Yang Cao, Metal Bulletin Research. Chinese alumina market review & outlook

Yang Cao, Metal Bulletin Research Chinese alumina market review & outlook 1

TABLE OF CONTENT Part 1 Alumina price analysis Page 3 Part 2 Fundamental analysis Page 6 Part 3 Chinese bauxite import analysis Page 13 Part 4 Chinese bauxite/alumina market outlook Page 22 Part 5 Key takeaways & Contact Page 25 2 2

(RMB/tonne) (RMB/tonne) Chinese alumina prices increased significantly in Q3 2014 17000 Chinese alumina & SHFE aluminium price Chinese domestic alumina price fell in H1 2014, due to decline in SHFE aluminium price and oversupply situation SHFE 3M price [LHS] 2900 16500 16000 15500 15000 14500 14000 13500 13000 12500 Chinese domestic alumina price [RHS] 2800 2700 2600 2500 2400 2300 2200 although it rebounded significantly in Q3 last year, due to: (1) Recovery of SHFE aluminium price (2) Expectation of a tightening supply in Chinese alumina market. Since Q3, new aluminium smelting capacities in North West China have come on stream Idled smelting capacity has been reactivated Alumina producers have relatively low alumina stocks which in turn provided support to alumina prices 12000 2100 Feb 12 Aug 12 Feb 13 Aug 13 Feb 14 Aug 14 Feb 15 Source: MBR, MB, SHFE 3

Feb 11 May 11 Aug 11 Nov 11 Feb 12 May 12 Aug 12 Nov 12 Feb 13 May 13 Aug 13 Nov 13 Feb 14 May 14 Aug 14 Nov 14 Feb 15 ($/t) ($/t) MB Australia Alumina Index also rebounded sharply after falling to multi-month low 500 450 400 FOB Australia [LHS] Chinese domestic alumina [LHS] Price difference [RHS] 100 80 60 40 MB Australia Alumina Index also decreased in H1 2014, mainly due to the closure of smelting capacity 350 300 20 0-20 -40 The index dropped to $306.69/tonne on June 20 th 2014, the lowest level since the index was launched in August 2010 250-60 6.6000 6.4000 6.2000 USD/CNY Since August, FOB Australia index also rebounded sharply, due to: Significant increase in Chinese domestic alumina price Appreciating CNY against USD Low ocean freight rate 6.0000 Feb 11 Aug 11 Feb 12 Aug 12 Feb 13 Aug 13 Feb 14 Aug 14 Feb 15 Source: MBR, MB 4

(million tpy) Chinese alumina capacity reached 65.05 mtpy in 2014, 9.6% y-o-y up Chinese alumina capacity Chinese alumina capacity by province (2014) 70 60 35.8% Chinese alumina capacity [LHS] Y-o-y % change [RHS] 40% 35% Chongqing, 2.5% Inner Mongolia, 1.9% Yunnan, 1.2% 50 40 24.3% 22.7% 30% 25% 20% Guangxi, 11.5% Guizhou, 5.8% Shandong, 30.1% 30 15% 20 10 5.9% 8.6% 9.6% 10% 5% Henan, 19.5% 2.6% 0 2008 2009 2010 2011 2012 2013 2014 Source: MBR 0% Shanxi, 27.4% 6

(million tonnes) (million tonnes) Among all provinces, only Chongqing witnessed a y-o-y fall in alumina output Chinese alumina production Chinese alumina production by province 60 50 40 China alumina production [LHS] Y-o-y % change [RHS] 29.1% 23.5% 51.31m 35% 30% 25% 14 12 10 8 6.4% 19.4% 0.3% 1.6% 2013 2014 20% 30 20 10 13.3% 4.2% 7.4% 14.2% 6.0% 15% 10% 5% 6 4 2 0 3.8% 19.0% -50.1% 96.7% 0 Source: MBR, IAI 2008 2009 2010 2011 2012 2013 2014 0% Source: MBR 7

(000 tonnes) ($/tonne) (000 tonnes) Chinese alumina importing origins have become more diversified Chinese alumina import & import price Chinese alumina imports by countries 800 700 600 China alumina imports [LHS] China alumina import price [RHS] 2014 total: 5.28m tonnes (37.8% y-o-y up) 500 450 800 700 Australia India U.S.A. Total imports y-o-y % [RHS] Brazil Vietnam Others 900% 800% 700% 500 600 600% 400 400 300 200 350 100 0 300 Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 500 500% 400% 400 300% 300 200% 200 100% 0% 100-100% 0-200% Dec 11 Jun 12 Dec 12 Jun 13 Dec 13 Jun 14 Dec 14 8

(million tonnes) (million tonnes) Chinese MGA demand exceeded 50m tonnes in 2014 Chinese primary aluminium production Chinese metallurgical-grade alumina demand 30.0 Chinese primary aluminium production [LHS] Y-o-y % change [RHS] 27.5 30% 60 25.0 20.0 2014 new smelting capacity: 4.6 mtpy 26.7% 25% 20% 50 40 15.0 13.1% 12.6% 15% 30 10.0 7.9% 13.0% 10.4% 10% 20 5.0 5% 10 0.0 0.7% 2008 2009 2010 2011 2012 2013 2014 0% 0 2008 2009 2010 2011 2012 2013 2014 9

Primary aluminium capacity additions have outpaced alumina capacity additions Inner Mongolia Xinjiang 1800 Xinjiang Gansu 650 500 650 Shanxi 1700 Shandong 3000 Jilin Liaoning Heilongjiang 1500 Gansu Qinghai Inner Mongolia Beijing Tianjin Hebei Ningxia Shanxi Shandong Xizang Primary aluminium (000 tpy) Total: 4.6 mtpy Guangxi Alumina (000 tpy) Total: 5.8 mtpy 600 Shannxi HHenan Jiangsu Anhui Shanghai Hubei Sichuan Chongqing Zhejiang Jiangxi Guizhou Hunan Fujian Yunnan Guangxi Guangdong Taiwan Hainan Reactivated capacity 600 10

China witnessed a significant deficit in 2014, although it has been offset by the alumina imports million tonnes 2011 2012 2013 2014 Alumina production 39.48 42.39 48.39 51.31 Alumina consumption 39.89 45.22 50.13 55.15 Balance -0.41-2.83-1.74-3.84 Alumina imports 1.87 5.04 3.83 5.28 Alumina stock 1.46 2.21 2.09 1.43 11

(Millions tonne) ($/tonne) Chinese bauxite imports 9 8 7 6 Malaysia Others [LHS] Indonesia [LHS] 2014 total: 36.5m tonnes (49.0% y-o-y down) India Australia [LHS] Imported bauxite CIF price [RHS] 8.016m tonnes in January 2014 a record high 80 70 60 5 4 50 3 40 2 1 30 0 20 Dec 08 Dec 09 Dec 10 Dec 11 Dec 12 Dec 13 Dec 14 Source: MBR, WBMS 13

Chinese importers look for alternatives after Indonesian export ban 2012 2013 2014 Australi a 24% India 3% Brazil 1% Fiji 1% Indones ia 71% Brazil 1% Fiji 1% Australi a 20% Ghana Guinea 1% 1% India 8% Indones ia 68% Malaysia 4% Dominic an Republic 5% India 13% Brazil 2% Ghana 2% Indonesi a 31% Guinea 1% Australia 41% Fiji 1% 2012 total imports: 40.1m tonnes 2013 total imports: 71.6m tonnes 2014 total imports: 36.5m tonnes 14

Global bauxite economic reserves India 0.9 Bt Laos 2.0 Bt Malaysia China 0.8 Bt Vietnam 2.1 Bt Indonesia 1.0 Bt Jamaica 2.0 Bt Guyana 0.9 Bt Suriname 0.6 Bt Guinea 7.4 Bt Fiji 0.4 Bt Brazil 3.4 Bt Australia 5.4 Bt 15

Which countries will become major exporters of bauxite to China? Guinea 7.4 Bt India 0.9 Bt Laos 2.0 Bt Australia became the largest exporter of bauxite to China in 2014. Especially after Gove was shut down, all its bauxite has been exported to China. 2015f: ~ 20 million tonnes Malaysia China 0.8 Bt Australia 5.4 Bt Vietnam 2.1 Bt Indonesia 1.0 Bt Fiji 0.4 Bt Jamaica 2.0 Bt Guyana 0.9 Bt Suriname 0.6 Bt Brazil 3.4 Bt 16

Which countries will become major exporters of bauxite to China? India 0.9 Bt Laos 2.0 Bt Malaysia China 0.8 Bt Vietnam 2.1 Bt Malaysia might become the second largest bauxite exporter to China, although this might be restricted by its port loading capability. 2015f: ~ 8 million tonnes Indonesia 1.0 Bt Jamaica 2.0 Bt Guyana 0.9 Bt Suriname 0.6 Bt Guinea 7.4 Bt Fiji 0.4 Bt Brazil 3.4 Bt Australia 5.4 Bt 17

Which countries will become major exporters of bauxite to China? India is also a large bauxite exporter to China. However, there are news that India might increase its bauxite export duty which will increase Chinese buyers import cost. 2015f: ~ 5 million tonnes India 0.9 Bt Laos 2.0 Bt Malaysia China 0.8 Bt Vietnam 2.1 Bt Indonesia 1.0 Bt Jamaica 2.0 Bt Guyana 0.9 Bt Suriname 0.6 Bt Guinea 7.4 Bt Fiji 0.4 Bt Brazil 3.4 Bt Australia 5.4 Bt 18

Which countries will become major exporters of bauxite to China? India 0.9 Bt Laos 2.0 Bt Malaysia China 0.8 Bt Vietnam 2.1 Bt Indonesia 1.0 Bt Brazil: export can reach 2 mtpy Ghana: export can reach 2 mtpy Dominican Republic : export can reach 2-3 mtpy 2015f: others total: ~3 million tonnes Jamaica 2.0 Bt Guyana 0.9 Bt Suriname 0.6 Bt Guinea 7.4 Bt Fiji 0.4 Bt Brazil 3.4 Bt Australia 5.4 Bt 19

There are still many issues Chinese bauxite importers need to consider Quality Bauxite quality differentiates between different countries Infrastructure Infrastructure restrictions such as port facilities, mining capabilities, etc Cost Import cost has kept going up 20

Demand for imported bauxite will not be met if China stays at current bauxite import levels million tonnes 2012 2013 2014 2015f Bauxite imports 40.1 71.6 36.5 36.0 Alumina production using imported bauxite 13.1 14.2 16.1 19.0 Demand for imported bauxite 36.7 39.8 45.1 53.2 Balance 3.4 31.8-8.5-17.2 22

Chinese alumina market will continue to be in large deficit in 2015 million tonnes 2012 2013 2014 2015f Alumina production 42.39 48.39 51.31 56.03 Alumina consumption 45.22 50.13 55.15 59.99 Balance -2.83-1.74-3.84-3.96 Alumina imports 5.04 3.83 5.28 6.00 Alumina stock 2.21 2.09 1.43 2.04 23

Key takeaways Both Chinese domestic alumina price and MB Australia Alumina Index dropped in H1 2014 but rebounded sharply in Q3 2014 due to expectation of a tightening supply in Chinese alumina market Chinese primary aluminium capacity additions have outpaced alumina capacity additions, which means China will witness another year of significant deficit in its alumina market This deficit will be offset by Chinese alumina imports, which has already happened since 2012. Chinese alumina importing origins have also become more diversified before 2014, it was mainly importing from Australia. But in 2014, a relatively large amount of imports have come from Brazil, India and Vietnam After Indonesian bauxite export ban, Chinese importers were looking for alternatives we expect Australia will remain the largest exporters of bauxite to China, while Malaysia might become the second largest bauxite exporter. China will also import from India, Fiji, Brazil, Ghana, Dominican Republic, Guinea and Guyana However, there are still many issues Chinese bauxite importers need to consider, e.g. bauxite quality, infrastructure restrictions, and transportation cost, etc 25

Metal Bulletin Research provide dedicated aluminium market analysis and forecasting services Short term forecasts MBR Aluminium Weekly Market Tracker Regular insight and price forecasting with downloadable data Week 2 features specific alumina & bauxite market analysis with two year supply/demand forecast and historical alumina & bauxite trade flows Long term forecasts MBR Strategic Outlooks In-depth and extensive studies for longer outlooks. This updated report focuses on Bauxite & Alumina industry with a 15 year outlook All major market developments and changes detailed along with supply/demand balances and price forecasts for metal grade alumina and bauxite prices 26

Metal Bulletin Research provide dedicated aluminium market analysis and forecasting services Look out for your free sample MBR Aluminium Weekly Market Tracker at the conference Contact us today and ask about special delegate offers: info@metalbulletinresearch.com 27

If you have any questions regarding this presentation, please do not hesitate to contact me at: Email: ycao@metalbulletinresearch.com Telephone: +44 (0) 20 7556 6047 28