Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (June 2012)
37 slides from Norsk Hydro Asa's investor presentation, Jun 14, 2012
Slide 1: Bauxite & Alumina - Industry analysis and commercial strategy
Bauxite & Alumina - Industry analysis and commercial strategy Simon Storesund, Head of Bauxite & Alumina Commercial June 14, 2012 (1)
Slide 2: Agenda
Agenda • Industry structure • Bauxite and alumina industry analysis • Short term alumina outlook • B&A commercial strategy (2)
Slide 3: Industry structure
Industry structure 1 (3)
Slide 4: Alumina market is consolidating
Alumina market is consolidating Net long alumina position, million tonnes Alcoa 4.3 Alcoa 8.8 Vale 3.0 Hydro 2.1 Glencore 2.4 BHP Billiton 1.7 BHP Billiton 1.9 Rio Tinto Alcan 1.6 Kaiser 1.0 UC Rusal -0.8 Alcan 0.8 Vedanta -1.1 Sual 0.7 Century -1.1 Rio Tinto 0.5 Alba -1.7 Pechiney 0.4 China -1.9 VA
Slide 5: Global industry structure
Global industry structure Production in 2011 in aluminium equivalents excl. China, thousand mt 9,000 Alumina Aluminium 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 A lcoa Rio Tint o Alcan UC Rusal Norsk Hydro BHP Billiton Dubal Aluminium Bahrain Cent ury V edant a Source: CRU, Hydro (5)
Slide 6: Raw material is key to our aluminium future
Raw material is key to our aluminium future Aluminium equivalent consolidated capacity, million tonnes • Long position in End-2011 Post-CAP and Paragominas bauxite and alumina creates flexibility 4.9 4.3 • Strategically attractive 3.8 MRN- assets contract 3.3 3.4 • New business MRN- 2.4 2.4 opportun
Slide 7: ROW cash cost curve – several refineries cash negative
ROW cash cost curve – several refineries cash negative ROW ex China business operating cost curve, in USD/t 500 100% closed down refineries 450 400 350 Platts 300 250 200 150 100 50 0 0 2 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50 52 54 56 58 60 62 64 66 68 Production Sourc
Slide 8: Stabilizing bauxite and alumina performance
Stabilizing bauxite and alumina performance Annualized production million mt 10 • Paragominas Q1 2012 bauxite 9 production up 26% from 1H 2011 8 7 • Alunorte Q1 2012 alumina 6 production up 6% from 1H 2011 5 4 • Stabilizing production at higher level 3 • Paragominas above 9 mtpy 2 • Alunorte above 6
Slide 9: Shift towards shorter contract durations and index pricing
Shift towards shorter contract durations and index pricing % of LME per tonne alumina for Contract durations long-term contracts <2000 2011 13.00-14.00% 13.25-15.25% 12.00-13.00% 20% 20% 25% 45% 35% 55% Long-term contracts (>6 years) Medium-term contracts (3-5 years) Spot (< 2 years) 1990-2000 2000-
Slide 10: Bauxite and alumina industry analysis – focus on China
Bauxite and 2 alumina industry analysis – focus on China (10)
Slide 11: Healthy growth in aluminium demand
Healthy growth in aluminium demand Global trends Demand for semis Million mt 120 5-7% annual growth 100 49 80 36 60 Capabilities 23 40 53 45 35 20 0 2010 2015 2020 Source: CRU World outside China China (11)
Slide 12: China’s import of bauxite and alumina
China’s import of bauxite and alumina 2000 – 2012 Million tonnes Alumina equivalents Bauxite import Alumina import 30 25 20 15 10 5 0 2000 2002 2004 2006 2008 2010 2012* Source: Hydro analysis, Antaike *YTD 2012 annualized (12)
Slide 13: Around 1/3 of Chinese alumina capacity is based on imported bauxite
Around 1/3 of Chinese alumina capacity is based on imported bauxite Existing capacity Alumina capacity based on imported In mt bauxite Expansions 5 27 0 5 1 1 1 21 0 0 1 17 4 Shandong Henan Chongqing Inner Total Mongolia • Refineries constructed to import of bauxite is not able to use Chinese bauxit
Slide 14: Domestic bauxite production limited by low quality and depletion of reserves
Domestic bauxite production limited by low quality and depletion of reserves Chinese bauxite reserves • Increasing cost of mining Figures in billion mt • Majority of the reserves controlled by 4 companies ~4.0 ~ 3.5 ~3.0 Reasonable quality1) Low quality1) 2012 2017 2025 1) Estimate based on C&M depl
Slide 15: 30-40% of Chinese refineries estimated to be cash negative
30-40% of Chinese refineries estimated to be cash negative - and costs will increase Cash cost curve, Chinese alumina refineries 2012 -Key cost drivers: 500 -Energy -Bauxite 450 400 Current price Other 350 Energy 300 250 Caustic 200 150 100 Bauxite 50 0 Guangxi Shanxi Guizhou Chongqing Henan Shandon
Slide 16: Increased Chinese dependency on import
Increased Chinese dependency on import Demand for semis, China, million mt 60 50 40 China’s demand for semis expected to 49 30 increase substantially going forward… 36 20 23 10 0 2010 2015 2020 Annualized aluminium equivalents*, million mt Illustrative 2006 2007 2008 2009 2010 2011 2012 development
Slide 17: Indonesia - major bauxite supplier to China
Indonesia - major bauxite supplier to China Exports restricted short term, not sustainable long term Indonesia largest supplier of ..but future production is expected gibbsite bauxite to China by far.. to decrease significantly • Short term: Government will restrict export • Licenses to be given to
Slide 18: Concentrated global bauxite reserves - options for China highly uncertain
Concentrated global bauxite reserves - options for China highly uncertain Billion mt Guinea 41.0 China1) 3.8 0.9 Jamaica Mali Vietnam 1.1 4.0 1.2 4.7 0.5 Venezuela 0.0 India 1.8 1.6 0.3 0.4 0.4 Indonesia Cameroon 1.0 1.2 0.5 0.0 Australia Brazil 9.5 8.2 5.9 2.0 Atlantic Pacific Big-league (Top- 3) T
Slide 19: Australia major source of bauxite to China - Guinea potentially becoming more important
Australia major source of bauxite to China - Guinea potentially becoming more important Chinese imports Bauxite import in alumina equivalents • Pacific will still be major Figures in million tons source of bauxite to China 25-30 Chinese • Guinea possibly becoming 20-25 bauxite increasingly important
Slide 20: Summary bauxite and alumina market long-term
Summary bauxite and alumina market long-term • Scarcity of domestic economical bauxite resources in China • Indonesia expected to reduce export significantly - outcome highly uncertain • Limited short-term alternatives for Chinese bauxite imports • Guinea a possible long term solution for covering t
Slide 21: Short-term alumina market supply and demand outlook
Short-term alumina 3 market supply and demand outlook (21)
Slide 22: Announced smelter closures and disruptions
Announced smelter closures and disruptions 1.8-2.1 In million mt Hillside Puerto Madryn Alma Shawignan Rusal Full year effect Kurri Kurri for 2012 Tiwai Point ~1 mt Lynemouth Vlissingen Porto Vesme La Coruña Aviles Slatina Europe Australia Russia North America Other Production loss 2012 Market curta
Slide 23: Major projects can add ~3 million mt of primary aluminium capacity
Major projects can add ~ 3 million mt of primary aluminium capacity in the next years In million mt ~3 Hormozal Press Metal Arak Sarawak Mahan Korba Ma’aden Taishet Boguchansky Russia Saudi Arabia India Malaysia Iran Capacity increase Source: CRU, Hydro Analysis (23)
Slide 24: Changes in alumina supply 2012/2013
Changes in alumina supply 2012/2013 ROW outside China In million mt New capacity ~5 Restart old Curtailments Worsley Yarwun Vietnam India USA Alcoa/Rusal Total (24)
Slide 25: Alumina - supply/demand excl. China
Alumina - supply/demand excl. China Global ex China (annualized), in thousand mt World ex China Supply World ex China Demand World Demand incl China export 60 000 50 000 40 000 30 000 20 000 10 000 - Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2H 2013* 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 201
Slide 26: Alumina - supply/demand China
Alumina - supply/demand China China (annualized), in thousand mt China Produc tion China Import China Demand 50 000 45 000 40 000 35 000 30 000 25 000 20 000 15 000 10 000 5 000 0 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 2H 2013* 2009 2010 2010 2010 2010 2011 2011 2011 2011 2012 2012 2012* *forecast Source:
Slide 27: Chinese alumina import vary with prices
Chinese alumina import vary with prices Will Chinese alumina refineries be competitive compared to AUS import? (27)
Slide 28: China: A stabilizing factor in the alumina market
China: A stabilizing factor in the alumina market Picture might change due to potential shortage of bauxite Source: CRU, Hydro (28)
Slide 29: Key factors - short term alumina market
Key factors - short term alumina market • Growth outlook: • Europe • US • China • ROW • Smelter & refinery curtailments • Indonesia development • Export to China (29)
Slide 30: CAP-project postponed
CAP-project postponed • Uncertain short- and medium term supply/demand balance and uncertain development in the world economy • Long-term alumina market view unchanged • Highly attractive, low risk project (30)
Slide 31: B&A Commercial Strategy
B&A Commercial 4 Strategy (31)
Slide 32: Alumina index price
Alumina index price Platts index in USD Index pricing proven successful USD per mt in a period of weak markets! 500 18.0 % 450 17.0 % 400 16.0 % 350 15.0 % 300 14.0 % 250 13.0 % 200 12.0 % 16/08/10 16/12/10 16/04/11 16/08/11 16/12/11 16/04/12 Platts Index USD/t Platts Index, % (32)
Slide 33: Hydro’s commercial strategy - alumina
Hydro’s commercial strategy - alumina • Move towards index pricing (PAX) • Provide spot market liquidity and report trades • New contracts to be based on index pricing • Gives right incentives for the industry • Focus on contracts with short to medium-term duration • Focus on selling to end-users •
Slide 34: Hydro’s commercial strategy - bauxite
Hydro’s commercial strategy - bauxite • Delink from LME-formula • Move towards index price link (PAX) • Link to bauxite and alumina fundamentals • Majority sold on short and medium term contracts • Increased investment cost requires higher prices (34)
Slide 35: Summary
Summary (35)
Slide 36: Key take-aways
Key take-aways • China to become increasingly dependent on imports • Initially bauxite, but could switch to alumina or metal • Indonesia a key factor in the years to come • Increased barriers for bauxite and alumina projects • Political risk and scarcity of available resources (36)
Slide 37: www.hydro.com
www.hydro.com (37) yp HYDRO