Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (2014)
39 slides from Norsk Hydro Asa's investor day presentation, 2014
Slide 1: Market outlook
Market outlook Arvid Moss Erik Fossum Capital Markets Day 2014 (1)
Slide 2: Agenda market outlook
Agenda market outlook • 1 Macroeconomic and downstream outlook • 2 Primary supply/demand • 3 Premium development • 4 Bauxite and alumina market • 5 China • 6 Energy • 7 Long-term outlook (2)
Slide 3: Macroeconomic and downstream outlook
Macroeconomic and downstream outlook 01 (3)
Slide 4: Broad-based aluminium demand growth across segments and regions
Broad-based aluminium demand growth across segments and regions Global aluminium semis demand, per segment Global aluminium semis demand, per region Million tonnes (2014) Million tonnes (2014) Central & South America Consumer durables Eastern Other Africa Europe Packaging Transport Global semis West
Slide 5: Aluminium demand progressing in line with economic growth
Aluminium demand progressing in line with economic growth Economic activity and semis demand picking up in western economies The US Western Europe YoY-growth YoY-growth GDP 8.0 % 8.0 % Industrial production Total semis demand 6.0 % 6.0 % 4.0 % 4.0 % 2.0 % 2.0 % 0.0 % 0.0 % -2.0 % -2.0 % -4.0 % -4.0
Slide 6: Legislation is key driver for growing intensity in auto segment
Legislation is key driver for growing intensity in auto segment US: CAFE target European Union: emissions target MPG: miles per gallon g/km: grams of CO2 per km 60 200 180 50 160 40 140 120 30 100 80 20 60 40 10 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2
Slide 7: High growth in transport segment supported by aluminium usage per car and vehicle volumes
High growth in transport segment supported both by increasing aluminium usage per car and vehicle production volumes Aluminium content in cars increasing Global semis demand for transportation sector by product form Average kg per car Million tonnes Total: 6,8 %* 250 Forecast 30 4,3 %* 25 9,6 %* 200
Slide 8: Rolled products segment supported by transport sector and other industrial segments
Rolled products segment much supported by transport sector, but also general improvements in other industrial segments General rolled products demand, selected regions Expected market development YoY-growth • Strong demand contribution from increased 10.0 % aluminium usage in transport segment 8.0 %
Slide 9: Extrusion outlook improving on solid construction activity in the US and Europe
Extrusion outlook improving on the back of solid construction activity in the US and improvement from low levels in Europe Extrusion demand, selected regions Expected market development YoY-growth • US housing market sustaining positive 10.0 % momentum 8.0 % • Construction activity in peripheral Eur
Slide 10: Primary supply/demand
Primary supply/demand 02 (10)
Slide 11: Recap Capital Markets Day 2013: Balanced outlook for 2014
Recap Capital Markets Day 2013: Balanced outlook for 2014 Possibility of modest inventory decline World ex-China Supply Demand Demand growth Thousand tonnes base case: 2-4 % 28 000 26 000 24 000 22 000 Demand 20 000 Supply influences influences Positive US momentum 18 000 Potential curtailments Mode
Slide 12: Production curtailments and solid demand resulting in a market deficit for 2014
Production curtailments and solid demand resulting in a market deficit for 2014 World ex-China Supply Demand Est. demand growth Thousand tonnes 2014: 3 - 4 % 28 000 26 000 24 000 22 000 Demand 20 000 Supply influences influences Positive US momentum 18 000 Potential curtailments Moderate growth Pote
Slide 13: Expectations for modest inventory decline also in 2015
Expectations for modest inventory decline also in 2015 Tight market balance continuing World ex-China Supply Demand Demand growth Thousand tonnes base case: 3-4 % 28 000 26 000 24 000 22 000 Demand 20 000 influences Transport segment 18 000 Sustained US momentum Mixed development 16 000 in Eurozone
Slide 14: Supply growth next year mainly in Asian regions
Supply growth next year mainly in Asian regions World ex-China Supply Demand Demand growth Thousand tonnes base case: 3-4 % 28 000 Supply development 2015 26 000 (million tonnes) 24 000 Other ~0.4 Structural issues 22 000 Ramp-up challenges 20 000 Supply Potential influences curtailments, 18 000 Few
Slide 15: Premium development
Premium development Head of Commercial, Erik Fossum 03 (15)
Slide 16: Several factors have contributed to a steady rise in standard ingot premiums
Several factors have contributed to a steady rise in standard ingot premiums since the Financial crisis Customer price Ingot premiums historically low Two phases with different drivers for (USD per tonne) during the Financial Crisis rising ingot premiums 3 500 20.0 % European Duty-paid 18.0 % LME 3m
Slide 17: Solid ingot premium development amid metal tightness
Solid ingot premium development amid metal tightness Regional standard ingot premiums and contango Production less demand, (quarterly annualized)* USD per tonne LME 3m - cash World ex-China Thousand tonnes 600 100 3 500 80 500 60 2 500 400 40 1 500 300 20 0 500 200 -20 100 - 500 -40 0 -60 -1 500 Jan
Slide 18: Tighter metal balances amid smelter curtailments underpinning ingot premium levels
Tighter metal balances amid smelter curtailments further underpinning rise in standard ingot premium levels North America Europe Market balance, thousand tonnes Ingot premium (USD per tonne) Market balance, thousand tonnes Ingot premium (USD per tonne) - 500 500 -1 000 500 450 - 900 450 - 400 400 40
Slide 19: Declining stock levels, several warehouses complying with suggested LME rules
Declining stock levels, several warehouses already complying with suggested LME rules World-ex China reported primary aluminium inventories Stock levels selected warehouses Thousand tonnes Days Thousand tonnes 8 000 160 2 500 7 000 140 2 000 6 000 120 1 500 5 000 100 1 000 500 4 000 80 0 3 000 60 Ap
Slide 20: Product premiums also at record high levels
Product premiums also at record high levels USD per tonne 900 800 700 600 500 400 300 Product 200 premium lifted on its own 100 fundamentals 0 Jan-90 Feb-92 Mar-94 Apr-96 May-98 Jun-00 Jul-02 Aug-04 Sep-06 Oct-08 Nov-10 Dec-12 Oct-14 EI over ingot European duty-paid ingot Metal Bulletin Billet Premi
Slide 21: Bauxite and alumina market
Bauxite and alumina market 04 (21)
Slide 22: China developing new bauxite import sources
China developing new bauxite import sources No Indonesian bauxite exports translates to higher prices average CIF China Import volume by origin Value-in-use bauxite price increasing more Million tonnes USD per tonne 80 Delta 2014 vs 2011: 80 Indonesia -27 Avr CIF China Value-in-Use 70 Australia +7 7
Slide 23: Short term, new imports and inventory offer relief
Short term, new imports and inventory offer relief Enough volume, but higher cost Inventory and import excluding Indonesia No short/mid term bauxite squeeze Import ex-Indonesia Million tonnes Million tonnes • China demand for imported bauxite is below 4 million 45 Inventory (LHS) 3.5 tonnes per mont
Slide 24: Long term China has bauxite challenges
Long term China has bauxite challenges Greenfield is needed, but cost CIF China is uncertain Chinese bauxite import forecast More challenging in and outside China Million tonnes • Lower quality on new China domestic bauxite 55 resources • Domestic bauxite prices increasing, especially in the 50 new
Slide 25: Bauxite potentials
Bauxite potentials New sources being explored, but not expected to replace the importance of Indonesia All figures in billion tonnes 41,0 3,0 4,1 India 4,7 China 1,1 Jamaica Vietnam Guinea 9,5 8,7 2,0 Indonesia Total bauxite potential, Australia including undeveloped Brazil resources Bauxite supplie
Slide 26: Alumina curtailments have tilted China into domestic alumina deficit
Alumina curtailments have tilted China into domestic alumina deficit High impact on world alumina prices Platts FOB Australia and China domestic alumina balance (ex imports) USD per tonne Million tonnes 360 2.0 Sufficient slack in 350 1.5 available 1.0 bauxite & Lack of 340 sufficient 0.5 alumina ba
Slide 27: China
China 05 (27)
Slide 28: Chinese primary market in slight oversupply
Chinese primary market in slight oversupply Supply/Demand thousand tonnes 30 000 Supply Demand 25 000 20 000 Demand influences 15 000 Supply Softer development in influences real estate market Xinjiang projects Public investments 10 000 ramping up supporting infrastructure demand Restarts and closur
Slide 29: Chinese net semis exports picking up amid cost advantage
Chinese net semis exports picking up over the last months amid current cost advantage Semis exports Incentive for export* thousand tonnes (USD per tonne) 350 Increasing incentive for semis exports 1 000 and actual pick-up of volumes 300 800 Increased incentive for export* 250 600 200 400 150 200 100
Slide 30: Net semis exports stable as share of total production, Asia key destination
Net semis exports stable as share of total production, Asia key destination area Million tonnes Share Semis exports by destination Factors influencing semis export trend 50 10.0 % (2013) 45 3% 9% 40 8.0 % • Continued metal price advantage and VAT- 35 rebates 10% • Higher quality gives better export
Slide 31: China's metal flows underpinned by trade barriers
China’s metal flows underpinned by trade barriers at several parts of the value chain VAT Tolling Export duties Transport Premiums Million tonnes 2007 2008 2009 2010 2011 2012 2013 2014* • Balanced in primary metal 20 • Short upstream in the value chain, 15 mainly resolved through bauxite Net import
Slide 32: Energy
Energy 06 (32)
Slide 33: Current German & Nordic power prices low over last years
Current German & Nordic power prices low over last years German & Nordic power market, forward and history EUR per MWh 100 • Low CO2 price 90 80 • Relatively low fuel prices 70 • Lower power demand 60 50 • High growth in renewables 40 30 20 10 0 jan. 08 jan. 09 jan. 10 jan. 11 jan. 12 jan. 13 jan. 1
Slide 34: Nordic power generation expected to increase more than demand
Nordic power generation expected to increase more than demand Nordic power demand and consumption Main power price drivers medium & long term: TWh Fuel and CO2 Statistics Forecast 500 • Prices on coal, gas and CO2 are most important for power 450 prices via cross border trade with Germany, Poland an
Slide 35: Uncertain CO2 prices going forward
Uncertain CO2 prices going forward The possible CO2 price until 2030 spans a wide range • The EU ETS regulatory regime has high impact on EUR per tonne European power prices 60 − Final regulatory scheme for 2030 expected in second half of the decade 50 40 • CO2 costs are reflected in the power price
Slide 36: Brazilian power market affected by hydrological draught
Brazilian power market affected by hydrological draught BRL per Mwh • Brazilian power market suffering from historic 800 low inflows 700 • High short term balancing prices impacting 600 the power industry 500 • Hydro is covered on long term contract to 400 2024 for Albras 300 200 100 0 2002 2003 200
Slide 37: Long Term Outlook
Long Term Outlook 07 (37)
Slide 38: Global aluminium primary demand growth set to continue strong across regions and segments
Global aluminium primary demand growth set to experience continued strong growth across regions and segments Strong demand drivers in key aluminium segments Global Primary demand estimates Million tonnes Growth in automotive vehicle production Transport Aluminium content in cars increasing 69 Growth
Slide 39: Market outlook summary
• Solid, broad-based demand growth across segments and regions, but European macro uncertainty prevails • Primary market deficits expected to continue in World ex-China, gradually reducing inventories • Bauxite and alumina increasingly priced on their own merits • Increasing upstream costs lifting C