more balanced
market growing
forward
EU, China and
other Asia regions
will remain the
most deficit
markets for raw
aluminum
(including primary
ingots and scrap)