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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

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

20th International Aluminium ConferenceAtlanta, September 26-28, 2005

1

the world as we currently know it
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

how we see 2009
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

the macro view demand will continue to grow
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

world aluminium production dynamics
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

india
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

china
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

iceland
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

south america
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

middle east
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

western europe
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

north america
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

oceania
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

russia and cis
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

conclusions
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
an integrated company
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
energy key also in product strategy
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
over the next 5 years the pathway is clear
Over the Next 5 Years The Pathway Is Clear

‘000 MT

Total production in 2009 – 3 960 000 MT

rusal s value added strategy
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
world aluminium demand
World Aluminium Demand

Aluminium Consumption by Industry

World Aluminium Demand

W.World

China

Source: Brook Hunt, RUSAL

bric consumption
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

mature markets consumption
Mature Markets: Consumption

Australia

USA

Western Europe

  • Little growth, but positive dynamics in 2005 - 2009

Source: Brook Hunt

rusal s export share in regional consumption 2004
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