metals aluminium

7/28/2019 Metals aluminium

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Overview of Base MetalsPricing, Supply/Demandin North America, China and India

May 17, 2012

Anthony Poole,

Managing Editor, Platts MetalsGroup


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Global Aluminum Outlook

Aluminum demand is expected to increase 7% globally in 2012 vs. 11% growth in2011 (Alcoa/Rusal). Growth projection excluding China is 4%

A total of 1.35 million mt/year of aluminum capacity expected to be curtailed in2012, but some of this was already idled or cast houses still running

Alcoa led the way with curtailing smelter capacity, some of which is permanent. InJanuary, it announced closure or curtailment of 531,000 mt of smelting capacity inits global network, including 291,000 mt of permanent closure in Tennessee andTexas, which had already been idled.

Russian producer Rusal said this week it was mulling the curtailment of300,000-600,000 mt of smelting capacity globally


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Global supply seen at around 46.6 milion to 48 million mt, according to variousestimates

2012 aluminum demand seen ranging from 46.8 million to 48.2 million mt (Alcoa/Rusal) with supply nearly balanced after a 2-3% loss due to curtailments

Alcoa sees 435,000 mt deficit and Rusal sees balance; banks see surplus of350,000-650,000 mt

World primary aluminum output was 2.121 million mt in March, down 2% from 2.164million mt in March 2011 (IAI)

The eurozone still casts a long shadow across the rest of the world


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Primary Aluminum Backwaradtion to Contango

Source: London Metal Exchange


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London Metal Exchange inventorieshit all-time record over 5 million mt inQ1 and stayed close to that levelsince. Stocks high in non-affiliated

warehouses tooProducers, analystssay if ware-house incentives stay at$160/mt + (7.25/lb), and interestrates stay low, metal will remain onwarrant and keep inventories high

LME Aluminium

LME cash

metric tons



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Primary Aluminum Backwaradtion to Contango


Analysts had forecast 2012 averagepr ice $2,225-2 ,335/mt Bankf o r e c a s t s f o r Q 2 - Q 4 n o w$2,010-2,350

Year-to-date average has been$2,133/mt (May 15)


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Primary Aluminum Backwaradtion to ContangoPrimary Aluminum Backwaradtion to Contango

LME Aluminium Cash-to-Threes SpreadBackwardation to Contango



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US aluminum premiumsupported by financing deals

US Midwest Transaction Premium,/lb plus LME Cash

Primary aluminum premiums are soaring

Source: Platts

Platts Midwest Transaction price(LME + premium) has been usedsince 1984 to price aluminumUS HG ingot premium keeps

setting new record highs; reached9.75 on May 8

Financing deals, warehouseincentives have kept aluminum offthe spot market

As primary aluminum premiumsrise globally, mills/remelters try touse even more scrap


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Primary Metal Purchasing vs Scrap Usage

US aluminum industry scrap consumption rose 16.9% and scrap recovery was up12.4% for Jan-Feb 2012 versus 2011 (Aluminum Assn.)

3000 series alloys also tend to be more scrap intensive

But aluminum users say scrap availability has tightened in Q2 as LME fell; scrapconsumption for April was down from Q1

Novelis has a goal to use 80% recycled content by 2020, 50% by mid-decade

As of April Novelis had increased its usage to 39% recycled from 33%

Novelis recycling capacity will nearly double to 2.1 million mt in 2015 from 1.2million mt, with recycling plants aligning with rolling expansions


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What Do Scrap Usage Targets Really Mean?

US used beverage can recycling rate for 2010 rose to 58.1% from 57.4%, highest ina decade, but still low

US UBC recycling rate is down from mid-60s% at the peak, well below Brazils high

90s%

As different users fight even harder for good scrap and use new mix, they may stillneed to buy more alloying agents like magnesium

For the new automotive aluminum sheet expansions, the relevant scrap will not yetbe available


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Source: Alcoa Analysis

Short-term Outlooks by Sector


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Short-term Outlooks by Sector Trucks/Aerospace

East European truck trailer market grew 58% in 2011 (CLEAR Consulting)

Aleris saw European aerospace rolled product volumes up 19% in Q1

Aerospace sheet/plate makers of 7000, 2000 series alloys largely sold out

Boeing 2012 civil aircraft deliveries up to 585-600 from 477, but supply chain hasover-capacity (Boeing, UBS, ATI)

Airbus projecting a record 570 civil aircraft deliveries in 2012, up from 534 in 2011


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Short-term Outlooks by Sector Building/Construction

US housing starts slowly recovering but far below pre-2008 levels, fell 5.8% inMarch from February (Census Bureau)

Commercial construction down about 3% year on year in March (CensusBureau)

US nonresidential building was down 25% in Q1 and down 7% for the 12months through March (McGraw-Hill Construction)

Total US construction for the 12 months through March 2012 was unchanged(McGraw-Hill Construction)

-7% for nonresidential building-3% for nonbuilding construction (utilities, public works)+13% residential building

Aluminum users do not expect significant improvement until 2013-14


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Short-term Outlooks by Sector Automotive/Cans

General Motors raised US light vehicle sales forecast to 14 -14.5 million units for2012 from 13.5 -14 million units; LMC Automotive also sees 14.3 million

Aleris saw European automotive sheet volumes up 14% in Q1 2012 on year

Ducker sees 343 lb of aluminum per vehicle in 2012, up from 327 lb in 2009

Aluminum rapidly gaining share in hoods (30% of all 2012 vehicles), trunk lids,bumpers (over 20% of bumper beams), steering knuckles and suspension arms(Ducker)

Novelis is undertaking major rolling expansions in Brazil, Korea, China and NorthAmerica, ramping up from late 2012 through late 2014

North American can stock orders down 2.8% in April, down 2.8% year-to-date


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Steel, metals ride automotive comeback:Consumption up nearly 57% since 2009

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Sources: EPA; American Chemistry Council; LMC Automotive; (JD Power); Platts estimates

2006 2009 2010 2011 2012-F

North Am Vehicle Sales 2010 15,244,354 9,132,431 11,630,000 12,810,500 14,300,300

Metal lb/vehicle

tons required

Carbon Steel 2,120 16,159,015 9,680,377 12,327,800 13,579,130 15,158,318 5,477,941Stainless steel and other 106 807,951 484,019 616,390 678,957 757,916 273,897Iron casting 325 2,477,208 1,484,020 1,889,875 2,081,706 2,323,799 839,779

Aluminum 324 2,469,585 1,479,454 1,884,060 2,075,301 2,316,649 837,195Copper/Brass 61 464,953 278,539 354,715 390,720 436,159 157,620Powdered Metals 42 320,231 191,781 244,230 266,021 300,306 108,525Lead 39 297,265 178,082 226,785 249,805 278,858 100,773Zinc castings

10

76,222

45,662

58,150

64,053

71,502

25,839

Magnesium 10 76,222 45,662 58,150 64,053 71,502 25,839Other metals 5 38,111 22,831 29,075 32,026 35,751 12,920Total Ave vehicle weight 4,002 lb

Change from 2009 low

to 2012 forecast tons

Metals ride automotive comeback:Consumption up nearly 57% since 2009


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Longer-Term Outlooks for Aluminum Users

Aluminum will grow from 325 lb per North American vehicle in 2008 EPA base yearto 550 lb by 2025, with most of that driven by sheet and extrusions (Ducker)

Chinas can/packaging compounded annual growth rate 20% for 2011-2013 (Alcoa)

Brazils beverage can compounded annual growth rate 7% over next 5 years(Novelis)

Asia aluminum sheet annual growth rate 8% over the next 5 years (Novelis)

40% increase in N. American automotive aluminum demand 2012-2016 (CRU)


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Aluminum Sectors and Magnesium

Magnesium is a key alloying agent in the production of aluminum alloys

Primary aluminum smelters casting billet, rolling slab, foundry alloy use magnesium

Remelt billet makers and extruders also use magnesium

Use more secondary magnesium, get some magnesium from scrap

Secondary aluminum smelters producing diecast/foundry alloys

Get the vast majority of their magnesium from scrap(either aluminum or magnesium)


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US Spot Prices Flat Since Late 2011

Magnesium Price Has Yet to Recover

LME cash

Source: Platts

US spot prices fell after 2012contracts for pure magnesium

were booked at $2.00-2.20/lbAlack of additional spot demand,despite projections forincreased consumption, hascharacterized the market, sofar, in 2012


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Aluminum Alloys and Magnesium Content

Aluminum Alloy End Uses Mg Content 3004 Beverage can bodies, truck trailer 0.8-1.3%3105 Building and construction 0.2-0.8%5052 General distribution, truck trailers, architectural, sheet metal work,

appliances, truck bumpers, auto interior/body panels2.2-2.8%

5083 Marine, welded structures, storage tanks, pressure vessels, cryogenics 4.0-4.9%5182 Can end stock , auto body inner panels 4.0-5.0%5454 Welded structures, transportation 2.4-3.0%5457 Trim 0.8-1.2%6061 Marine, tooling plate, construction , auto & truck frames and bodies,

structures0.8-1.2%

6063 Window / door frames (extrusions), auto 0.45-0.9%6082 Construction, structures, truck frames, brake housings 0.6-1.2%6111 Auto body sheet (panels) 0.5-1.0%7021 Bumper face bars, bumper reinforcements 1.2-1.8%7050 Aerospace, high strength structural, mold plate 1.9-2.6%7055 Aerospace 1.8-2.3%


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What the Market Tells Platts about 2012 Consumption

The largest aluminum (mill) users of magnesium say their 2012 global magnesiumconsumption is flat to slightly higher (maybe 1-2%)

Aluminum billet makers see magnesium consumption up 5-10% (small base)

Magnesium producers see some aluminum use flat, some up 5% for 2012

Aluminum mills have seen their alloy mix trending towards less-Mg intensive alloys,such as 3000 or 2000 series away from 5000 and 7000)

Europes magnesium use is off 5-15%

Strike at Nichols Aluminum caused some other companies to shift more NorthAmerican output towards more 3105


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Magnesium Outlook Still Cloudy

Some aluminum users project aluminum auto sheet or aerospace could increasetheir magnesium consumption up to 20% if growth holds true

Skepticism about aluminum automotive growth given historic over-optimism

Chinas magnesium consumption has so far been driven by diecasting rather than

aluminum, but that could change

China continues to have vast potential magnesium capacity and to be a large netexporter of magnesium


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Questions?

Source:LondonMetalE

xchange

Copper


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Copper

World demand for refined copper is expected to exceed production by about240,000 mt (International Copper Study Group, April, 2012)

In 2013, world production may exceed demand by 350,000 tonnes (ICSG)

Copper price seemingly driven more by macro-economic data than physical supply/demand. In the last week, three months copper has sunk below key support of$8,000/mt on the LME. At the same time, the euro has plummeted against the dollarto around $1.27 (May 15) compared with above $1.30 a week earlier

Stronger dollar puts downward pressure on the price of dollar-denominatedcommodities, including copper


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Europe and China are castinglong shadows over the rest ofthe world

Copper is also a story aboutLME and SHFE inventories, butnot like aluminium

Copper


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Copper

Source:ShanghaiFuturesandOptionsExchange

Some analysts and traders argue that when SHFE stocks godown, it is an indication that Chinese physical consumption isrising. But many others argue that the copper is just being

transferred elsewhere, either to the LME (arbitrage), or else tonon-exchange-affiliated warehouses


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The market is worried that any slowdown in China will have a major impact onphysical copper demand. China accounts for around 40% of global demand

A return to recession in Europe is also a concern as it could serve to strengthen the

US dollar against the euro and undermine prices of all dollar-denominatedcommodities

New mine construction may be delayed by funding availability and rampant mininginflation. Thompson Creek Metals recently raised over $200 million in bonds and

equity to plug a hole in the funding requirements for its Mount Milligan copper andgold mine in British Columbia. Baja Mining has said that development of its BoleoMine in Baja California will come to a halt without a fresh cash injection by mid-June

Magnesium Outlook Still CloudyCopper


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Copper

Bank of America Merrill Lynch saidlast week that the extreme back-wardation on LME copper couldease once copper stored in Chinastarts to trickle back into the

market. The recent rise inShanghai stocks was being fuelledby warehouse, financing deals, itsaid.The bank estimated Chinesestocks at more than 1 million mt

last week, stored in both ex-change and private, off-exchangewarehouses


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Questions?

Anthony Poole

New York, NY

+1 212 904-2992

[email protected]

www.platts.com

Thanks to these editors that contributed to this presentation:Karen McBeth; Tina Allagh; Nick Jonson

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