Bauxite and Alumina Monitor Anthony Everiss | Senior Analyst +44 20 7903 2030 ? anthony everiss@crugroup.com 13 AUGUST 2020 SUMMARY Bauxite prices under pressure in buyer’s market Aluminium raw material prices continue to move lower, Despite the impressive performance of the aluminium price, ample availability of alumina cargoes has resulted in CRU's Alumina Price Index (API, Australia FOB) falling by $6.50/t this week to $265.00 Several factors have been limiting FOB and delivered bauxite prices this year. This includes the lacklustre performance of alumina prices, a well-supplied third-party bauxite market amid additional shipments out of the Atlantic and Pacific, and a weak freight market, This is despite a robust bauxite demand environment, and close to 9M tly of refining capacity in China that has transformed to low-temperature technology, driving demand for gibbsite bauxite higher. 5020 ELE Internaticnal | ied | AN cichia pasarvedtTalk to CRU You can't beat a one-on-one conversation. That's why we invite you to talk to us. You can contact CRU’s analysts, any time, to discuss issues of particular relevance to you Our expertise and our independence make CRU one of the most valuable partners in your business. We help customers make important business decisions. 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CRU - big enough to deliver a high quality service, small enough to care about all of our customers.CRU Editor Anthony Everiss Senior Analyst t +44 20 7903 2030 e anthony.everiss@crugroup.com CONTRIBUTORS CRU London (CRU London CRU Mumba Justin Hughes ‘Shakhadeop Mukherjee Team Loader Senior Analyst Bauxite and Alumina Monitor and Prices ‘THE INDEPENDENT AUTHORITY WINING METALS | FERTILIZERS note deca {© CAU International Lt. 2020, A right reservedBauxite and Alumina Monitor Weekly alumina prices Unit 16d 23Jul— 30d «Aug 13AUg CRU Alumina Price Index (API) USDit 27750 27982 275.00 27150 266.00 CRU Atlantic Basis Price (ABP) —_USDit 27650 272.00 270.00 265.00 258.50 ‘API minus ABP uso 100-7820 5.00860 650 LME 2:month aluminium price «USD 1882.80 166840 1705.10 1737.30 177263, [AP as percentage of LME % 1649 16771613 1563__14.95 CRU China Alumina Basket Price RMB\t 266s 2450 242023502820 Henan alumina price RMBIL 2e7s 2475. 283023502820 Shanxi lumina price RMB 2675 247528302350 2820 Guangxi alumina price RMB 24502450 24052340820 Guizhou alumina price RMB 24802475455 2365885 Shandong alumina price RMB 2a60 2480 244023502300 SHFE S-month aluminium price RMBIt 1419013794 14085 1449314413 Percentage of SHFE % 173717831718 16221820 DATA: CRU Figure 1: Overview of bauxite, alumina and aluminium prices CRU's API at $265.001t ‘CRU Alumina Price Index, USDIt CRU Alumina Price Index, FOB (LHS) ME s month (RS) gpg52852228253 CChina CIF Baunile price, USDIemt LHS, % RHS me China CIF 2s % of API (RHS) —Bauaite price (China CIF) ‘Aug 20 oo ss so “NM Poona aggccaggcg PS8eeaasee sss? ava oR 2.000 4900 4,200 4,700 41600 41500 4.400 25 20 18 10 Chinese alumina prices at RMB2,320/t CRU China Alumina Basket Price, RMBMt CRU China Alumina Basket Price (LHS) —SHFE month (RHS) 3.200 15,000 +000 14.500 14000 2 13,500 2.500 13.000 ooo 12.500 12000 2200 Fiscal 2.000 11,00 eee ee aes eeane 38345532 Index of bauxite, alumina and aluminium prices 22 August 2019 = 100 ——LME 2 month —=API —edauxite China CIF +10 +08 100 95 %0 8s 20 2 Mmm, + Sep-19 oct) Nov-12 Jan-20 an-20 Feb-20 Mar-20 Aor20 un-20 Augt9 Dee-19 May-20Bauxite and Alumina Monitor 13 AUGUST 2021 ‘Antony Everiss Senior Analyst Monthly bauxite, alumina and caustic soda prices 2020 unt Feb Mar Ape May Jun CRU Alumina Pree index (AP!) «USDA 20083 «201.71 25803 24243 255.52 27.87 CRUAlamic Basis Price (ABP) -«USDN «273.85 275.48 22430 75730 25080 266.51 LME 3month aluminium rice USDA 1711.58 169425 o44e 149208 1687.27 1072.9 CRUChina Alumina Basket Pro RMBR «2451252421427 2aa 808 SHFE S-month aluminium price -«RIMBR=«13699=« 245511089 «26421301 eON CRU Bauste Pree index (B16) USDN 480747534095 4740 «48.5688 Bauxite China OF usok 4787488741558 43.07 la Bauxto China CIF (Australia gin) USDN 43.77 43.25. 42.98 283 Ala Bawite China CF (Guinea Origin) USD. «49.51.8265 5089 4802-4281 la Bauxte China CIF (rdonesia Origin) USN 4959.94 © AT.89 5984571 la China Causte Soda Price! son 26542 225.89 242.14 18089-21063 —la (DATA: GRU, Industry Canlacs, IHS Mark, Noles 7, Weighted average of China FOB expan areas > ANALYSIS. Alumina prices ease back with buyers absent CRU's Alumina Price Index (API, Australia FOB) has moved lower by $6.50/t this week to $265.00/t. Earlier this week, a 30,000 tonnes Wester Australian alumina cargo was purchased at $280.00/t China CIF, with shipment scheduled for September 2020. Figure 2: CRU's API moving lower in August Alantic discount equivalent to $6.50/t China alumina prices retreat stFOB wen —— AtantoPacte aerate (HS) = Wbirage (Local Dolveree) RHS 400 | crv AP (asrala FOB) 20 eset) 350, © 3.000 150 2,800 “00 2,600 0 ; tii eG020582 255% Alumina prices had rallied over the past quarter, following aluminium prices higher and on. the back of a stronger than expected economic recovery in China. However, the trend hasBauxite and Alumina Monitor 13 AUGUST 2020, reversed this month with spot prices moving lower as a lack of buyers in China and elsewhere start to take its toll There is still plenty of near-term uncertainty, and bearish prospects near-term for alumina price levels in China. CRU's China Alumina Basket Price is currently assessed at RMB2,320!t, down RMB145/t over the past month. Domestic alumina prices have been retreating following the restart of the idled refining capacity in the country. CRU estimates that approximately 3.35M Uy of alumina refining capacity in China has restarted since May 2020, This has resulted in sufficient supply for the alumina market, despite the recent gains in primary aluminium production and alumina demand. Spot activity has been very low in China over the past fortnight, like the intemational market, and the vast majority of smelters have adopted a wait-and-see attitude before committing to purchasing alumina cargos. (On an import parity basis, domestic Chinese alumina prices are now roughly equivalent to delivered alumina prices. The quantity of Chinese alumina imports will depend on the movement of alumina prices. The import arbitrage window has been sufficiently open to attract significant quantities of Chinese alumina imports in H1 2020. However, domestic prices will need to be sustained at current levels for this to remain the case in the second half of this year, Latest customs data reveals that China imported 422,573 tonnes of alumina in June 2020. This is the highest level so far this year and up over eightfold compared to the previous year. CRU currently expects net Chinese imports to total 3.2M tonnes in 2020 - up significantly compared to 1.4M tonnes in 2019. Figure 3: Chinese net imports of alumina increasing significantly so far this year Chinese net alumina imports, ‘000 tonnes —N._” —2018 net imports 500 400 300 2020 net imports —2019 net imports 2 May Jun Jul Aug Sep Oct Nov Dec S$ 2 3 DATA: CRU, INS Marit Alumina and aluminium prices diverge The alumina price is now below 15% of the aluminium price, Although alumina has been pressured lower be surplus cargoes and absent buyers, the aluminium price is moving in the opposite direction. At the start of this week, the LME 3-month aluminium price was trading at $1,785/t and looking set for a new multi-month high. The stronger China recovery has pulled the LME price higher. Despite the global demand crisis, the LME aluminium price is currently well over the 90" percentile of the ex. China Business Costs curve. Between the weak aluminium fundamentals set to persist and the many macro-economic challenges ahead, we expect prices to decline from @4 2020, For now, however, the aluminium rally has more legs as we expect the LME 3-month price to average $1,720 in Q3.Bauxite and Alumina Monitor ui Figure 4: Stronger China recovery pulls LME higher inary sminun ovary coe vot Lie Sma omic ™ 212020 22.2020 232020 242020 DATA: CRU, LME Additional refinery projects proposed in China Juz ‘Ag-20 (-t-) The aluminium price rally may continue, but for now alumina is pressured by sufficient supply CRU estimates that Chinese MGA supply reached 33.2M tonnes in H1 2020, down 4.4% yly This reflected several alumina refinery curtailments in response to Covid-19, as well as low alumina prices, The peak level of alumina curtailments occurred in April, when CRU estimated that 6.25M ty was curtailed However, several of these curtailments proved to be very short term once the alumina price started to improve and Covid-19 restrictions eased. CRU currently expects Chinese MGA supply to reach 34.8M tonnes in H2 2020, up 1.6M tonnes compared to the start of the year. Figure 5: Flexible production schedules influence change in Chinese MGA supply in 2020 ‘Quarterly Chinese MGA supply, ‘000 tonnes 17800 17600 17400 17200 17000 16800 17,393 3.35M tly capacity restarted by end-July \ 17,330 17,200 16,897 16,761 16600 . wort 7 16400 16200 6.25M Uy refinery 16,308 curtailments. 16000 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Qt 2020 G2 2020 Q3 2020 Q4 2020 DATA CRU 17,593 ‘Two new alumina refinery projects are now also expected to come on stream in the future. ‘These are the 1.2M ty Geely Baise Mining and 3.6M ty Chongging Jiulong Wanbo alumina refinery projects, in the Guizhou and Chongqing provinces respectively.Bauxite and Alumina Monitor 13 AUGUST 2020, Anthony Everiss Senior Analyt Geely Baise Mining recently cancelled its plans to build a 1.2M ty in Napo, as well as building the refinery with Jinjiang Group in Tiandong. Instead, the company is proceeding with a 1.2M tly in Tiandong on its own. Construction on the refinery is expected to start in 2021 Chongging Jiulong Wanbo, invested by Chongging Bosal Minerals, has already started the construction of the 3.6M tpy alumina refinery in Wanzhou of Chongging. The refinery is expected to come on stream shortly and CRU believes it is likely that the refinery will likely sell alumina to the aluminium smelters in Yunnan. This refinery will use imported bauxite, mostly from Guinea, but also supplemented by some tonnages from Australia, Four lines each will have capacity of 900,000 ty. 2.7M Uy is low temperature technology and plans to use Guinean bauxite and 0,9M ty is high temperature technology and looks to use Australian bauxite. Total investment is set to reach RMB6.3bn, and around RMB200M is for environmental protection. The recent environmental assessment document stated that the refinery will be ramped up from January 2022, » ANALYSIS Ample supply puts bauxite prices under pressure in buyer’s market Bauxite prices have been moving lower over the past quarter. The latest release of customs data has highlighted the recent fall in import bauxite prices. The unit price for China imported bauxite dropped to $43.07/t China CIF in June 2020, down $3.47/t mim and $7.13it yly Although Atlantic bauxite now contributes a significant proportion of total Chinese imports, this is the lowest average price on a nominal basis since January 2011 Bauxite prices on an FOB basis have been somewhat more stable. Initially, Australia FOB bauxite prices found support from robust bauxite demand from China, as well as stockpiling due to Covid-19 uncertainty, There has also been a background of higher aluminium prices, which has a bearing on the bilateral negotiations between the buyers and sellers of these Australian bauxite ores. Domestic bauxite supply has remained tight in China and this has kept domestic bauxite prices firm. Elsewhere, Guinea bauxite prices have moved lower and there has been significant freight rate volatility since the start ofthis year. More recently, the capesize freight rates have picked up. This has partly been due to a pick-up in iron ore activities. There has also been a rally in bunker fuel oil benchmarks. Current bauxite freight rates between Guinea and China are estimated to have rallied to $17-19/t compared to $9,5-11/t at their lowest point in Q2 2020. However, the freight rates are starting to retreat again in the volatile ocean freight environment. Several factors have been limiting FOB and delivered bauxite prices this year. This includes the lacklustre performance of alumina prices, a well-supplied third-party bauxite market amid additional shipments out of the Atiantic and Pacific, and a weak ocean freight market. This is despite a robust bauxite demand environment, and there is nearly 9M tly of refining capacity in China that has transformed to low-temperature technology, driving demand for gibbsite bauxite higher. The main risk is that bauxite quality in China deteriorates at a faster rate. This has already been the case and this trend is expected to continue. Domestic supply disruptions due to environmental protection and state policy have driven more inland refineries to use imported bauxite. If this trend continues as expected by CRU, then this will drive refining costs higher.Bauxite and Alumina Monitor UsUST 20 Figure 6: Delivered bauxite prices moving considerably lower, Australia FOB prices holding firm Historical traded bauxite prices, $it 60 —China (CIF) — Australia (FOB) Guinea (FOB) = Linear (China (CIF)) Linear (Australia (FOB)) =Linear (Guinea (FOB) 55 50 45 40 35 30 ~ DATA: CRU, HS Agers, MS Markt Figure 7: Dissecting the latest fall in delivered China bauxite prices Bauxite prices, $/t China CIF er ‘+++ China CIF (Australia origin) ‘s++++ China CIF (Guinea origin) +++ China CIF (Indonesia origin) 70 65 60 55 50 45 40 Jun-18 Sep-18 Dect8 Mar-19 Jun49 Sep-19 Dec-19 Mar-20 Jun-20 DATA: IHS Markt Indonesian ore shipments to China intensify CRU has considerably upgraded its estimate for Indonesian bauxite supply to 23.3M tonnes in 2020, up 7.4M tonnes compared to 2019. The latest breakdown of the Indonesia export quotas has become somewhat opaque in recent months, especially considering the nearly 2M tonnes per month that has been exported to China over the past quarter. It appears highly likely that the Indonesian government has provided additional export quotas to the local bauxite mines, with the inland Chinese refineries importing more Indonesian bauxite this year. In the first six months of 2020, China has imported 10.5M tonnes of Indonesian bauxite, up significantly by 54.1% compared to the same corresponding period last year. In Indonesia, the total potential of national bauxite resources is around 3bn tonnes, which is mainly locatedBauxite and Alumina Monitor 13 AUGUST 2020, at West Kalimantan (around ‘bn tonnes) and Central Kalimantan (around 2bn tonnes). Riau Islands has small bauxite resource as well. The total reserve is around 1bn tonnes in Indonesia, However, it remains an uncertain environment and there is a notable risk to any exports as the country pledges to enforce the bauxite export ban by 2022. With the rate of bauxite exports from Indonesia increasing over the past four years, the Indonesian authorities would recognize that a failure to push for more significant progress of alumina refinery projects now, could result in a substantial tonnage of bauxite leaving the country and a lack of committed development projects actually materializing. Nevertheless, there is still scepticism that enough value-added investment in alumina refining will occur ahead of January 2022 for the renewed ban on bauxite exports to serve its purpose. We also cannot rule out the possibilty ofthe policy changes based on the economic situation at that time. Itwas recently revealed that Indonesia's economy suffered its sharpest downtum, since the 1998 Asian financial crisis. Statistics Indonesia (BPS) announced that GDP contracted by 5.32% in Q2 2020, the lowest since Q1 1999, as the Covid-19 pandemic shut down large parts of the country. The government's decision to lift containment measures in early June has improved economic activity but not close to the levels prior to the pandemic. ILis estimated that 3.7M have lost their jobs this year, according to data from the National Development Planning Agency (Bappenas). The total number of unemployed people is. expected to reach 10M by the end of the year. Figure 8: Indonesia shipping more bauxite now than when mineral export ban was first passed, but China has moved elsewhere China bauxite imports from Indonesia (LHS, M tonnes) ; Indonesia as total % of China Imports (RHS) 7,000 "== China bauxite imports from Indonesia (LHS, M tonnes) 199% Indonesia as total of China imports (RHS, %) 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 6,000 5,000 4,000 3,000 2,000 4,000 0 DATA: IHS Mart, CRU Guinea bauxite supply increasing CRU expects Guinea bauxite supply to reach 785M tonnes in 2020, up significantly compared to 64.5M tonnes in 2019. CRU has upgraded bauxite supply expectations at Chalco’s bauxite mine in Boffa, as well as at EGA’s bauxite mine in Sangaredi. The GAC mining projectis ramping up faster than CRU's initial expectations, and is currently aiming to produce 8-9M tonnes of bauxite in 2020, ThisBauxite and Alumina Monitor 13 AUGUST 2020, is prior to approaching full capacity of 12M tly over the course of 2021. Also supporting the sharp growth in Guinea bauxite supply is Henan International Mining's Nelyabokai bauxite mine. The company extracts bauxite from the ground, ship to the river port by truck and sells to SMB at the port. CRU estimates that the bauxite mine will likely produce 8.9M tonnes in 2020, up 1.4M tonnes compared to 2019 levels. Bauxite supply fluctuates in Brazil Central and South America bauxite supply has fluctuated considerably over the past couple of years. CRU expects bauxite supply in the region to total 35.8M tonnes in 2020, down 1.1M tonnes compared to 2019, This has reflected alumina supply disruptions that has a bearing on bauxite consumption, as well as temporary mining disruptions. Figure 9: Brazilian bauxite exports falling this year Quarterly Brazil bauxite exports, ‘000 tonnes 3,500 =China = Canada alreland Ukraine USA "Others, 3,000 2,500 2,000 1,500 4,000 500 o att = g3tT gi t8 ga t8 gi t9 ga t9 qi 20 DATA. Markt Norsk Hydro's Paragominas bauxite mine in Brazil produced 4.917M tonnes in H1 2020, and CRU view is unchanged that the bauxite mine will produce 10M wet tonnes in 2020. This is equivalent to approximately 8.5M dry tonnes, and up 35.9% yly. This is despite the mine initially contending with a halt in production at the end of June after three transmission towers overturned and cut the power supply to the site, Preliminary findings indicate that parts were stolen from the towers causing them to overturn, The Trombetas bauxite mine produced 5.1M tonnes in H1 2020, and CRU’s view is unchanged that the mine will produce 11M tonnes in 2020. Elsewhere in Brazil, Alcoa's Jurut bauxite mine achieved a quarterly shipment record, This has been against a background of a concerning rise in Covid-19 cases in the region, and in the case of northern Brazil some community spread of the virus. Up until now, there has been no impact on bauxite production, with a more modest occurrence of the virus within the plants than out in the communities. Production has remained steady with mechanisms in place to keep people socially distant in the operations. itis worth noting that Brazilian bauxite exports are notably down so far this year. Brazil exported 2.1M tonnes in H1 2020, down 38.6% yly. This largely reflects the fact that Brazil has also not exported bauxite to China since Q3 2019. There have been additional exports to Ukraine in H1 2020 — totalling 252,000 tonnes (compared to zero tonnes the previous year).Bauxite and Alumina Monitor 13 ave Regular accompanying Excel tables reporting the alumina market balance, ocean freight rates, bauxite consumption, bauxite production, bauxite prices and trade data is avaliable within the accompanying data pack via the downloads tab at cruanline.crugroup.comAbout CRU CRU'’s reputation with customers across mining, metals and fertilizers is for integrity, reliability, independence and authority. CRU's insights are built on a twin commitment to quality primary research and robust, transparent methodologies. You can rely on our work — our data, our views, our models - because we have built them ourselves, from the ground up, since our foundation in 1969. 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