Overview of Base Metals Pricing, Supply/Demand
in North America, China and India
May 17, 2012 Anthony Poole, Managing Editor, Platts Metals Group
Global Aluminum Outlook
Aluminum demand is expected to increase 7% globally in 2012 vs. 11% growth in 2011 (Alcoa/Rusal). Growth projection excluding China is 4% A total of 1.35 million mt/year of aluminum capacity expected to be curtailed in 2012, but some of this was already idled or cast houses still running Alcoa led the way with curtailing smelter capacity, some of which is permanent. In January, it announced closure or curtailment of 531,000 mt of smelting capacity in its global network, including 291,000 mt of permanent closure in Tennessee and Texas, which had already been idled. Russian producer Rusal said this week it was mulling the curtailment of 300,000-600,000 mt of smelting capacity globally
Global Aluminum Outlook
Global supply seen at around 46.6 milion to 48 million mt, according to various estimates 2012 aluminum demand seen ranging from 46.8 million to 48.2 million mt (Alcoa/ Rusal) with supply nearly balanced after a 2-3% loss due to curtailments Alcoa sees 435,000 mt deficit and Rusal sees balance; banks see surplus of 350,000-650,000 mt World primary aluminum output was 2.121 million mt in March, down 2% from 2.164 million mt in March 2011 (IAI) The eurozone still casts a long shadow across the rest of the world
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Primary Aluminum Backwaradtion to Contango
Source: London Metal Exchange 4
LME Aluminium
metric tons
London Metal Exchange inventories hit all-time record over 5 million mt in Q1 and stayed close to that level since. Stocks high in non-affiliated warehouses tooProducers, analysts say if ware-house incentives stay at $160/mt + (7.25/lb), and interest rates stay low, metal will remain on warrant and keep inventories high
LME cash
Source: London Metal Exchange
Primary Aluminum Backwaradtion to Contango
Analysts had forecast 2012 average price $2,225-2,335/mt Bank forecasts for Q2-Q4 now $2,010-2,350 Year-to-date average has been $2,133/mt (May 15)
Source: London Metal Exchange 6
Primary Aluminum Backwaradtion to Contango
LME Aluminium Cash-to-Threes Spread
Backwardation to Contango
Source: London Metal Exchange 7
Primary aluminum premiums are soaring
US aluminum premium supported by financing deals
US Midwest Transaction Premium, /lb plus LME Cash
Platts Midwest Transaction price (LME + premium) has been used since 1984 to price aluminum US HG ingot premium keeps setting new record highs; reached 9.75 on May 8 Financing deals, warehouse incentives have kept aluminum off the spot market As primary aluminum premiums rise globally, mills/remelters try to use even more scrap
Source: Platts 8
Primary Metal Purchasing vs Scrap Usage
US aluminum industry scrap consumption rose 16.9% and scrap recovery was up 12.4% for Jan-Feb 2012 versus 2011 (Aluminum Assn.) 3000 series alloys also tend to be more scrap intensive But aluminum users say scrap availability has tightened in Q2 as LME fell; scrap consumption for April was down from Q1 Novelis has a goal to use 80% recycled content by 2020, 50% by mid-decade As of April Novelis had increased its usage to 39% recycled from 33% Novelis recycling capacity will nearly double to 2.1 million mt in 2015 from 1.2 million mt, with recycling plants aligning with rolling expansions
What Do Scrap Usage Targets Really Mean?
US used beverage can recycling rate for 2010 rose to 58.1% from 57.4%, highest in a decade, but still low US UBC recycling rate is down from mid-60s% at the peak, well below Brazil s high 90s% As different users fight even harder for good scrap and use new mix, they may still need to buy more alloying agents like magnesium For the new automotive aluminum sheet expansions, the relevant scrap will not yet be available
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Short-term Outlooks by Sector
Source: Alcoa Analysis
Short-term Outlooks by Sector Trucks/Aerospace
East European truck trailer market grew 58% in 2011 (CLEAR Consulting) Aleris saw European aerospace rolled product volumes up 19% in Q1 Aerospace sheet/plate makers of 7000, 2000 series alloys largely sold out Boeing 2012 civil aircraft deliveries up to 585-600 from 477, but supply chain has over-capacity (Boeing, UBS, ATI) Airbus projecting a record 570 civil aircraft deliveries in 2012, up from 534 in 2011
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Short-term Outlooks by Sector Building/Construction
US housing starts slowly recovering but far below pre-2008 levels, fell 5.8% in March from February (Census Bureau) Commercial construction down about 3% year on year in March (Census Bureau) US nonresidential building was down 25% in Q1 and down 7% for the 12 months through March (McGraw-Hill Construction) Total US construction for the 12 months through March 2012 was unchanged (McGraw-Hill Construction)
-7% for nonresidential building -3% for nonbuilding construction (utilities, public works) +13% residential building
Aluminum users do not expect significant improvement until 2013-14
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Short-term Outlooks by Sector Automotive/Cans
General Motors raised US light vehicle sales forecast to 14 -14.5 million units for 2012 from 13.5 -14 million units; LMC Automotive also sees 14.3 million Aleris saw European automotive sheet volumes up 14% in Q1 2012 on year Ducker sees 343 lb of aluminum per vehicle in 2012, up from 327 lb in 2009 Aluminum rapidly gaining share in hoods (30% of all 2012 vehicles), trunk lids, bumpers (over 20% of bumper beams), steering knuckles and suspension arms (Ducker) Novelis is undertaking major rolling expansions in Brazil, Korea, China and North America, ramping up from late 2012 through late 2014 North American can stock orders down 2.8% in April, down 2.8% year-to-date
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Steel, Metals metals ride ride automotive automotive comeback: comeback: Consumption up nearly 57% since 2009
North Am Vehicle Sales Metal Carbon Steel
Stainless steel and other
Iron casting
Aluminum
Copper/Brass
Powdered Metals
Lead
Zinc castings
Magnesium
Other metals
Total Ave vehicle weight
2010 lb/vehicle
2,120
106
325
324
61
42
39
10
10
5
4,002 lb
2006 15,244,354
2009 9,132,431
2010 11,630,000 tons required
2011 12,810,500
2012-F 14,300,300
Change from 2009 low to 2012 forecast tons 5,477,941
273,897
839,779
837,195
157,620
108,525
100,773
25,839
25,839
12,920
16,159,015
807,951
2,477,208
2,469,585
464,953
320,231
297,265
76,222
76,222
38,111
9,680,377
484,019
1,484,020
1,479,454
278,539
191,781
178,082
45,662
45,662
22,831
12,327,800
616,390
1,889,875
1,884,060
354,715
244,230
226,785
58,150
58,150
29,075
13,579,130
678,957
2,081,706
2,075,301
390,720
266,021
249,805
64,053
64,053
32,026
15,158,318
757,916
2,323,799
2,316,649
436,159
300,306
278,858
71,502
71,502
35,751
Sources: EPA; American Chemistry Council; LMC Automotive; (JD Power); Platts estimates
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Longer-Term Outlooks for Aluminum Users
Aluminum will grow from 325 lb per North American vehicle in 2008 EPA base year to 550 lb by 2025, with most of that driven by sheet and extrusions (Ducker) China s can/packaging compounded annual growth rate 20% for 2011-2013 (Alcoa) Brazil s beverage can compounded annual growth rate 7% over next 5 years (Novelis) Asia aluminum sheet annual growth rate 8% over the next 5 years (Novelis) 40% increase in N. American automotive aluminum demand 2012-2016 (CRU)
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Aluminum Sectors and Magnesium
Magnesium is a key alloying agent in the production of aluminum alloys Primary aluminum smelters casting billet, rolling slab, foundry alloy use magnesium Remelt billet makers and extruders also use magnesium Use more secondary magnesium, get some magnesium from scrap Secondary aluminum smelters producing diecast/foundry alloys Get the vast majority of their magnesium from scrap (either aluminum or magnesium)
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Magnesium Price Has Yet to Recover
US Spot Prices Flat Since Late 2011
US spot prices fell after 2012 contracts for pure magnesium were booked at $2.00-2.20/lbA lack of additional spot demand, despite projections for increased consumption, has characterized the market, so far, in 2012
LME cash
Source: Platts 18
Aluminum Alloys and Magnesium Content
Aluminum Alloy
End Uses
Mg Content 0.8-1.3%
0.2-0.8%
2.2-2.8%
3004
3105
5052
Beverage can bodies, truck trailer Building and construction General distribution, truck trailers, architectural, sheet metal work, appliances, truck bumpers, auto interior/body panels Marine, welded structures, storage tanks, pressure vessels, cryogenics Can end stock , auto body inner panels Welded structures, transportation Trim Marine, tooling plate, construction , auto & truck frames and bodies, structures Window / door frames (extrusions), auto Construction, structures, truck frames, brake housings Auto body sheet (panels) Bumper face bars, bumper reinforcements Aerospace, high strength structural, mold plate Aerospace
5083
5182
5454
5457
6061
6063
6082
6111
7021
7050
7055
4.0-4.9%
4.0-5.0%
2.4-3.0%
0.8-1.2%
0.8-1.2%
0.45-0.9%
0.6-1.2%
0.5-1.0%
1.2-1.8%
1.9-2.6%
1.8-2.3%
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What the Market Tells Platts about 2012 Consumption
The largest aluminum (mill) users of magnesium say their 2012 global magnesium consumption is flat to slightly higher (maybe 1-2%) Aluminum billet makers see magnesium consumption up 5-10% (small base) Magnesium producers see some aluminum use flat, some up 5% for 2012 Aluminum mills have seen their alloy mix trending towards less-Mg intensive alloys, such as 3000 or 2000 series away from 5000 and 7000) Europe s magnesium use is off 5-15% Strike at Nichols Aluminum caused some other companies to shift more North American output towards more 3105
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Magnesium Outlook Still Cloudy
Some aluminum users project aluminum auto sheet or aerospace could increase their magnesium consumption up to 20% if growth holds true Skepticism about aluminum automotive growth given historic over-optimism China s magnesium consumption has so far been driven by diecasting rather than aluminum, but that could change China continues to have vast potential magnesium capacity and to be a large net exporter of magnesium
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Questions? Copper
Sou
on Meta rce: Lond
l Exchan
ge
Copper
World demand for refined copper is expected to exceed production by about 240,000 mt (International Copper Study Group, April, 2012) In 2013, world production may exceed demand by 350,000 tonnes (ICSG) Copper price seemingly driven more by macro-economic data than physical supply/ demand. In the last week, three months copper has sunk below key support of $8,000/mt on the LME. At the same time, the euro has plummeted against the dollar to around $1.27 (May 15) compared with above $1.30 a week earlier Stronger dollar puts downward pressure on the price of dollar-denominated commodities, including copper
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Copper
Europe and China are casting long shadows over the rest of the world Copper is also a story about LME and SHFE inventories, but not like aluminium
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Copper
Sou
rce:
Sha
ngh
ai F utur es a
nd O ptio
ns E xcha
nge
Some analysts and traders argue that when SHFE stocks go down, it is an indication that Chinese physical consumption is rising. But many others argue that the copper is just being transferred elsewhere, either to the LME (arbitrage), or else to non-exchange-affiliated warehouses
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Magnesium Copper Outlook Still Cloudy
The market is worried that any slowdown in China will have a major impact on physical copper demand. China accounts for around 40% of global demand A return to recession in Europe is also a concern as it could serve to strengthen the US dollar against the euro and undermine prices of all dollar-denominated commodities New mine construction may be delayed by funding availability and rampant mining inflation. Thompson Creek Metals recently raised over $200 million in bonds and equity to plug a hole in the funding requirements for its Mount Milligan copper and gold mine in British Columbia. Baja Mining has said that development of its Boleo Mine in Baja California will come to a halt without a fresh cash injection by mid-June
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Copper
Bank of America Merrill Lynch said last week that the extreme backwardation on LME copper could ease once copper stored in China starts to trickle back into the market. The recent rise in Shanghai stocks was being fuelled by warehouse, financing deals, it said. The bank estimated Chinese stocks at more than 1 million mt last week, stored in both exchange and private, off-exchange warehouses
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Questions?
Anthony Poole
New York, NY +1 212 904-2992 [email protected] www.platts.com
Thanks to these editors that contributed to this presentation:
Karen McBeth; Tina Allagh; Nick Jonson
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