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NEW SUPPLY PROSPECTS: WHEN AND WHERE? Peter Finnimore Head of Sales and Marketing

NEW SUPPLY PROSPECTS: WHEN AND WHERE? Peter Finnimore Head of Sales and Marketing. 20th International Aluminium Conference Atlanta, September 26-28, 2005. 1. The World as We Currently Know It . . . Major Asian Countries: China Production 6700 TT Consumption 6100 TT Balance +600 TT

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NEW SUPPLY PROSPECTS: WHEN AND WHERE? Peter Finnimore Head of Sales and Marketing

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  1. NEW SUPPLY PROSPECTS: WHEN AND WHERE?Peter FinnimoreHead of Sales and Marketing 20th International Aluminium ConferenceAtlanta, September 26-28, 2005 1

  2. The World as We Currently Know It . . . • Major Asian Countries: • China • Production 6700 TT • Consumption 6100 TT • Balance +600 TT • Japan • Production - - - • Consumption 2100 TT • Balance -2100 TT • Middle East • Production 1400 TT • Consumption 600 TT • Balance 800 TT ‘000 MT Russia N.America Europe Asia Africa L.America Oceania Legend: Production Consumption Balance Source: RUSAL, Brook Hunt

  3. How We See 2009 • Major Asian Countries: • China • Production 9200 TT • Consumption 9000 TT • Balance +200 TT • Japan • Production - - - • Consumption 2100 TT • Balance -2100 TT • Middle East • Production 1900 TT • Consumption 770 TT • Balance 1130 TT ‘000 MT Russia N.America Europe Asia Africa L.America Oceania Legend: Production Consumption Balance Source: Rusal, Brook Hunt

  4. The Macro View – Demand Will Continue to Grow 2004 2009 • European and American market shares are going down due to significant demand growth in Asian developing regions, first of all – in China • Average y.o.y world aluminium demand growth is 4,3% in 2005 – 2009 Source: forecast 2009 – RUSAL, Brook Hunt

  5. World Aluminium Production Dynamics • Average y.o.y world aluminium production growth will be 4,4% in 2005 – 2009. • World production increase is expected mainly due to growth in China, Russia, Middle East. Source: forecast 2009 – RUSAL, Brook Hunt

  6. How We See Regional Opportunities

  7. India New Projects Primary Aluminium Production (MT) Export Supply 2004 • Critical Issues • Government prefer alumina-aluminium integrated complex construction to bauxite-alumina complex • Power shortages in India lead to necessity of self generation, but coal costs are high resulting in high power costs • Nalco looking to develop next block of smelting capacity in Middle East (UAE) • NGO’s pressure on mining projects increases • Smelter production will rise to meet self-sufficiency goals but India unlikely to become a significant net exporter. Production and consumption rates are nearly the same Export volumes are about 100 ktpa Source: Brook Hunt, UN Statistic

  8. China New Projects Primary Aluminium Production (MT) Consumption 2004 – 5,95 mt Export Supply 2004 • Critical Issues • Overcapacity of Chinese primary aluminium industry • Many Chinese aluminium smelters are making losses due to high alumina, power costs and environmental pressures • Changes in tax policy have increased costs for some smelters • Government attempting to reduce net exports to zero – but failing so far • Next round of measures involve consolidation and closer of small smelters in coastal and eastern provinces • Aluminium producers more focused on developing domestic alumina sources and lowering power costs than adding primary capacity Total export – 1,7 mt Source: Brook Hunt, UN Statistic

  9. Iceland New Projects Primary Aluminium Production (MT) • Critical Issues • State owned energy provider Landsvirkjun`s (generates 88% of Iceland’s electricity) commitment to the existing producers • The possibility of HPS construction is limited • Necessity of carrying the cost of geothermal field development for future electricity generation • Existing emission credits restricts the possibility of primary aluminium production growth • Strong competition in Greenfield projects • Logistics (including raw materials) Export Supply 2004 100% of produced metal is exported to W.Europe Source: Brook Hunt, UN Statistic

  10. South America New Projects Primary Aluminium Production (MT) • Critical Issues • Possible privatization of mining and aluminium industries in Venezuela (unlikely in near term) • Activity of Chinese companies & others in the region’s raw materials • Aluar expansion (Argentina) • Energy equation is still a limiting issue for greenfield projects • Political uncertainty Source: Brook Hunt

  11. Middle East New Projects Primary Aluminium Production (MT) • Critical Issues • Possibility of high primary aluminium production growth in the region • Alba/Dubal’s Brownfield projects – increase in VA. • Alcan/Nalco’s plans to construct large aluminium smelters • Oman`s Sohar smelter supported by Alcan • Qatar greenfield smelter supported by Norsk Hydro • Saudi Arabia pushing ahead with the Ma`aden project • Gas prices are no-longer as attractive as they were, causing delays for projects such as Qatar and possibly Ma’aden • Long term projects and a Middle Eastern power grid may eventually push gas prices in the region to levels that are unattractive for aluminium smelting Source: Brook Hunt

  12. Western Europe New Projects Primary Aluminium Production (MT) • Critical Issues • Shortage of energy = high power tariffs • Could force up to 930 kt capacity closure (near term more likely less) • Uncertainty regarding 6% duty • New legislations – REACH • Significant smelter production of major competitors in the region. • Increased focus on secondary smelting opportunities and value-added niche markets • Deficit likely to increase in western Europe with more metal supplied from Russia and the CIS (& Iceland) Export Supply 2004 Source: Brook Hunt

  13. North America New Projects Primary Aluminium Production (MT) Export Supply 2004 • Critical Issues • Significant smelter production and strong competition in the region • Restarts & closures in ‘balance’? • Best opportunities for competitive power remain in Canada • However, more closures in the US appear likely due to energy costs Net position shown favours modest growth in capacity Source: Brook Hunt

  14. Oceania New Projects Primary Aluminium Production (MT) Export Supply 2004 • Critical Issues • Tightened environmental requirements • Increasing cost of production and construction of new capacities • Australian dollar’s appreciation to US dollar • More likely focus on bauxite/alumina potential Source: Brook Hunt

  15. Russia and CIS New Projects Primary Aluminium Production (MT) • Critical Issues • Risk in increase in energy prices – though manageable • High inflation of rouble • Russia and CIS one of the few regions with stranded hydro-power capacity • Government supportive of development of these assets to supply increased aluminium production – oil income also providing the means to support • Rusal and Sual developing domestic alumina at Komi to support smelting projects in Siberia • CIS governments view Russia as potential developer of their power and aluminium assets Source: Brook Hunt, RUSAL

  16. Conclusions • Three regions where power equation still makes sense for smelting: • Russia and CIS will be developed as alumina becomes available • Latin America – power and environmental issues can be managed • Iceland – power is available but environmental restriction limit it use • Also opportunities in Middle East • Producers in traditional markets will need to be more inventive to maintain their position • Greater effort is conserve energy use • Increased secondary processing and value added for primary • Increased government assistance • BRICs • Brazil and Russia more likely to drive the industry in the future than India and China • India and Chinese growth will struggle given the high cost of energy

  17. A (Brief) RUSAL Perspective

  18. AnIntegratedCompany • A core objective – to grow into an energy and metals company • Hydropower is key – environmentally friendly and cost-effective • Central Asia a most attractive region • Key focus is on Tajikistan – unique hydro opportunity with Rogunskaya • Evaluating opportunities in Kyrgyzstan – huge potential up to export up to 10-12 billion kWT per annum

  19. Energy Key Also in Product Strategy • The move to value-added is supporting customer requirements/ expectations • Casting costs in high energy countries are not decreasing- all majors pursuing a value-added policy • Challenges for RUSAL will come from logistics (Siberian factor) • Opportunities in decentralized cast house system?There remains a market for commodity product • As with secondary production

  20. Over the Next 5 Years The Pathway Is Clear ‘000 MT Total production in 2009 – 3 960 000 MT

  21. Supplementary Slides

  22. RUSAL’s Value Added Strategy The Objective: To realize the best return over time for Rusal production capacity • The Strategy • Grow value-added sales (to 50% of total) • Increase end-user share of business (versus traders) • Customer driven • Increased return • Market balance

  23. World Aluminium Demand Aluminium Consumption by Industry World Aluminium Demand W.World China Source: Brook Hunt, RUSAL

  24. BRIC: Consumption Russia Brazil India China • China is a major contributor to the growth in aluminium demand • India to emerge as major consuming market Source: Brook Hunt, RUSAL

  25. Mature Markets: Consumption Australia USA Western Europe • Little growth, but positive dynamics in 2005 - 2009 Source: Brook Hunt

  26. RUSAL’s Export Share in Regional Consumption (2004) European Market Asian Market North American Market • In North America and Europe – smelter production of major competitors is significant • In Asia – Chalco, Dubal and Alba have been increasing their aluminium exports

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