Market Update Pål Kildemo Head of IR (1) The paradox of the aluminium industry Demand winner – yet price laggard Yearly consumption (Index 2000=100), global 3-month LME price (Index 2000=100) 150 800 130 600 110 400 90 200 70 2000 2002 2004 2006 2008 Copper Source: CRU/Global Insight (2) 2010 Tin 2012 0 2000 2013 Lead 2002 2004 Aluminium 2006 2008 Nickel 2010 2012 2013 Improved market balance Brighter outlook after years of overproduction, world ex-China Production less demand world ex-China Supply/demand world ex-China** Inventory days Quarterly annualized* Primary aluminium, in thousand tonnes World ex-China reported primary aluminium inventories Primary aluminium, in thousand tonnes 3 500 2 500 150 2 000 1 000 100 1 500 0 500 50 -1 000 - 500 -1 500 Dec-08 Oct-09 Aug-10 Jun-11 Apr-12 Feb-13 Dec-13 Sep-14 -2 000 2013 2014 2015 2016 2017 2018 2019 Fall 2012 Source: CRU/Hydro *12 month rolling average ** CRU estimates (3) Fall 2014 Q1 00 Q3 02 Q1 05 Q3 07 Q1 10 0 Q3 12 Q3 14 World ex-China inventory days Supply growth next year mainly in Asian regions World ex-China Supply Demand Demand growth base case: 3-4 % Thousand tonnes 28 000 Supply development 2015 26 000 (million tonnes) 24 000 Other 22 000 20 000 Supply influences 18 000 Few new projects India ~0.4 Structural issues Ramp-up challenges ~0.4 Potential curtailments, including full year effects from 2014 ~0.5? India & other Asia 16 000 Potential restarts and curtailments? 14 000 Potential additions Potential restarts ~0.5? 12 000 10 000 2006 Source: CRU, Hydro Analysis (4) 2007 2008 2009 2010 2011 2012 2013 2014 E 2015 E All-in price of aluminium in upward trend All-in ingot price exceeds USD 2 500/tonne as premiums continue to rise to new records Regional standard ingot premiums All-in ingot aluminium price USD per tonne USD per tonne 600 3 000 400 2 500 NOK per tonne 18 000 14 000 200 0 Jan-08 2 000 Mar-09 May-10 US Mid West Source: Metal Bulletin, MW/MJP: Platts (5) Jul-11 Japan Sep-12 Nov-13 Europe (duty-paid) Dec-14 1 500 Jan 11 10 000 Jan 12 Jan 13 Jan 14 LME cash LME cash + US Midwest LME cash + Europe duty paid LME Cash + Europe dutypaid NOK (RHS) Source: Metal Bulletin, MW/MJP: Platts, Reuters Ecowin Dec-14 Product premiums also at record high levels USD per tonne 900 800 700 600 500 400 300 Product premium lifted on its own fundamentals 200 100 0 Jan-90 Feb-92 Mar-94 Apr-96 EI over ingot Source: Metal Bulletin, Hydro Analysis (6) May-98 Jun-00 Jul-02 European duty-paid ingot Aug-04 Sep-06 Oct-08 Nov-10 Metal Bulletin Billet Premium Indicator Dec-12 Dec-14 Market balance indicates pricing above 90th percentile on the cost curve High inventories separates current period from earlier periods where demand exceeded production LME price vs BOC development world ex-China LME price and marginal smelter in USD Supply/demand balance in world ex-China in thousand tonnes 3 000 4 000 2 500 3 000 2 000 2 000 1 500 1 000 1 000 0 500 -1 000 Supply/demand balance LME 90 percentile 0 -2 000 2000 2001 Source: CRU/Hydro *BOC = Business Operating Costs (7) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014E China to remain balanced on imports/exports of primary aluminium Bauxite import declined amid Indonesian export ban China import Annualized aluminium equivalents*, million mt 2011 2012 25 YTD 2014** 2013 − Significant drop in bauxite imports since January − Alumina imports increasing 33% YTD 20 15 • Primary aluminium 10 − No significant import or export China export 5 expected in 2015. Export duties remains at 15% as before. 0 • Semis and fabricated ( 5) − Uptick in export of semis and fabricated products ( 10) Bauxite Alumina Scrap Primary aluminium Source: CRU/Antaike/Hydro * Bauxite/alumina to aluminium conversion factor: 5.0/1.925 **December estimated to be same as November (8) • Bauxite and alumina Fabricated Semis Net aluminium imports China developing new bauxite import sources No Indonesian bauxite exports translates to higher prices average CIF China Import volume by origin Value-in-use bauxite price increasing more Million tonnes USD per tonne 80 70 60 50 80 Delta 2014 vs 2011: Indonesia -27 Australia +6 India +4 Other Pacific +4 Atlantic +3 Avr CIF China 70 65 40 60 30 55 20 50 10 45 0 2011 Indonesia 2012 Australia 2013 India Other Pacific 2014E* Atlantic Source: China Custom, CMgroup, Hydro Analysis, * assuming Dec 14 imports same as Nov 14 (9) Value-in-Use 75 40 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Lighter vehicles make a big impact on the climate challenge Aluminium – part of the solution For each 10% reduction in vehicle weight, car manufacturers achieve fuel-savings of 5-7% Declining CO2 emission targets around the world Sources: EAA, ICCT, IAI (10) Land Rover Sport 2010 Land Rover Sport 2014 3,100 kg 2,200 kg C02 emissions 327 g/100 km C02 emissions 194 g/100 km Robust long-term growth outlook for flat rolled products worldwide Transport is main driver for growth – Body-in-White consumption growth outperforming all other segments Global FRP consumption by end-use 2014 10% 14% 9% CAGR 2014-2018 Body-in-White demand in thousand tonnes Transport 4% 11% Electrical 6% CAGR 20% Construction 6% 1 400 2 100 12% 51% Total consumption 5% Machinery & Equipment 5% Consumer durables and other 5% Packaging Total consumption around 23 million tonnes Source: CRU FRP quarterly August 2014, Rolled Products analysis FRP - Flat rolled products CAGR – Compound annual growth rate 4% 500 2014 2018 2022 Hydro’s aspiration for higher value creation (12) • Continue improvements drive • Capture commercial opportunities • Extend technology and innovation lead (13) • Further strengthen relative industry position • Turn leading HSE/CSR position into competitive advantage • Enhance market positions and high-grade portfolio • Deliver on fast-developing customer demands • Mature selective growth projects for when time is right • Capitalize on strong climate position over time Hydro improvement drive continues at full pace ‘Energy Aspiration’ Total contribution from Hydro’s improvement programs (excl. Sapa) Sapa JV ‘JV program’ ‘From B to A’ ‘Climb’ ‘USD 300 program’ * USD 300 from 2009 ** Real 2014 terms Realized improvement efforts is YTD Q314 annualized. CCIP II 2011*-2014 2015-2016** BNOK 3.7 BNOK 1.5 Alumina pricing on own fundamentals Alumina price Index spot price exposure USD per mt 100% Percent 500 20% 19% 450 18% 400 17% 350 16% 15% 300 14% 250 2015 Internal demand 2017 LME linked sales 2020 200 Aug-10 13% Sep-11 Oct-12 Index exposure Alumina (15) Nov-13 % of LME 12% Dec-14 Bigger: A solid platform for building an even stronger Hydro Bauxite & Alumina Energy Primary Aluminium Rolled Products • Move beyond nameplate • Mature captive growth • Enhance position in • Expand automotive capacity capacity • Further improve bauxite positions • Mature CAP project and Paragominas expansion for when time is right opportunities • Raise income potential from market operations • Leverage value from Nordic power surplus high-margin segments • Realize 100,000 tonnes creep in fully-owned smelters • Extend technology lead with Karmøy pilot plant • Mature Qatalum 2 and Alouette expansion for when time is right * Includes recycling ambition in Primary Metal (16) to 200,000 t/yr by end-2016 • Increase recycling of postconsumed scrap above 250,000 t/year* • Build positions and lift margins through technology leadership and innovation The industry’s most ambitious climate strategy: Carbon-neutral by 2020 Supported by the three pillars of Hydro’s technology strategy Energy and primary production Reduce emissions, increase efficiency Aluminium in use Maximize userphase benefits ‘End-of-life’ Increase recycling, back to the loop (17) Hydro 2015 Lifting performance and shareholder value in tight physical markets • Delivering on improvement programs • Targeting high-margin markets and maturing growth portfolio, while maintaining tight capital discipline • Increasing energy-efficiency and lowering climate footprint (18) (19)
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