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Aluminum PDF
Aluminum PDF
D BHATTACHARYA
Hon. President, Indian Aluminium Association
Managing Director, Hindalco Industries Ltd.
Vice-Chairman, Novelis Inc.
Presentation Structure
2
Aluminium: Fastest growing metal
15.00
Growth Multiple
12.50 Aluminium
Aluminium
10.00
Copper
Copper
7.50 Steel
NickelSteel
5.00 Zinc Nickel
Lead Zinc
2.50 Tin Lead
Tin
-
1960
1965
1970
1975
1980
1985
1990
1995
2000
2005
2010
___________________________________
Source: Updated from Barclays Capital
__________________________
Source: CRU , Barclays Capital
Aluminium has grown 12.7 times
while Steel 4 times, in last 50 years 3
Growth quickened in recent years
Projected Consumption
Growth
61
mn t
41
mn t
2010 2016
_____________________
__
Source: Published reports
4
Trends in key country markets
Primary Aluminium Consumption (mn t) and CAGR (% p.a.)
India USA
3.5 7 4%
10% 11% 4% p.a.
3 6
p.a. p.a. p.a.
2.5 5
18% 2 10% 4
p.a. 1.5 p.a. 3
1 2
0.5 0.6 1.6 2.9 1 6.3 4.2 5.3
0 0
2000 2010 2016 (P) 2000 2010 2016 (P)
Construction Packaging
Scope for material Potential to deepen
replacement penetration
World average
8 kg
______________________
Per capita GDP (USD)
_
Source: IMF, Industry est.
Even if India reaches half the world average by 2020, it would imply
aluminium consumption of 5.5 mn ton or, >2.5x the current level
7
Indian Market: Still Evolving
India Aluminium Consumption Pie by End-Uses (2010,%)
Machinery Transport
Manufacturing policy Tremendous potential
positive due to auto growth +
deepening use
Packaging
Low base; scope to grow
Electrical
Main-stay of Indian Consumer Durables
market; reforms and Consumption story
investment in electricity augurs well
sector key to growth
Construction
To benefit______________________
from urbanization
_
Source: Industry estimates
Promising medium-term prospects for every user industry
8
India: Favourable Demographics
Urbanization trend in India (%)
40
34
30
28
26
19
______________________
_
Source: Research reports
Chinas urbanization rate moved from 30% to 40% during 1995-2005;
its Al consumption rose 4x over this period from 1.8 mn t to 7.2 mn t
9
India: At an Inflexion Point
Favourable demographics
Rising middle class
Working age population
Urbanization
Imperatives for
infrastructure investment
Goal to raise share of
manufacturing in GDP
Low base for Al
consumption
10
But Aluminium Value Chain will have to
navigate through several changes in the
business environment
11
Presentation Structure
12
Trends Challenges & Opportunities
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
13
Trends.. Challenges & Opportunities
Shifting trends posing new Challenges & Opportunities
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
14
Bauxite Reserves concentrated in
few countries
Most potential lies in areas
China, 4% perceived to have high political
India, 4% risk
15
Natural Resource Challenges
Falling grades
Incremental
resources in
difficult
geographies
Resource
nationalism &
heavier taxation
16
Relatively faster energy inflation
900
800
700
200
100
Al: 130
0
Jul-01
Jul-00
Jul-02
Jul-03
Jul-04
Jul-05
Jul-06
Jul-07
Jul-08
Jul-09
Jul-10
Jan-06
Jan-11
Jan-00
Jan-01
Jan-02
Jan-03
Jan-04
Jan-05
Jan-07
Jan-08
Jan-09
Jan-10
Jul-11
___________
Source: IMF
17
Carbon Legislations getting more
stringent
Carbon tax in Australia
Metal production cost estimated to increase by $250/ton by 2015
due to this factor
Larger offset requirements in Europe
Smelter closures expected in central Europe due to rising carbon
costs
Possibility of a carbon import tax on products imported into Europe
China phasing out old smelters to lower emissions and power
consumption
Regulatory changes in India
Perform, Achieve and Trade scheme
Renewable energy obligations
Adding to costs
18
Cost Curve moving up
7000
6,757 6,316
6000
5000 5,970
4000
3,900 4,100
3000 3,500 ~3,000
2000
1000
0
__________________________
__ Ongoing / recently announced
Source: Compiled from reports
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
21
Others Alumina, Power & Labor form 80%
11%
Carbon
of total metal production cost
10%
Alumina, Power & Alumina Bauxite availability key to
Labour are the 43%
main components
alumina production
~ 80% of total cost
Power Power costs decide new smelter
27%
locations
Labour
9%
Stagnating Demand.
22
New capacities : Asia to dominate
China, Middle East and India to
account for >90% of capacity
addition during 2010-2016
Capacity addition (Mn tons)
18
16.9 World total
16 1.5 Others
14 2.0 ME
12 2.4 India
10 China
8
6
11.0
4
2
0
2010-2016
______________________
Shifts in production centres _
Source: Industry estimates
23
But each centre has few issues
to deal with
_______________________________
_
Source: Pacific Exchange Database
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
26
Financing Deals
Arbitrage window opened in 2009 Tight physical markets
despite huge inventory
10
9 US MidWest ingot premium
8 (c/lb)
7
>
6
5
Storage 4
cost 3
2
1
Long-term Interest 0
Jan-07
Jun-07
Oct-10
Aug-11
Feb-09
Jul-09
Apr-08
Sep-08
Dec-09
May-10
Mar-11
Nov-07
Contango rates
______________________
Financing deals creating a paradox _
Source: Industry estimates
27
Impact of Financial Investors
Fund investment in commodities LME has become more volatile
has gone up consistently Std. Deviation of Daily
returns on LME Al. (%)
1.8
1.7
1.2
Surplus / Deficit
-0.37 0.05
during the period
Stock-Consumption
-0.83 -0.39
Ratio
Q3, 2011
153
Marginal Cost
207
88 104
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
32
Why sustainability is crucial?
Heavy energy-intensity; ~50% smelting capacity on
non-hydro energy
33
Positive initiatives by the industry
4.5
4 >4
3.5
3
2.5
2
1.5
1
0.8 <0.6
0.5 0.4
Also makes enormous
economic sense 0
2020
1990 2006
_______________________________ 2010
_ objective
Source: IAI, Aluminium Association 34
Addressing waste disposal challenges
Before Now
35
Addressing waste disposal challenges
36
37
Trends.. Challenges & Opportunities
Shifting trends posing new Challenges & Opportunities
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
38
Leveraging Aluminiums Recyclability
10
of energy and emits only 5% ~10
5
of GHGs compared to
0
primary production
1970 1990 2010
_____________________
_
Source: Beijing Axis, AAI
Green-consciousness likely to give a fillip to recycling in the
coming decades
39
Recycling needs a strong infrastructure
Collectors
Converters Dismantlers
Scrap
processors
40
Role of Recycling uneven across
markets
Contribution of secondary aluminium in Aluminium Can Recycling Rate
total production (2010,%) (2009/2010,%)
98%
100%
93%
90%
80%
70%
64%
58%
60%
50%
40%
30%
20%
10%
0%
________________________________
___ US Europe Japan Brazil
Source: Beijing Axis, Industry estimates
Recycling intensity is a function of Market maturity, Consumption
profile, Recycling institutions and infrastructure; and R&D efforts of user
industry 41
Trends..Challenges & Opportunities
Shifting trends posing new Challenges & Opportunities
Light-weighting /
Material substitution Cost pressures
Commodity - a
Sustainability significant asset class
42
The Big Auto Opportunity
Cars: 1 kg of aluminium
replacing conventional materials
eliminates 20 kg of CO2 over the
vehicles life
Railway wagons can use upto 5
tons of aluminium / wagon;
investment recovered through
fuel efficiencies in 2.5 years
Al already accounts for 60-80%
of aircraft weight; its use
deepening further
43
The light-weighting phenomenon
North America: Al content in Pounds per Light Vehicle
- History and Forecast -
600
Driven by
Sheet
500
Pounds per Vehicle
300
200
100
0
1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025
__________________________________________
__
Source: Ducker Worldwide and The Aluminum
Association, Oct. 2011
_________________________
_
Source: Aluminum Association
45
Presentation Structure
46
Aluminium consumption poised for a bright
future
Urbanization
Earth-friendly
Light-weighting
Emerging
markets
47
Growth will have its own challenges
Infrastructure
Robust growth imperatives
prospects
50
India at an inflexion point
52