Base Metal Markets Andrew Stonkus Vice President, Base Metals Marketing
Forward Looking Information Both these slides and the accompanying oral presentation contain certain forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of 1995 and forward-looking information within the meaning of the Securities Act (Ontario). Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Teck to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. These forward-looking statements include statements relating to management s expectations with respect to global market, demand and production trends. These forward-looking statements involve numerous assumptions, risks and uncertainties and actual results may vary materially. These statements are based on a number of assumptions, including, but not limited to, assumptions regarding general business and economic conditions, the supply and demand for, inventories of, and the level and volatility of prices of copper and zinc. The foregoing list of assumptions is not exhaustive. Events or circumstances could cause actual results to differ materially. Factors that may cause actual results to vary include, but are not limited to: adverse developments in business and economic conditions in the principal markets for copper or zinc, in credit markets, or in the supply, demand, and prices for copper and zinc and changes in general economic conditions or conditions in the financial markets. Certain of these risks are described in more detail in the annual information form of the company available at www.sedar.com and in public filings with the SEC. The company does not assume the obligation to revise or update these forward-looking statements after the date of this document or to revise them to reflect the occurrence of future unanticipated events, except as may be required under applicable securities laws. 2
BASE METAL MARKETS Outline Copper Market Zinc Market 3
Copper Market
BASE METAL MARKETS COPPER Copper Mine Production Growth In the Short Term Forecast Copper Mine Production (thousand tonnes) 24, Mine production entering a period of significant growth in the short term 21, 18, Looking out 1 years, mine production to only increase by 1.5 million tonnes 15, 12, 9, 6, 3, Lower prices in 213 have forced cuts in spending on less advanced projects Wood Mac believes significant supply gap to develop from 217 unless projects are moved forward today Delays on approvals in the short term will have a significant impact by end of the decade 5 Source: ICSG, Teck
BASE METAL MARKETS COPPER How Projects Keep Slipping Copper Project Challenges Execution Risk 42 highly probable projects in 28 - Only 2 made it to a production decision - 2.5 year average delay 67 probable projects in 28 - Only 7 made it to a production decision - Of which, only 2 were <5kmt/yr. of copper (Cananea & Tenke-Fungurume) Copper Projects Status in 213 (thousand tonnes) 1, 5 Infrastructure Risk (5) Mining consumes 1/5 of Chile s energy - 23% of new global copper mine production will come from Chile - Chile needs to increase power generation by 56% or 8, MW by 22 (~7%/yr.) - Chilean power prices now exceed those in all other major copper producing countries - At least 5, MW of planned power projects have been delayed or scraped (1,) (1,5) (2,) Added Highly Probable Added Probable Brownfield Downgraded Greenfield At Risk 6 Source: Wood Mackenzie, Teck
BASE METAL MARKETS COPPER Refined Copper Demand Increasing Centered in China Forecast Global Refined Copper Demand (thousand tonnes) 3, 25, 2, 15, 1, 5, Demand ex-china in 213 supported by developing world, Brazil, Russia, Malaysia Demand also supportive in the US and showing signs of life in Germany on the back of autos Despite lower economic growth in China, there is still positive real consumption growth Apparent demand growth in China appears weak; however, a significant destocking has taken place in 213 12 13 14 15 16 17 18 19 2 21 22 23 ROW China 7 Source: Wood Mackenzie, Teck
BASE METAL MARKETS COPPER Long-Term Copper Mine Production Still Needed Assumed demand growth of 2.5% = 6,t of required supply increase per year 216 mine production peaks then falls at ~5,t per year Structural deficit starts in 217 Adding all highly probable projects, the deficit moves to 218 Currently projects are being pushed back.due to lower prices, higher capex, corporate austerity and availability of financing Forecast Copper Mine Production vs. Demand (thousand tonnes) 3, 25, 2, 15, 1, 5, 12 13 14 15 16 17 18 19 2 21 22 23 Base A Projects Demand 8 Source: ICSG, Teck
BASE METAL MARKETS COPPER China is the Driver For Global Copper Consumption 16 14 12 1 8 6 4 2 Forecast Annual Global Copper Consumption (million tonnes) 12345678911112131415161718192212223 Plotted to 223 USA EU 15 Japan China ROW Asia has been the leader in growth - up 127% since 2 Within Asia, China has been the growth engine - up 47% since 2 Since the Global Financial Crisis, consumption has rebounded from 29 levels: - Up 9% in the USA - Up 12% in Japan - Up 35% in China Assumes Chinese growth post-213 averages 4.6% on declining basis 9 Source: WMBS, ICSG, Wood Mackenzie, Teck
BASE METAL MARKETS COPPER Wire Rod Production Growth Remains Strong in China Global wire rod production accounts for 74% of copper demand 12 Forecast Global Wire Rod Production (million tonnes) China continues to drive the demand for copper through increased wire rod production To August 213, US wire & cable producers reported improved profits and sales volumes in Q2, despite lower Cu prices US automotive sales up 14% YTD US automotive production up 3.6% YTD EU new car registrations up 4.9% in July, but still down YTD 1 8 6 4 2 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17 18 19 2 21 22 23 China N.America Europe Other Asia ROW 1 Source: Wood Mackenzie
BASE METAL MARKETS COPPER China s 12 th Five Year Plan Supports Copper Growth China s Spend on State Grid (billion RMB) Forecast Incremental Transmission Capacity (GW) E China to invest RMB 11.1 trillion in the power industry in next 1 years China s State Council issues guidelines to improve urban infrastructure - 1, km of underground rails for transport - Reconstruction of underground urban power grid Heavily favours copper over aluminium for density RMB 2.77 trillion in new power plants - 12 million kw increase in hydro power - 7 million kw increase in offshore wind based power - 4 million kw increase in nuclear power - 5 million kw increase in solar energy installed capacity RMB 2.55 trillion in power grid construction - 2, km increase in transmission lines The power sector represents 45% of Chinese copper consumption 11 Source: China Electricity Council, JP Morgan, Macquarie
Zinc Market
BASE METAL MARKETS ZINC Zinc Mine Production Peaking, Then Falling Forecast Global Contained Zinc Production (thousand tonnes) 18, 16, 14, 12, 1, 8, 6, Global zinc mine production is entering a period of closures of large, long life mines Over this 1 year period, we see total global mine production falling 1.5 million tonnes Currently mines are having difficulties starting up. 4, 2, 13 Source: ILZSG, Teck
BASE METAL MARKETS ZINC Global Refined Zinc Demand Increasing Forecast Global Refined Zinc Demand (thousand tonnes) thousand tonnes 18, 16, 14, 12, 1, 8, 6, 4, 2, Demand has looked strong in the US due to auto production and now construction In spite of lower economic growth in China, there has still been positive consumption growth Assumed consumption growth of 2.6%/ yr. post 216 (trend growth) Of note is that from 2-212, global consumption has grown above trend growth in 8 of the 12 years 12 13 14 15 16 17 18 19 2 21 22 23 ROW China 14 Source: ILZSG, Teck
BASE METAL MARKETS ZINC Zinc Moving Into A Structural Deficit 18, Forecast Zinc Mine Production vs. Demand (thousand tonnes) 17, 16, 15, 14, 13, 12, Assumed demand growth of 2.6% = 35,t supply increase every year By 223, supply is lower than in 212 By 215, mine production peaks then starts falling Structural deficit starts in 215 then continues 11, 1, 12 13 14 15 16 17 18 19 2 21 22 23 Base A Projects Demand 15 Source: ILZSG, Teck
BASE METAL MARKETS ZINC China is the Driver For Global Zinc Consumption Annual Global Zinc Consumption (million tonnes) 6 5 4 3 2 1 Asia has been the leader in growth - up 13% since 2 Within Asia, China has been the growth engine - up 327% since 2 Since the Global Financial crisis, consumption has rebounded from 29 levels: Up 3% in the USA Up 25% in Europe Up 13% in Asia 1 2 3 4 5 6 7 8 9 1 11 12 13 Plotted to 213 USA Europe Japan China ROW 16 Source: ILZSG, Teck
BASE METAL MARKETS ZINC Galvanized Steel Sheet Drives Zinc Consumption 12 Global Galvanized Steel Sheet Production (million tonnes) 1 8 6 4 2 Global production plummeted 4% as a result of the Global Financial Crisis of 28/29 Since then, we are back up 65% to Q3 213 China has been the growth engine up 127% since the trough in the 1 st half 29 1 2 3 4 5 6 7 8 9 1 11 12 13 Plotted to Q3 213 USA Europe Japan China ROW 17 Source: CRU
BASE METAL MARKETS ZINC Future Potential For Zinc Consumption Galvanized Steel Production (as a % Crude Production) 2% 16% 12% 8% 4% 19% 5% China produced over 79 million tonnes of crude steel and 36 million tonnes of galvanized steel sheet in 212 The US produced 88 million tonnes of crude steel and 17 million tonnes of galvanized steel sheet in 212 If China galvanized crude steel at half the rate (9.5%) of the US, then zinc consumption in China would increase a further 2.7 million tonnes or 21% of current global zinc consumption % 1 2 3 4 5 6 7 8 9 1 11 12 USA China 18 Source: World Steel Association, CRU
Thank You Andrew Stonkus Vice President, Base Metals Marketing 19