great expectations: the upcoming rationalisation of metals supply shaun browne, chairman, ame group
TRANSCRIPT
Great expectations: The upcoming rationalisation of metals
supply
Shaun Browne, Chairman, AME group
Great Expectations: Metals Supply and Political Economics
Shaun Browne
AME GroupOctober 2013
London, New York, Hong Kong, Beijing, Sydney
Relationship Support Research Engineering
London New York
Hong Kong Beijing Sydney
Engineering Economics – AME Group
AME Group Supply & Value Chain
Advanced Exploration• Geological Modelling to Prefeasibility
Project Development• Feasibility Studies to Commissioning
Production• Completion test, Debottlenecking, Expansions
Infrastructure & Transport Logistics• Ports, rail, barges, shipping & trucking
Beneficiation• Smelters, Refineries, Steel Mills, Hydrometallurgical/Pyrometallurgical.
General Commercial Marketing• Trading, Sales, Contracts
Manufacturing• Company Demand, Specifications
End User Analysis• Consumer real demand (not apparent demand)
Taking stock: The supply perspective
Aluminium: The new supply and technology war
Copper: A different type of squeeze
Nickel: Market consolidation and a shift to the East
Zinc: Restrictions or exercising restraint?
Agenda – Is this political economics?
The composition of growth is good news for a cyclical uplift in metals demand
Japanese Industrial Production and Copper Demand, 1979 - 2012
US Industrial Production and Copper Demand, 1964 - 2012
Source: AME
A recovery in construction from low levels will provide a welcome lift for metals in the Atlantic Economies
-30%
-20%
-10%
0%
10%
20%
30%
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
Japan Industrial Production % ch p.a.Japan Copper demand % ch p.a.
% ch. p.a.
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
1964
1967
1970
1973
1976
1979
1982
1985
1988
1991
1994
1997
2000
2003
2006
2009
2012
US IP % ch p.a. US Copper demand % ch. P.a.
% ch. p.a.
Construction drivenIP Driven
Taking stock: The supply perspective
Aluminium: The new supply and technology war
Copper: A different type of squeeze
Nickel: Market consolidation and a shift to the East
Zinc: Restrictions or exercising restraint?
Agenda – Is this political economics?
Aluminium:The supply and technology war
New supply holding prices under $1,800/t in the third quarter of 2013
Aluminium Projects scheduled to be commissioned in 2013
Source: AME
Oversupply means not all projects will commission as scheduled
Project New/Expansion Company Country Capacity (kt) LikelihoodMahan New Hindalco Industries India 360 CommittedMa'aden New Alcoa and Saudi Arabian Mining Saudi Arabia 740 CommittedBoguchansk (BEMO) New RUSAL Russia 300 CommittedTaishet (Irkutsk) New RUSAL Russia 100 CommittedHuimin New China Hongqiao Group China 240 CommittedPress Metal Bintulu New Press Metal Malaysia 300 CommittedChongqing Qineng New Chongqing Qineng Aluminium China 340 CommittedChongqing Tiantai New Chongqing Tiantai Aluminium China 100 CommittedCPIC Mongolia Jinlian New CPIC Mongolia Jinlian China 500 CommittedGansu Dongxing New Gansu Dongxing Aluminium China 550 CommittedQinghai West New Qinghai West Hydropow er China 300 CommittedXinjiang Tianlong New Xinjiang Tianlong Aluminum China 100 CommittedXinjiang Xinfa New Xinjiang Xinfa China 800 CommittedTianshan New Tianshan Aluminum China 300 CommittedXinjiang Shenhuo New Xinjiang Shenhuo China 400 CommittedXinjiang Dongfang Xiw ang New Xinjiang Dongfang Xiw ang China 400 CommittedXinjiang Jiarun New Xinjiang Jiarun China 50 CommittedZunyi Weiming New Zunyi Weiming Aluminum China 40 CommittedGuangxi Suyuan Xinshan New Guangxi Suyuan Xinshan China 200 CommittedLintao New Lintao Aluminium China 100 CommittedXinfa Xinjiang New Shandong Chiping Xinfa Xinjiang China 500 CommittedArvida Expansion Rio Tinto Alcan Canada 60 CommittedSumgait Expansion DETAL Azerbaijan 50 CommittedHirakud Expansion Hindalco Industries India 50 CommittedBalco Expansion Vedanta Resources India 325 CommittedXinjiang Tianshan Expansion Xinjiang Tianshan Aluminium China 140 CommittedTotal 7345
Chinese committed supply next year is breathtaking – more production cuts coming
Aluminium Projects expected to be commissioned in 2014
Source: AME
More project commissioning deferrals will be announced
New Aluminium centre of the world – Xinjiang Uygur Autonomous Region
Project Company Country Capacity (kt)Xining Sanmexia Tianyuan China 500Aditya Al Hindalco Industries India 360Kitimat Rio Tinto Alcan Canada 420Boguchansk RUSAL Russia 300Chalco Xinjiang Chalco China 1000Chongqing Qineng Chongqing Qineng Aluminium China 160Tianjin Jinhe Tianjin Jinhe China 300Qinghai Qinghai Industry Investment China 300Xinjiang Tianlong Xinjiang Tianlong Aluminum China 200Tianshan Tianshan Aluminum China 300Xinjiang Shenhuo Xinjiang Shenhuo China 400Xinjiang Dongfang Xiw ang Xinjiang Dongfang Xiw ang China 400Xinjiang Jiarun Xinjiang Jiarun China 500Guangxi Suyuan Xinshan Guangxi Suyuan Xinshan China 100Ganja DETAL Azerbaijan 50Huimin China Hongqiao Group China 240Zouping China Hongqiao Group China 240Jharsuguda Vedanta Resources India 1250EMAL Dubai Aluminium Abu Dhabi 500Total 7520
Proposed smelting capacity in China would eclipse current global capacity by 2017
Source: AME
Estimated Chinese Aluminium Smelting Capacity 2000 – 2015
We do not expect any new capacity to be commissioned in the West which is not already under construction
3,000 3,6004,358
5,5636,837
7,8069,350
12,559 13,180 12,964
16,13117,786
19,72221,260 21,260 21,260
6,006
15,239
23,456
2,631 1,616
6,54110,848
10,550
8,795
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
kt
Pending capacity expected from new builds Forecast AL from Domestic ALA/Domestic BX
Forecast AL metal from Domestic ALA/Imported BX Forecast AL from Imported ALA
2013 World production
Aluminium production of the future will be a technology war
Soderberg vs Pre-bake technology
Source: AME
Typical size vs power for reduction pots
Chinese producers are winning the war…for now…
0%
5%
10%
15%
20%
25%
30%
35%
40%
<200 200-299kA 300-399kA 400-499kA >500kA
China
Non-China
11.5
12.0
12.5
13.0
13.5
14.0
14.5
15.0
15.5
16.0
16.5
17.0
17.5
18.0
18.5
19.0
0.0 0.5 1.0 1.5 2.0 2.5 3.0 3.5 4.0
Po
we
r E
ffic
ien
cy
(D
C k
Wh
/kg
)
Tonnes of metal per pot per day
Existing high production pots
Soderberg technology
VSS
HSS
Prebake technology
Soderberg capacity will experience faster obsolescence than previously expected
Soderberg vs Pre-bake Smelter Technology for Key Aluminium Producers (Includes affiliated smelters)
Source: AME
The question is now when the next step change in technology will be
0% 20% 40% 60% 80% 100%
2013
2000
2013
2000
2013
2000
2013
2000
2013
2000
Pre-bake Soderberg
RUSAL
RioTinto Alcan
Norsk Hydro
Chalco
Alcoa
Taking stock: The supply perspective
Aluminium: The new supply and technology war
Copper: A different type of squeeze
Nickel: Market consolidation and a shift to the East
Zinc: Restrictions or exercising restraint?
Agenda – Is this political economics?
Copper:A different type of squeeze
Copper smelting cost and energy consumption for different smelting technologies
• Reverberatory and Noranda furnaces are high energy consumers resulting in high cost of production
• Older technology progressively being replaced with Bath and Mitsubishi smelters
o Cheaper cost of production
o Better emission capture
o Flash capex high
• No reverberatory technology built since the fall of the iron curtain
Smelter technology costs and energy consumption rates
A shift to cleaner, lower cost technologies will increase capex requirements for the base metals smelting industry
0
2
4
6
8
10
12
14
16
$0
$100
$200
$300
$400
$500
$600
$700
$800
Bath Flash Mitsubishi Noranda Reverb
GJ/t Cu$/t Cu
Smelting cost $/t anode (LHS)
Energy Consumption, GJ/t anode (RHS)
Sulphur dioxide and acid plants will be a medium term defining feature for smelters
The changing environmental landscape changing competitive landscape for base metals smelter
Average SO2 Daily Emission Limits (μg/m3) 2013
Tighter emission standards will generally cause refits, not closures
Source: AME
0
50
100
150
200
250
300
350
400
Rus
sia
Per
u
Jap
an
Arm
enia
Aus
tria
Bel
giu
m
Bul
gar
ia
Fin
land
Ger
man
y
Po
land
Ro
man
ia
Slo
vak …
So
uthe
r Afr
ica
Sp
ain
Sw
eden
Zam
bia
EU
Zo
ne
Ko
rea
Ser
bia
Ukr
aine
Ind
ia
Phi
lipp
ines
Aus
tral
ia
Chi
le
Chi
na
Thai
land
Can
ada
Mex
ico
Bra
zil
Ind
one
sia
Iran
Kaz
akhs
tan
Nam
ibia
Om
an
US
A
Uzb
ekis
tan
μg/m3
WHO Limit
Despite better TCs, supply chain margins will sit with concentrate producers
Copper Smelter Cash Costs
Source: AME
Operating and upgrade costs will determine smelter viability
Further concentrate delays mean TCs may disappoint, adding additional pressure
Supply from new copper mine projects – 2012 vs. 2013
Source: AME
-3,000
-2,000
-1,000
-
1,000
2,000
3,000
4,000
5,000
6,000
2011 2012 2013 2014 2015 2016 2017 2018
2012 - 2013 Supply Reduction - Base Case2012 - 2013 Supply Reduction - Possible ProjectsAME Base case - production f rom new projects - 2012AME Base case - production f rom new projects - 2013
kt
More marginal projects now less probable
than before
AME’s base case supply forecast for 2015 has been reduced by 2Mt on project delays and cancellations
Taking stock: The supply perspective
Aluminium: The new supply and technology war
Copper: A different type of squeeze
Nickel: Market consolidation and a shift to the East
Zinc: Restrictions or exercising restraint?
Agenda – Is this political economics?
Nickel:Market consolidation and a shift to the East
The medium term demand outlook for nickel remains favourable
Nickel to Steel Consumption Ratio, 2013
Source: AME
Lower nickel prices will encourage a shift back to 300 series stainless steel
AME forecasts Chinese Nickel Pig Iron (NPI) production of 430kt in 2013
Estimated NPI operating costs, 2013
Source: AME
Iron Credits make Chinese ferronickel cash costs opaque
The Indonesian government has backed away from a complete ban of nickel ore exports
• This adds to the 500+kt of capacity added in China over the last 6 years
• More Indonesian project announcements are expected
• Not enough ore and demand to go around in the rest of Asia
• Suphides will continue to shrink as a share
China Nickel Ore Imports, 2009 - 2013
Source: China Customs, AME
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Jan
-09
Mar
-09
May
-09
Jul-
09S
ep-0
9N
ov
-09
Jan
-10
Mar
-10
May
-10
Jul-
10S
ep-1
0N
ov
-10
Jan
-11
Mar
-11
May
-11
Jul-
11S
ep-1
1N
ov
-11
Jan
-12
Mar
-12
May
-12
Jul-
12S
ep-1
2N
ov
-12
Jan
-13
Mar
-13
May
-13
Jul-
13
kt
Indonesia Philippines
The weight of production firmly now in Asia
Proposed Ferronickel smelters in Indonesia
Smelter Status Start Year Capacity (kt)
North Konaw e Construction 2014 24Morow ali Regency Probable 2015 5Konaw e Utara FeNi Probable 2015 20SMI Smelter (FeNi) Construction 2015 30South Kalimatan Steel Possible 2016 5Aquila Nickel Project Feasibility 2017 38
East Halmahera FeNi Possible 2019 24Total 146
Taking stock: The supply perspective
Aluminium: The new supply and technology war
Copper: A different type of squeeze
Nickel: Market consolidation and a shift to the East
Zinc: Restrictions or exercising restraint?
Agenda – Is this political economics?
Zinc:Restrictions or exercising restraint?
After two disappointing years, rising incomes gives zinc demand leverage to steel production
Source: AME
Zinc consumption (kg) per tonne of steel production, 2013
Global zinc consumption % ch. p.a, 2005 - 2013
-15%
-10%
-5%
0%
5%
10%
15%
20%
2005
Q4
2006
Q2
2006
Q4
2007
Q2
2007
Q4
2008
Q2
2008
Q4
2009
Q2
2009
Q4
2010
Q2
2010
Q4
2011
Q2
2011
Q4
2012
Q2
2012
Q4
2013
Q2
% ch. p.a.
Zinc is becoming a demand story
0
2
4
6
8
10
12
14
16
Bra
zil
Ind
ia
Chi
na
S. K
ore
a
Italy
US
A
Ger
man
y
Fra
nce
kg/t steel
Zinc still has the long term demand narrative despite expected demand slowdown
Zinc Intensity of GDP – The Japanese and US experience
Source: AME
Zinc in particular has leverage to growing wealth in the East
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,000
45,000
50,000
- 100 200 300 400 500
GD
P P
er C
apit
a (U
SD
)
Zinc Intensity (Tonnes/$BillionGDP)
US
Japan
Linear (US)
Linear (Japan)
-
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
5,000
Jan
-03
Sep
-03
May
-04
Jan
-05
Sep
-05
May
-06
Jan
-07
Sep
-07
May
-08
Jan
-09
Sep
-09
May
-10
Jan
-11
Sep
-11
May
-12
Jan
-13
-
200
400
600
800
1,000
1,200
1,400
1,600
1,800
US$/t kt
LME Stocks (RHS) SHFE Stocks (RHS)
LME Zinc Price (LHS)
Chinese production cuts have put the lead & zinc markets in a sweet spot, temporarily.
Zinc prices and stocks, 2003 – 2013 Refined Zinc Production (kt),
2003 - 2013
AME expects a 100kt zinc deficit and 200kt lead deficit in 2013
Source: AME, Bloomberg
-
100
200
300
400
500
600
700
Jan
-03
Aug
-03
Mar
-04
Oct
-04
May
-05
Dec
-05
Jul-
06
Feb
-07
Sep
-07
Ap
r-08
No
v-08
Jun
-09
Jan
-10
Aug
-10
Mar
-11
Oct
-11
May
-12
Dec
-12
Jul-
13
kt
2012-6.1%
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