Canada’s aluminium industry: A world perspectivekitimatchamber.ca/sites/default/files/Aluminium... · Canada’s aluminium industry: A world perspective BC Presentation Jean Simard,

Canada’s aluminium industry:A world perspective

BC Presentation

Jean Simard, President and CEO

May 2017

PRESENTATION

1. Canada’s aluminium industry footprint

2. Canada’s markets

3. China

4. Trade issues

5. Conclusion

© Aluminium Association of Canada | HARBOR Aluminum | May 2017

CANADA’S ALUMINUM INDUSTRY FOOTPRINT

CANADA’S ALUMINIUM INDUSTRY


CANADA’S 10 ALUMINIUM SMELTERS


CONTRIBUTION TO BC ECONOMY


• In 1954, Alcan’s investment in Kitimat was the single largest private sector investment in Canada history

• In 2014, Rio Tinto’s $4.8 billion investment in modernization of Kitimat made it again one of the largest private investments in BC

• Increasing production capacity by 48%, reducing overall emissions by 50%

• Rio Tinto’s BC Operations directly contributed a total of $412 million to the BC economy in 2013

• $189.6 million spent on goods and services including between 2003-2014

Direct and Indirect Emissions (t CO2 e/t Al)

7

Carbon Footprint– Emissions Intensity 2015

Réf. : AAC et IAI 2017

11

4

10

14

14

15

6

Chine

Moyen-Orient

Europe

Afrique

Amériquedu Sud

Australasie

Canada

États-Unis

3Russie

Ref. : AAC et IAI 2017

2

17Asie

xxxx | 31 mai 2017 | © AAC

CHARTING THE COURSE OF THE INDUSTRY


2 0 0 9 - 2 0 1 4

THROUGH A SUSTAINABLE WORLD

Circulareconomy

=recyclability

Carbonreduction

=lightweighting

Materialoptimization

=durability

ADVOCACY


OUR MARKETS

OUR MARKETS

• Canada exports 75% of its production mostly to the US, including Kitimat, as its Asian market is nowtaken over progressively by Chinese exports and new Asia ex China capacity.

• Canada is the US largest source of primary metalimports, representing over two thirds of the total metal entering the US.

• Russia and the Middle East sharing the balance, and China is growing its share of semis.


PRACTICALLY ALL US P1020 PRODUCTION AND 80% OF CANADA’S STAYS IN THE REGION


ON THE VAPS SIDE THE US ABSORBS 85% OF CANADIAN EXPORTS…


…WHILE MIDDLE EAST AND RUSSIA ARE MAIN FOREIGN EXPORTERS TO NA


CHINA

CHINA’S NUMBERS SET THE TREND

• China is now producing 33 million tpy of primarymetal, representing +50% of the world’s production

• Its domestic market is shifting from massive infrastructure manufacturing to services industry

• Its relative weight on world markets is such that the price of metal on the LME is directly correlated to the Chinese GDP growth

• Chinese negative demographics and WAP are pulling GDP down and aluminium consumption down


CHINA ECONOMIC & DEMOGRAPHIC GROWTH VS LME 3M ALUMINUM PRICES(annual % change vs $/mton)

15.0 3,300

3,00013.5

2,70012.0

2,400

10.5

2,100

9.01,800

7.5 1,500

1,2006.0

2000 2001 2002 2003 2004 2005 2006 2007

Source: HARBOR Aluminum with LME, NBS, and UN data

LME 3M ALUMINUM (right scale; daily data)

CHINA GDP (quarterly data)

CHINA WORKINGAGE POPULATION(annual data)

CHINA’S DEMOGRAPHIC AND ECONOMIC BOOM IN 2002-2007 WAS A MAJOR GLOBAL BULLISH FACTOR


CHINA’s WORKING AGE POPULATION (WAP) VS GDP GROWTH(annual % change, annual data)

14 4

312

2

10

1

8

0

6-1

4 -2

1992 1995 1998 2001 2004 2007 2010 2013 2016 2019

Source: HARBOR Aluminum with NBS and UN data

FORECASTCHINA GDP (left scale)

CHINAWAP

HOWEVER, CHINA’S LABOR FORCE ENTERED IN 2014 INTO A LONG TERM PERIOD OF IMPLOSION


PRIMARY ALUMINUM CASH COST OF PRODUCTION*(monthly average data: $/mton)

2,300

2,025

1,750AUG ‘16USA $1,670 +1% y/y

1,475

CHINA $1,363 -20% y/yROW $1,346 -1% y/y

1,200

Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan-16

Source: HARBOR Aluminum*Before casting (molten metal). Does not include depreciation, interest payments or working capital; Excludes applicable VAT of 17%that Chinese aluminum smelters pay on raw materials, energy and services.

AT THE SAME TIME, CHINA’S SMELTERS HAVE BECOME MUCH MORE COMPETITIVE


CHINESE PRIMARY ALUMINUM SMELTER PRODUCTION CASH COST* AND CAPACITY($/mton and thousand mtpy)

1,550 800

1,480600

1,410

400

1,340

2001,270

1,2061,200 0

New ProjectsAnnounced in 2012





* On cash cost basis before casting (molten metal). Does not include depreciation, interest payments, sustained capital expenses or working capital;excludes applicable VAT of 17% that Chinese aluminum smelters pay on raw materials, energy and services.Source: HARBOR Aluminum

AVG CASH COST*

1,296

AVG CAPACITY(right scale)1,500 (left scale)

1,394

1,422

MOSTLY BROWNFIELD

IN 2016

1,2

CHINA NOW BUILDS LOW-COST, STATE-OF-THE-ART MEGA SMELTERS…


CHINA’S PRIMARY ALUMINUM SMELTING INDUSTRY CASH COST CURVE POSITION*(Q1 of every year; percentile)

100

75th74th 73th75

50

25

2011 2012 2013 2014 2015 2016* Cash cost before casting (molten metal). Does not include depreciation, interest payments, sustained capital expenses or working capital; excludesapplicable VAT of 17% that Chinese aluminum smelters pay on raw materials, energy and services.Source: HARBOR Aluminum

Less

co

mp

etit

ive

Mo

reco

mp

etit

ive

80th 79th

60th

MOVING DOWN TO THE 60TH PERCENTILE OF THE COST CURVE


CHINA’S ECONOMIC SLOWDOWN IS PUSHING DOWN GLOBAL SMELTING COSTS…


…PULLING WORLD’S PRODUCTION CASH COSTS DOWN TO YEAR 2000 LEVELS WITH A FLATTER CURVE


c = capacity curtailmentac = alumina curtailment

BaseMetVlissingen

ImpexmetalKonin

Zaporozhye AluminiumZaporozhye

AlcoaFusina

AlcoaPorto Vesme

Madras AluminiumMettur

Valesul AluminioValesul

NovelisAratu

Rio TintoLannemezan

Century AluminumRavenswood

Rio TintoBeauharnois

Anglesey AluminiumHolyhead

Rio TintoLynemouth

Norsk HydroKurri Kurri

AlcoaAlcoa Tennessee

AlcoaRockdale

GlencoreColumbia Falls

AlcoaWenatcheec

AlcoaMassena East

AlcoaWarrick

AlcoaPoint-Comfortac

CenturySebreec

CenturyHawesvillec

Alcoa Point Henry

AlcoaSao Luisc

AlcoaPoço de Caldasc

OrmetHannibal

NorandaNew Madrid

2007-20132014-2015

2016

Rio TintoShawinigan

24Source : © HARBOR Aluminum Intelligence Unit | December 2016

PLANT CLOSURES AND CURTAILMENTS

CHINA COAL PRICE AND PRIMARY ALUMINUM INDUSTRY ELECTRICITY PRICE(weekly data;)

$/MWh$/mton

55 42

50

37

45

40

32

$35.6 -27% y/y

35$29.7 -20% y/y

30 27

Sep-14 Jan-15 May-15 Sep-15 Jan-16

* Domestic price excluding 17% VAT.Source: HARBOR Aluminum

AVG ELECTRICITY PRICE*(right scale)

AVG COAL PRICE*(left scale)

MOREOVER, DECLINING COAL PRICES HAVE REDUCED CHINA’S ELECTRICITY PRICE BY 20%…


PRIMARY ALUMINUM ELECTRICITY PRICE BY SELECTED COUNTRIES/REGIONS*($/MWh)

70

60

50

40

3030 28 2625

24 23 22 21 2020

15

10

0

China Average China NewCapacity

ROW USA Middle East Canada

* Excludes 17% VAT for China.Source: HARBOR Aluminum

2011

17 17

33 35

66

2014

51

2016

30

24

…AND HAVE PUSHED CHINA’S ELECTRICITY COST DOWN TO ROW’S LEVELS


EXPANSIONS ENTERING THE MARKET WILL PRODUCE METAL AT A $1,133-1,400 PER MTON COST


NEW CHINESE SMELTING PROJECTS ARE MORE COMPETITIVE THAN ROW’S IF CAPEX IS CONSIDERED


WORLD PRIMARY ALUMINUM DEMAND GROWTH VS ROW’s PROFIT MARGINS*(average annual growth rates; %)

9

19% 7.518%

65.25.1

3

0

1971-1980

Source: HARBOR Aluminum

1981-1990 1991-2000 2001-2010 2011-2014 2015f-2020f

* (LME + ingot premium) – (operating cost to produce ingot) – (interest payments, depreciation, and working capital costs). Scale not shown.

19%

DEMAND NET PROFIT

GROWTH MARGIN*

17%

3.02.9

8%

2.0

9%

WORLD’S DEMAND GROWTH RATES AND PROFIT MARGINS EXPECTED TO BE HALF IN THE NEXT 5 YEARS


WORLD PRIMARY ALUMINUM INVENTORIES($/mton vs million mton; monthly data)

3400 20

REPORTED (VISIBLE)PRICES (LEFT SCALE)

3000 16

2600 12

2200 8

1800 4

1400 0

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Source: HARBOR Aluminum, CME, IAI, LME, Marubeni, SHFE, and SMM data

LME 3M ALUMINUM STEALTH (NON-VISIBLE)

GLOBAL ALUMINUM STOCKS AT A RECORD HIGH OF 16 MILLION MTON


AT THIS POINT, WE EXPECT MARKET SURPLUSES TO WIDEN AND DEPRESSED PRICES TO REMAIN AHEAD


TRADE ISSUESCanada | United States

North America remains in deficit of metal

CANADA

USA

North

America

Market equilibrium(metric tons)


Source: HARBOR Aluminum

Canada | United States

The business environnent is curently disrupted by a series of recoursesaimed at the sources and effects of overcapacity on world prices.

These in turn affect the previsibility and certainty required for industry to prosper and markets to behave with fluidity.


• NAFTA re-opening

• Buy America Hire America

• Change in corporate tax

• BTA

• Multiple recourses on imports

• Section 201

• Executive Order 13786

• Section 232

• Section 332

• Foil anti dumping

TRADE ISSUESCANADA | EUROPEAN UNION

1 billionconsumers

A new Free-Trade CorridorFrom NAFTA to CETA:

The new China…


TRADE ISSUESCANADA | CHINA

STRATEGIC APPROACH


• The key production regions of the world hope for an honourableand diplomatic outcome, through a negotiated settlement, which can only happen with China being brought to the table through constant pressure, by all ways and means available, covering each and every angle where China does’nt respect itscommitments and or market rules.

• The goal being to reach a Level Playing Field where Free and Fair Trade can take place.

• This containment approach is supported by the US, Canada and the European Union.

CANADA | CHINA

Threats

• Overcapacity

• New capacity

• Product misclassification

• Inventories

• Subsidies

• Carbon footprint

• Market Economy Status


CONCLUSION

• By 2018, the LME price will have been at a historicallow for ten consecutive years.

• With China’s growing impact on the world market, there is no foreseeable change in the near future.

• In such a competitve and constrained commoditybusiness environment there is no resilience left to absorb extra costs.


3.5 millions tons

China’s yearly output going for export (10 %)

6,000,000tCO2eq

Canada’s yearlyemissions

+180smelters

Number of smelters in China in 2016

Europe & Canada

2 juridisdictions withlowest carbon footprint

3.2 millions tons

Canada’s total yearlyproduction as world 4th producer

2.7 millions tons

China’s June 2016 monthly production

3.2 millions tons

Canada’s yearlyproduction

505,000,000tCO2eq

China’s coal-basedsmelters yearlyemissions

30,000,000tCO2eq

Canada’s yearlyemissions for the sameoutput as China’s coal-based smelters

50,000,000tCO2eq

What would be added if capacity was shifted to China

17,000,000tCO2eq

Quebec’s total reduction target for 2020

800,000 tons

Average production of smelter coming on line in China

400,000 tons

Productionat Kitimat

600,000 tons

Production at Alouette’ssmelter in Quebec, America’s largest smelter

10smelters

Number of smelters in Canada in 2016

14smelters

Number of smelters in USA as of 2014

5smelters

Number of smelters left in USA as of 2016

Europe & Canada

2 only juridisdictionswhere aluminium smelting is subject to carbon pricing

201,000,000tons

Aluminium produced by China since 2005

195,000,000 tons

Aluminium produced in America since 1900

In perspective

2,500 000tons

Yearly output of China’s largest smelter

1,200,000tons

Yearly output of Saguenay

11%

China’s share of world aluminium production in 2000

55%

China’s share of world aluminium production in 2016

Feburay 2016

Thank you.

Documents

Canada’s aluminium industry: A world perspectivekitimatchamber.ca/sites/default/files/Aluminium... · Canada’s aluminium industry: A world perspective BC Presentation Jean Simard,