Market Outlook. Arvid Moss and Erik Fossum. Capital Markets Day 2012 (1)

Transcription

1 Market Outlook Arvid Moss and Erik Fossum Capital Markets Day 2012 (1)

2 Balanced outlook for primary metal market Strong long-term demand projections China increasingly dependent on upstream imports Physical tightness drives strong ingot premiums (2)

3 Macroeconomic outlook 01 (3)

4 Demand growth for aluminium stronger than IP and GDP last 10 years CAGR in % North America Western Europe China Global GDP IP -1 Aluminium demand GDP IP Aluminium demand GDP IP Aluminium demand GDP IP Aluminium demand Source: Global Insight, CRU World ex. China (4)

5 Continued multi-speed development in GDP and IP Basis for our growth assumptions Gross Domestic Product Industrial Production Annual growth Annual growth 20% 15% Estimate 20% 15% Estimate 10% 10% 5% 5% 0% 0% -5% -5% -10% -10% -15% -15% -20% % World ex. China US Eurozone China World ex. China US Eurozone China Source: Global Insight (5)

6 Strong capabilities positions aluminium for further growth Used in wider range of segments than other metals Global demand per segment for selected metals Aluminium semis 6% 10% 26% 5% Transport Construction Packaging Copper 15% 20% 5% 60% Electrical wire Roofing & Plumbing Industrial Machinery Other 13% 8% 8% 25% Foil Electrical Consumer durables Machinery & Equipment Other Steel 6% 10% 17% 4% 3% 60% Construction Engineering Transport Energy Home appliances Source: CRU. Global demand per segment demand, Other (6)

7 European demand growth driven by transport, construction lagging Million mt Extrusion (Europe) % contribution to growth Rolled Products (Europe) % contribution to growth Construction Transport Machinery & Equipment 31 % 35 % 22 % Construction Transport Machinery Electrical 7 % 40 % 13 % 4 % Electrical 8 % Consumer durables 3 % Consumer Durables Other % 3 % Packaging (ex. foil stock) Foil stock Other % 7 % 5 % Consumer and industry confidence low, moderate growth expected Building activity remains weak in Europe, especially in South Europe Automotive and solar sectors weakening in 2012 Recovery within the automotive segment expected Demand growth supported by beverage can and foil Demand in industrial applications somewhat stabilizing Source: CRU/Hydro (7)

8 Transport main contributor to demand growth in North America Million mt Extrusion (North America) % contribution to growth Rolled Products (North America * ) % contribution to growth Construction Transport 40 % 41 % Construction Transport Machinery 17 % 63 % 5 % Machinery & Equipment 4 % Electrical 2 % Electrical Consumer Durables Other % 5 % 2 % Consumer durables Packaging (ex. foil stock) Foil stock Other % 0 % 6 % 1 % Transport and automotive segments remained strong in 2012, and is expected to continue to grow Improving building and construction activity Includes Mexico Source: CRU/Hydro (8)

9 Primary supply/demand 02 (9)

10 Capital Markets Day 2011 recap steady growth and oversupply World outside China in thousand mt 28,000 27,000 26,000 Supply Demand 25,000 24,000 23,000 22,000 21,000 20,000 19,000 Supply influences New projects Potential restarts Potential curtailments Supply disruptions Demand influences Demand growth: 3-5 % Developing regions European debt crisis Strength of US recovery 18, Source: CRU/Hydro (10)

11 Production disruptions and curtailments resulted in balanced market 2012 World outside China in thousand mt 28,000 27,000 26,000 Supply Demand 25,000 24,000 Demand growth: 2 % 23,000 22,000 21,000 20,000 19,000 Supply influences 0.6 milion mt of disruptions 1.3 milion mt of curtailments Demand influences Europe weaker than expected 18, Source: CRU/Hydro (11)

12 Emerging markets significant share of global consumption Pie chart: share of global primary aluminium consumption in % Percentage: average annual consumption growth % 8% 9% 15 % China North America Europe Middle East Rest Asia Latin America Africa Australasia 9% (12)

13 Balanced outlook for 2013 World outside China in thousand mt 28,000 27,000 26,000 Supply Demand 25,000 Demand growth base case: 2-4 % 24,000 23,000 22,000 21,000 20,000 Demand influences Weak European markets Continued growth in US Developing regions 19,000 18, Source: CRU/Hydro (13)

14 Limited net supply growth going forward World outside China in thousand mt Supply development ,000 27,000 Supply Demand ~2.5 ~3.0 26,000 25,000 24,000 23,000 22,000 21,000 Supply influences Potential curtailments Supply disruptions Potential restarts New projects Green- /Brownfield projects Capacity at risk 20,000 19,000 18, Source: CRU/Hydro (14)

15 China continues to be a balanced market for primary aluminium China in thousand mt 25,000 Supply Demand 20,000 15,000 10,000 5, Source: CRU (15)

16 China primary capacity continues to grow in tandem with demand growth Primary aluminium capacity development to 2015 WEST 83 % of new capacity CENTRAL 3 % of new capacity NORTH 0 % of new capacity Reluctance to close high-cost capacity Subsidies on power tariff given in several provinces Capacity being built in western provinces Logistical challenges Distance in kilometer EAST 14 % of new capacity Source: CRU/Wood Mackenzie/ Hydro (16)

17 Metal markets and premium development Erik Fossum 03 (17)

18 LME price affected by global macro development LME 3-month in USD per mt 3,600 3,200 2,400 ECB bond-buying program QE 3 Short-covering 2,800 2,200 2,400 2,000 2,000 1,600 1, ,800 January April July October Source: Reuters Ecowin/Hydro (18)

19 Two markets for primary metal VAT Tolling Export duties Transport Premiums LME SHFE 3m m: 1992 USD/t* SHFE LME 3m m: 2468 USD/t* jan. 11 apr. 11 jul. 11 okt. 11 jan. 12 apr. 12 jul. 12 okt * Prices as of November 26, 2012 Source: Reuters Ecowin/Hydro (19)

20 Inventories remain tied up in financial deals Strong increase in ingot premiums World reported primary aluminium inventories Thousand mt 8,000 Days 80 Regional ingot premiums, monthly averages USD per mt 300 7,000 6,000 5, , ,000 2,000 1, Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q Jan- 06 Jul- 06 Jan- 07 Jul- 07 Jan- 08 Jul- 08 Jan- 09 Jul- 09 Jan- 10 Jul- 10 Jan- 11 Jul- 11 Jan- 12 Jul- 12 IAI Other LME SHFE Global inventory days US Mid West Japan Europe (duty-paid) Source: CRU/Hydro Source: Metal Bulletin, MW/MJP: Platts (20)

21 The mechanism of financial deals driving forces Attractiveness of financial deals dependent on the following equation Warehouse rents + Financing cost < LME contango 8% USD/t % % 2160 $ 5% 4% 3% 2% 1% % Jan- 07 Jan- 08 Jan- 09 Jan- 10 Jan- 11 Jan- 12 Jan- 13 Jan- 14 Jan OECD US Eurozone UK Source: Global Insight/Reuters (21)

22 Stakeholders in financial deals Holding Characteristics Producers and traders Physical metal (Ingot) Producers look to off-load excess metal from balance sheet (ingots) Traders buy excess metal and earn contango finance Warehousing Physical metal (Ingot) Earning warehousing rent Paying premium to attract metal Earning contango (if owner) Consumers Long forward LME contracts - hedge Hedging LME price secure (buy) forward prices Buy ingot for consumption Financial investors and banks Short/Long LME contracts and/or physical metal Short or long term speculation Aluminium as a portfolio diversification asset Financing aluminium stocks (22)

23 Standard ingot a product that has to be remelted 42 % of casthouse production is standard ingot in the world outside China Value-added products World outside China composition Standard 42% Other 6% Wire 5% Extrusion 21% Sheet 17% Foundry 9% Standard ingot Extrusion ingot Foundry alloy Sheet ingot Wire rod Source: CRU (23)

24 MB Billet premium MB Ingot premium DDP Billet premium over ingot Jan-12 Jan-11 Jan-10 Jan-09 Jan-08 Jan-07 Jan-06 Jan-05 Jan-04 Jan-03 Product premium close to all-time-high But premium over ingot currently squeezed USD/t Jan-02 Jan-01 Jan-00 Jan-99 Jan-98 Jan-97 Jan-96 Jan-95 Jan-94 Jan-93 Jan-92 Jan-91 Jan-90 Source: Metal Bulletin (24)

25 Commercial agenda Increasing focus on product premium margin versus market share Shifting product mix towards higher premium alloy mix Global optimization of Qatalum volumes towards Asia, US, Turkey and GCC (25)

26 Alumina and bauxite market 04 (26)

27 Changing pricing dynamics for bauxite and alumina Bauxite price USD per mt Alumina price USD per mt % of LME 3m 18% 17% 16% 15% 14% 13% 12% 11% 20 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 10% China CIF Avr China CIF Australia Alumina price (USD/t) Avg. Price China CIF Indonesia Relative to LME 3m Avg. Ratio Source: CRU, Platts, China Customs, Hydro (27)

28 Hydro is long in world markets of bauxite and alumina Main long and short companies in the third-party market 2012 Bauxite market Thousand mt 15,000 40,000 Alumina market Thousand mt 10,000 10,000 5,000 30,000 20,000 10,000 5, ,000-10,000 RTA Hydro* Noranda Alcoa/AWAC BHP Billiton Dadco Ormet Glencore Rusal Indonesia exports China imports 0-10,000-20,000-30, ,000 Alcoa/AWAC Hydro BHP Billiton RTA Nalco Alba Dubal/Emal China imports -15,000-40,000-10,000 Net position (left axis) Source: CRU, Hydro *Includes off take agreement with Vale Indonesia & China (right axis) Net position (28)

29 China, Australia and Brazil largest producers of bauxite and alumina All figures in million mt Jamaica 7 1 Guinea 6 India Vietnam 14 China Indonesia Brazil Atlantic Pacific Australia Annual production of alumina 2011 Annual production of bauxite in alumina equivalents* 2011 Source: CRU, Hydro *Factor bauxite/alumina: 2.5, except for Australia: 3.0 (29)

30 Global bauxite resources are large and geographically concentrated But tough obstacles for future developments All figures in billion mt 41,0 1,1 0,5 Jamaica 8,7 Brazil 2,5 5,2 Guinea Atlantic Pacific 3,0 India 1,0 4,7 0,5 Vietnam 0,9 0,4 Indonesia 4,1 2,2 China 9,5 5,9 Australia Reserves plus resources likely to be converted to reserves associated with operating mines Total bauxite potential, including undeveloped resources Source: Hydro analysis (30)

31 China imports large amounts of raw materials due to domestic constraints Thousand mt 25,000 Chinese Bauxite imports to of China bauxite (mt) and in 2011 alumina 20,000 15,000 Alumina import Bauxite import, alumina eq 10,000 5, * Source: China Customs, Hydro *Estimated full year 2012 (31)

32 Current export ban has drastically reduced bauxite imports from Indonesia Million mt 6 Chinese imports of bauxite per source country Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Australia Other Indonesia Source: China Customs (32)

33 China are now facing supply challenges in the pacific region Current main export routes (33)

34 and must expand its horizon in search for bauxite and alumina imports Current main export routes Potential imports to China (34)

35 China with large inherent need for upstream material towards 2025 Likely to result in increased bauxite and/or alumina imports Illustrative development Indonesia Alumina production using imported bauxite Alumina production using domestic bauxite Indonesia Australia Other Australia Large gap to be filled Imported alumina Alumina Bauxite Alumina Bauxite Source: Hydro analysis (35)

36 China will be increasingly short upstream Annualized aluminium equivalents, in million mt YTD* Illustrative development Import to China 5 0 Export from China - 5 Bauxite Alumina Scrap Primary aluminium Bauxite/Alumina to aluminium conversion factor: 5.4 / Fabricated Semis * January-September Source: CRU/Antaike/Hydro (36)

37 Long-term outlook 05 (37)

38 Healthy growth in aluminium demand Global trends Demand for semis Million mt % annual growth Capabilities World outside China China Source: CRU (38)

39 Market outlook summary Balanced outlook for primary metal market Strong long-term demand projections China increasingly dependent on upstream imports Physical tightness drives strong ingot premiums (39)