Great expectations:
The upcoming rationalisation of metals supply
Shaun Browne, Chairman, AME group
Great Expectations:
Metals Supply and Political Economics
Shaun Browne
AME Group
October 2013
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Geological Modelling to Prefeasibility
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Completion test, Debottlenecking, Expansions
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Consumer real demand (not apparent demand)
Agenda – Is this political economics?
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?
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
40%
30%
% ch. p.a.
% ch. p.a.
30%
20%
20%
10%
10%
0%
0%
-10%
-10%
-20%
-20%
-30%
Construction driven
IP Driven
Japan Industrial Production % ch p.a.
Japan Copper demand % ch p.a.
US IP % ch p.a.
2012
2009
2006
2003
2000
1997
1994
1991
1988
1985
1982
1979
1976
1973
1970
1967
1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009 2012
1964
-40%
-30%
US Copper demand % ch. P.a.
A recovery in construction from low levels will provide a welcome lift for metals in
the Atlantic Economies
Source: AME
Agenda – Is this political economics?
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?
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
Project
Mahan
Ma'aden
Boguchansk (BEMO)
Taishet (Irkutsk)
Huimin
Press Metal Bintulu
Chongqing Qineng
Chongqing Tiantai
CPIC Mongolia Jinlian
Gansu Dongxing
Qinghai West
Xinjiang Tianlong
Xinjiang Xinfa
Tianshan
Xinjiang Shenhuo
Xinjiang Dongfang Xiw ang
Xinjiang Jiarun
Zunyi Weiming
Guangxi Suyuan Xinshan
Lintao
Xinfa Xinjiang
Arvida
Sumgait
Hirakud
Balco
Xinjiang Tianshan
Total
New /Expansion
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
New
Expansion
Expansion
Expansion
Expansion
Expansion
Com pany
Hindalco Industries
Alcoa and Saudi Arabian Mining
RUSAL
RUSAL
China Hongqiao Group
Press Metal
Chongqing Qineng Aluminium
Chongqing Tiantai Aluminium
CPIC Mongolia Jinlian
Gansu Dongxing Aluminium
Qinghai West Hydropow er
Xinjiang Tianlong Aluminum
Xinjiang Xinfa
Tianshan Aluminum
Xinjiang Shenhuo
Xinjiang Dongfang Xiw ang
Xinjiang Jiarun
Zunyi Weiming Aluminum
Guangxi Suyuan Xinshan
Lintao Aluminium
Shandong Chiping Xinfa Xinjiang
Rio Tinto Alcan
DETAL
Hindalco Industries
Vedanta Resources
Xinjiang Tianshan Aluminium
Country
Capacity (kt)
India
360
Saudi Arabia
740
Russia
300
Russia
100
China
240
Malaysia
300
China
340
China
100
China
500
China
550
China
300
China
100
China
800
China
300
China
400
China
400
China
50
China
40
China
200
China
100
China
500
Canada
60
Azerbaijan
50
India
50
India
325
China
140
7345
Likelihood
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Committed
Source: AME
Oversupply means not all projects will commission as scheduled
Chinese committed supply next year is breathtaking –
more production cuts coming
Aluminium Projects expected to be
commissioned in 2014
Project
Xining
Aditya Al
Kitimat
Boguchansk
Chalco Xinjiang
Chongqing Qineng
Tianjin Jinhe
Qinghai
Xinjiang Tianlong
Tianshan
Xinjiang Shenhuo
Xinjiang Dongfang Xiw ang
Xinjiang Jiarun
Guangxi Suyuan Xinshan
Ganja
Huimin
Zouping
Jharsuguda
EMAL
Total
Com pany
Sanmexia Tianyuan
Hindalco Industries
Rio Tinto Alcan
RUSAL
Chalco
Chongqing Qineng Aluminium
Tianjin Jinhe
Qinghai Industry Investment
Xinjiang Tianlong Aluminum
Tianshan Aluminum
Xinjiang Shenhuo
Xinjiang Dongfang Xiw ang
Xinjiang Jiarun
Guangxi Suyuan Xinshan
DETAL
China Hongqiao Group
China Hongqiao Group
Vedanta Resources
Dubai Aluminium
Country
China
India
Canada
Russia
China
China
China
China
China
China
China
China
China
China
Azerbaijan
China
China
India
Abu Dhabi
New Aluminium centre of the world –
Xinjiang Uygur Autonomous Region
Capacity (kt)
500
360
420
300
1000
160
300
300
200
300
400
400
500
100
50
240
240
1250
500
7520
Source: AME
More project commissioning deferrals will be announced
Proposed smelting capacity in China would eclipse
current global capacity by 2017
Estimated Chinese Aluminium Smelting Capacity 2000 – 2015
50,000
kt
45,000
40,000
35,000
23,456
30,000
15,239
25,000
6,006
20,000
21,260
21,260
21,260
2014
2015
19,722
8,795
17,786
15,000
16,131
12,559
13,180
10,550
12,964
10,000
9,350
6,837
5,000
10,848
7,806
6,541
5,563
3,000
3,600
4,358
2,631
1,616
2012
2013
0
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
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
Source: AME
We do not expect any new capacity to be commissioned in the West which is not
already under construction
Aluminium production of the future will be a
technology war
Soderberg vs Pre-bake technology
Typical size vs power for
reduction pots
19.0
40%
18.5
China
35%
Soderberg technology
18.0
17.5
Non-China
17.0
Power Efficiency (DC kWh/kg)
30%
25%
20%
15%
16.5
HSS
Prebake technology
16.0
VSS
15.5
15.0
14.5
14.0
13.5
Existing high
production pots
10%
13.0
12.5
5%
12.0
11.5
0%
0.0
<200
200-299kA
300-399kA
400-499kA
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
>500kA
Tonnes of metal per pot per day
Source: AME
Chinese producers are winning the war…for now…
Soderberg capacity will experience faster
obsolescence than previously expected
Soderberg vs Pre-bake Smelter Technology for Key Aluminium Producers
(Includes affiliated smelters)
RUSAL
2000
2013
RioTinto Alcan 2000
2013
Norsk Hydro
2000
2013
Chalco
2000
2013
Alcoa
2000
2013
0%
20%
40%
Pre-bake
60%
80%
100%
Soderberg
Source: AME
The question is now when the next step change in technology will be
Agenda – Is this political economics?
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?
Copper:
A different type of squeeze
Copper smelting cost and energy consumption
for different smelting technologies
Smelter technology costs and energy
consumption rates
$800
16
$/t Cu
GJ/t Cu
$700
14
$600
12
$500
10
$400
8
$300
6
• 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
$200
4
$100
2
$0
0
Bath
Flash
Mitsubishi Noranda
• No reverberatory technology built since
the fall of the iron curtain
Reverb
Smelting cost $/t anode (LHS)
Energy Consumption, GJ/t anode (RHS)
A shift to cleaner, lower cost technologies will increase capex requirements for
the base metals smelting industry
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
400
μg/m3
WHO Limit
350
300
250
200
150
100
USA
Uzbekistan
Oman
Namibia
Iran
Kazakhstan
Brazil
Indonesia
Mexico
Canada
China
Thailand
Chile
Australia
India
Philippines
Ukraine
Korea
Serbia
Zambia
EU Zone
Spain
Sweden
Slovak …
Poland
Romania
Finland
Germany
Belgium
Bulgaria
Austria
Armenia
Peru
Japan
Russia
0
Souther Af rica
50
Source: AME
Tighter emission standards will generally cause refits, not closures
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
6,000
kt
5,000
4,000
3,000
2,000
More marginal projects
now less probable
than before
1,000
-1,000
-2,000
-3,000
2011
2012
2013
2014
2015
2016
2017
2018
2012 - 2013 Supply Reduction - Base Case
2012 - 2013 Supply Reduction - Possible Projects
AME Base case - production f rom new projects - 2012
AME Base case - production f rom new projects - 2013
Source: AME
AME’s base case supply forecast for 2015 has been reduced by 2Mt on project
delays and cancellations
Agenda – Is this political economics?
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?
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
China Nickel Ore Imports,
2009 - 2013
8,000
kt
7,000
6,000
5,000
Proposed Ferronickel smelters in
Indonesia
Sm elter
North Konaw e
Morow ali Regency
Konaw e Utara FeNi
SMI Smelter (FeNi)
South Kalimatan Steel
Aquila Nickel Project
Status
Construction
Probable
Probable
Construction
Possible
Feasibility
Start Year
2014
2015
2015
2015
2016
2017
Capacity (kt)
24
5
20
30
5
38
East Halmahera FeNi
Total
Possible
2019
24
146
• 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
4,000
3,000
2,000
1,000
Jan-09
Mar-09
May-09
Jul-09
Sep-09
Nov-09
Jan-10
Mar-10
May-10
Jul-10
Sep-10
Nov-10
Jan-11
Mar-11
May-11
Jul-11
Sep-11
Nov-11
Jan-12
Mar-12
May-12
Jul-12
Sep-12
Nov-12
Jan-13
Mar-13
May-13
Jul-13
0
Indonesia
Philippines
The weight of production firmly now in Asia
Source: China Customs, AME
Agenda – Is this political economics?
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?
Zinc:
Restrictions or exercising restraint?
After two disappointing years, rising incomes gives
zinc demand leverage to steel production
Zinc consumption (kg) per tonne of
steel production, 2013
Global zinc consumption % ch. p.a,
2005 - 2013
16
kg/t steel
20%
% ch. p.a.
14
15%
12
10%
10
5%
6
0%
4
-5%
2
-10%
2012 Q4
2013 Q2
2012 Q2
2011 Q2
2011 Q4
2010 Q4
2009 Q4
2010 Q2
2009 Q2
2008 Q2
2008 Q4
2007 Q4
2006 Q4
2007 Q2
-15%
2006 Q2
France
Germany
USA
Italy
S. Korea
China
India
Brazil
0
2005 Q4
8
Source: AME
Zinc is becoming a demand story
Zinc still has the long term demand narrative
despite expected demand slowdown
Zinc Intensity of GDP – The Japanese and US experience
50,000
45,000
US
Japan
40,000
Linear (US)
GDP Per Capita (USD)
35,000
Linear (Japan)
30,000
25,000
20,000
15,000
10,000
5,000
-
100
200
300
400
500
Zinc Intensity (Tonnes/$BillionGDP)
Zinc in particular has leverage to growing wealth in the East
Source: AME
Chinese production cuts have put the lead & zinc
markets in a sweet spot, temporarily.
Refined Zinc Production (kt),
Zinc prices and stocks, 2003 – 2013
2003 - 2013
5,000
700
1,800
kt
kt
US$/t
4,500
2012
-6.1%
600
1,600
4,000
500
1,400
3,500
1,200
3,000
400
1,000
2,500
800
300
2,000
600
1,500
200
400
1,000
100
200
500
LME Zinc Price (LHS)
Jan-13
May-12
Jan-11
Sep-11
May-10
Jan-09
Sep-09
May-08
Jan-07
LME Stocks (RHS)
Sep-07
May-06
Jan-05
Sep-05
May-04
Jan-03
Jul-13
Dec-12
Oct-11
May-12
Mar-11
Aug-10
Jun-09
Jan-10
Apr-08
Nov-08
Sep-07
Jul-06
Feb-07
Dec-05
Oct-04
May-05
Mar-04
Jan-03
Aug-03
Sep-03
-
-
SHFE Stocks (RHS)
Source: AME, Bloomberg
AME expects a 100kt zinc deficit and 200kt lead deficit in 2013
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