Platts Aluminum Symposium 2012
Production and Demand Outlook for
Bauxite and Alumina
Andrew Wood
Manager Corporate Strategy & Development
[email protected]
Alumina Limited
16 January 2012
Disclaimer
This presentation is not a prospectus or an offer of securities for subscription or sale in any
jurisdiction.
Some statements in this presentation are forward-looking statements within the meaning of
the US Private Securities Litigation Reform Act of 1995. Forward-looking statements also
include those containing such words as “anticipate”, “estimates”, “should”, “will”, “expects”,
plans” or similar expressions. Forward-looking statements involve risks and uncertainties that
may cause actual outcomes to be different from the forward-looking statements. Important
factors that could cause actual results to differ from the forward-looking statements include:
(a) material adverse changes in global economic, alumina or aluminium industry conditions
and the markets served by AWAC; (b) changes in production and development costs and
production levels or to sales agreements; (c) changes in laws or regulations or policies;
(d) changes in alumina and aluminium prices and currency exchange rates; (e) constraints on
the availability of bauxite; and (f) the risk factors and other factors summarised in Alumina’s
Form 20-F for the year ended 31 December 2010.
Forward-looking statements that reference past trends or activities should not be taken as a
representation that such trends or activities will necessarily continue in the future. Alumina
Limited does not undertake any obligations to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise. You should
not place undue reliance on forward-looking statements which speak only as of the date of the
relevant document.
<2>
Alumina Limited
 Listed on Australian Securities Exchange and New York
Stock Exchange
 Owns 40% of Alcoa World Alumina & Chemicals (AWAC)
joint venture – largely a bauxite and alumina business
 AWAC JV owned 60% and managed by Alcoa Inc.
 Investment in AWAC is Alumina Limited’s only asset
 Alumina Ltd market capitalisation approx. US$2.9 billion*
 Head office in Melbourne, Australia

<3>
*as at 5 January 2012 at share price of A$1.15 (52 week high was $A2.72)
AWAC – world’s largest bauxite & alumina
business




Eight refineries – 17.2 million tonnes per annum of capacity
Seven bauxite mines – world’s largest bauxite miner
Two smelters – market competitive power contracts renewed to 2036
New project in Saudi Arabia – additional 0.45 million tonnes per annum alumina capacity planned for 2014
San Ciprian
Point Comfort
AWAC –

Ma’aden mine/refinery
Jamalco
Guinea
Suralco
MRN
Kwinana
Juruti
Huntly
Pinjarra
Willowdale
Wagerup
<4>
Sao Luis
Bauxite Mines
Portland
Refineries
Point Henry
Smelters
Location
Topics
 Bauxite and alumina current market position
 Demand outlook and production issues
 Recent developments in world alumina and bauxite
markets
 Chinese alumina dynamics:
- product flows
- pricing issues
- bauxite needs
<5>
Current market position
 Global markets: bauxite 225m t, alumina 90m t, aluminium
45m t
 Alumina supply/demand balanced 2011
 Demand up in China, supply surplus outside China
 Drop in demand in Latin America (Aluar, Venalum)
 Higher cost alumina production (caustic, coal, bauxite)
 Poor market sentiment/uncertainty with European debt crisis
 Low alumina (approx. $305/t) and LME aluminium prices
 Chinese bauxite imports increasing
<6>
Alumina demand outlook
Majority of:
bauxite is refined for alumina and
alumina is smelted for aluminium, so
aluminium supply/demand drives demand for alumina (not
easily stored)
 World economy/debt issues impacting aluminium
 Prospect of 2012 smelter cutbacks
 Through cycles, aluminium grows strongly
 Last 10 years outgrew all metals but steel
 Estimated long term 6.5% CAGR 2010-18
 Strong alumina demand growth in long term
<7>
More than half of alumina capacity expansions
will take place in India and China
METALLURGICAL ALUMINA PRODUCTION CAPACITY GROWTH PARTICIPATION 2012- 2015
40%
32%
8.3
29%
7.7
30%
20%
SHARE OF GLOBAL UPCOMING CAPACITY
MILLION TONS
12%
3.2
10%
8%
7%
7%
2.0
1.9
1.8
4%
0.9
1%
0.3
0.4%
0.1
0%
India
China
Source: HARBOR intelligence
<8>
Australia Guinea
Brazil
Saudi Vietnam Indonesia Western
Arabia
Europe
Delays in current projects due to bauxite
constraints and higher capex costs
ALUMINA PROJECT CHALLENGES
(capacity data in million tons)
REFINERY
COMMENTS
Hindalco’s Utkal
1.5
First output delayed to April ‘12 from September ‘11
Hydro’s CAP
1.86
Possible delay from end of 2012 to end of 2013 as the
company reviews Capex plans
Vedanta’s Lanjigarh
3.0
Put on hold due to bauxite access constraint
Gapco (Guinea)
3.0
Political unrest in the country. Capex deferral
Chalco’s Aurukun
1.5
Project abandoned due to increasing capital cost
Anrak (India)
1.5
Project experiencing problems to start output. Domestic
bauxite supply not secured
BHP’s Worsley
1.2
Delayed on construction difficulties and higher capital costs
Source: HARBOR intelligence
<9>
CAPACITY
Beyond 2012, less planned new capacity
ALUMINA COMMITTED EXPANSIONS VS EXPECTED DEMAND GROWTH*
(million tons)
2013-2015
*
COMMITTED EXPANSIONS 12.4
EXPANSIONS
DEMAND GROWTH
15
DEMAND GROWTH* 29.9
10.6
9.9
10
9.4
6.9
4.4
5
1.1
0
2013
2014
85.5
89.7
88.3
93.2
2015
GLOBAL CAPACITY UTILIZATION (%)
ALUMINA
ALUMINUM
Source: HARBOR intelligence
* Expressed in tons of alumina needed to satisfy each year’s aluminum demand growth
<10>
90.9
94.7
New alumina projects are facing
increasing challenges
GLOBAL ALUMINA EXPANSION CHALLENGE MAP
*>-
CANADA
New project based on
unproven technology
for large scale capacity
>* *
INDIA
- Bauxite access
GUINEA
constraints due
- Political unrest
to
- Increasing competition environmental
reasons
for bauxite access
-Capex delays
- Increasing taxes for
bauxite
*
*-
CHINA
Dependence on imported bauxite
VIETNAM
- Prone to output
disruptions
*
AUSTRALIA
-Increasing capital costs
Source: HARBOR intelligence
<11>
Increase in independent smelters has led
to substantial third party alumina market
Alumina Third Party Market
(m/tonnes)
45
5
8
1970
1980
12
1990
18
2000
2011
Source: James F King/Harbor Intelligence





<13>
Traditional integrated industry model changing
Fewer smelters self sufficient in bauxite and alumina
Third party alumina market approx. 50% of global market (up 10% in 2011)
Chinese growth is a major factor. Chinese refineries sell largely on a spot basis
Third party traded bauxite mainly from large mines (Boké, Trombetas, Weipa)
Recent development of alumina index pricing
 August 2010 Platts launched daily spot price assessments: FOB
Australia, CFR North China (imports), domestic ExW (Henan)
 Recent addition of Asian weekly caustic pricing (FOB Northeast Asia and
CFR Southeast Asia)
 November 2010 CMAAX launch (Clark & Marron + Aladdiny): volumeweighted daily spot price SGA index based on ExW transactions within
China – China average and with South and North prices (RMB and US$)
 December 2010 Metal Bulletin weekly alumina index FOB Australia and
Metallurgical grade DDP in RMB
 CRU publishes monthly Australian and Caribbean spot prices
 A number of producers have reported alumina contract pricing based on
Platts’ alumina price or a basket of reported prices
 Next potential development a bauxite index?
<14>
Platts alumina prices during 2011
 Platts average FOB Australia prices:
- H1 $398/t, H2$352, full year $375/t
460.00
Alumina Price (US$/t)
420.00
380.00
340.00
300.00
09-Sep-10
09-Nov-10
09-Jan-11
09-Mar-11
PAX FOB Australia
<15>
09-May-11
09-Jul-11
09-Sep-11
PAX CFR China
09-Nov-11
Alumina market fundamentals affecting prices
in second half 2011*
Eurozone, US economic jitters
LME aluminium dives to 2011 lows
Tajikistan, Argentina, UK, Netherlands trim alumina purchasing (transportation,
plant issues, al margins)
 China's credit curbs weaken domestic prices
 Poor smelting margins, alumina consumers destock
 Global freight rates fall
Bullish factors which cushioned price fall:
 congestion at Bunbury port (August-September)
 QAL output remains below capacity
 Completion of new non-vertically integrated smelters in China's Xinjiang
autonomous region
 China stops reselling imported alumina
 Global caustic soda production curtailed by low chlorine prices



* Source: Platts
<16>
CMAAX price chart (Jan – Nov 2011)
C M A A X E x - W o rk s P r i c e S e r i e s ( 1 7 % V A T I n c l u d e d )
2,950
451.3
441.3
Key Price drivers:
2,850
431.3
2,750
421.3
RMB/t
1. Demand & Supply
balances
2,650
1. Stablising after
December 2010's
increase
2,550
2,450
2. Upward trend
towards the
Chinese new year
when smelters
stock up
1. Demand
increase
after spring
festival
2. Smelters
restarting
after power
cut
411.3
2. China Aluminium
price slumps
1. Alumina capacity
started to roll out
2. Aluminium
prices were low
3. Tight monetary
policy
1.Some producers
raise prices
3. Government
tighten loans
2,350
* USD:RMB= 6.50 (average across the data period)
2. Market
fundamentals
reacted to
artificial price
3.Over supply
reaches peak
1. Aluminium
production picks up
2. New smelters
stocking up alumina
3. Higher aluminium
price
1. Poor Macro
Economic
conditions
2. Aluminium
Production cut
due to power
shortage in
winter
3. Alumina
refi neries
desperate for
cash
401.3
391.3
• Cost of production
• Aluminium prices
• Supply/demand
• Monetary policy
(availability of loans,
interest rates)
381.3
• Market sentiment
371.3
361.3
Days
Source: Clark & Marron, CMAAX
<17>
Refinery capital cost issue
 Without both high quality bauxite and long term good energy,
greenfields refineries need reasonable capital cost
 China capex $800-$1000/t, 1-2 years (construction period) versus RoW
$1500-2000+/t, 3 years
 Current capital costs outside China need much higher alumina incentive
price (or significant Government/infrastructure support)
 Potential for Chinese modular style refinery outside China (Guinea?
Brazil? SE Asia?) at lower than Western costs (+ infrastructure costs)
<18>
China’s
AlAl
Industry
– Capacity
China’sPrimary
primary
capacity
growth is set
Forecast
to continue through to 2016
50
>2011 to 2016
China Aluminium Forecast – Capacity, million tonnes
capacity increase
of 11% y-o-y
1
5
Aluminium Capacity Expansions, Mln t/yr
45
4
1
2
4
40
Coastal
2
Southern
3
35
13
0
0
Central
Western
3
Current
30
>Western provinces the
future of China’s primary
Al industry due to low
cost electricity ($20$25/Mwh Xinjiang)
>2012 capacity
3
estimated at
32.4m t/yr
25
27
27
20
2011
Greenfie
l
d U/C
Brownfie
l
d U/C
Planned by 2016
Specula ve
Total
Installed
2011
Greenfield
Brownfield
Planned
Speculative
Total
Capacity
27.1
2.7
4.2
12.7
4.5
46.7
Sites
129
9
-
1
-
139
Source: C&M
<19>
Chinese refining capacity is growing, with
Shandong Province a large high cost producer
Chinese Alumina – Production Areas
Chinese Alumina Cost Curve 3Q 2011
Central (Domestic Bauxite)
Coastal (Imported Bauxite)
Southern (Domestic Bauxite)
Future bauxite imports in
central region due to falling
grades of local bauxite
Merchant refiners using
imported bauxite are the
current marginal producers in
China
How does China impact the global market?

China is about 40% of global market

Chinese refineries generally sell alumina on a spot price market basis

Marginal alumina producers in China are independent refiners in Shandong with approx. 15% of world capacity

These producers have a cost structure that is high and which varies with the cost of key inputs

The Shandong refineries are dependent on imported bauxite

Domestic bauxite supply is limited and decreasing in quality

Whilst Shanxi and Guizhou are growing alumina capacity, Shandong continues to grow also
<20>
Source: Clark & Marron
Shandong Province’s alumina capacity
and production is growing
18
2011 Produc
on
2011 Capacity
2011 Production (Full
Year Estimate)
2011 Capacity
16
Unit:
Million t
Production
Capacity
Weiqiao
3.9
6
Xinfa
Chiping
3.8
5
Chalco
Shandong
1.8
2.3
Nanshan
1.4
1.7
Lubei
0.8
1
Nanhan
0.1
0.1
11.8
16.1
14
Mln/t
12
10
8
6
4
2
Total
0
Weiqiao
Xinfa Chiping Chalco Shandong
Nanshan
Lubei
Nanhan
TOTAL


Overall utilisation stands at 72.5%

Plans emerging for new capacity based on imported bauxite (Inner Mongolia)
<21>
Weiqiao & Xinfa are expected to expand development in Shandong, accounting for 65% of the total
production in 2011
Source: Clark & Marron November 2011
Shandong alumina cash costs 2011 rising
into 2012
2012 Assumptions:
450
Bx
Caus c
Engergy
Other
400
355
350
49
367
USD/t
200
381
45
42
48
108
300
250
406
100
95
47
92
56
58
65
Bauxite: (UP)
1. FOB prices up by 20%
2. Sea freight up by 15%
3. Domestic ore prices up by 15%
4. Bauxite efficiency gains
5. Imported bauxite grades deteriorate
Energy: (UP)
1. Electricity price up by RMB 0.03/kWh
(~6% = ~US$5/MWh)
2. Consumption stable
3. Coal price is going up
150
100
164
171
181
188
Q1
Q2
Q3
2012 Forecast
50
0
Source: Clark &
Marron
<22>
Caustic: (UP)
1. Price up by 5%, triggered by energy
price increase
2. Consumption up as bauxite grades fall
Other: (STABLE)
1. Labour productivity up
2. Labour cost up
3. Packaging, lime, consumables stable
4. Assume RMB not revalued
Bauxite prices on rise for Chinese
producers
Imported Bauxite Cost Structure
(Indonesian Bauxite Nov 2011)
60
8
50
24
46
57
3
US$/t
40
30
20
19
3
22
10
0
Mining Apparent
Washing Margin
Loading
FOB Freight & CIF
Price Insurance Price
Port
Land Delivered
Handling Freight Price
Varies from 2.5 -3 tonnes bauxite per tonne of alumina
<23>
Source: Clark & Marron
 Atlantic bauxite ($33-$40 FOB)
above Pacific prices ($20-$30 FOB)
 Approx. 31% of Chinese alumina
production based on imported
bauxite in 2011 - growing
 75% of China’s imported bauxite
comes from Indonesia
Indonesia’s key bauxite reserves on Riau
Islands (15%) and West Kalimantan (85%)*
 Riau Islands (including Bintan Island) largest supplier of bauxite to China
– being transferred to West Kalimantan
 Average A/S ratio of Indonesian bauxite at 8.5 and grade 36.9%*,
however mining in West Kalimantan is yet to be developed – needs
infrastructure
 Indonesian bauxite issues:
–
–
–
–

<24>
Likely to face higher taxes and environmental and regulatory costs
Potential for full or partial export bans from 2014
Struggling to meet demand
Reports of grades dropping
* Clark & Marron
In India, bauxite production is stalled while
consumption keeps growing
>Less ability to supply China; India may need to become importer of bauxite
INDIA BAUXITE PRODUCTION
INDIA’S BAUXITE PRODUCTION VS CONSUMPTION
(million tons)
(million tons)
*
20.3
21
21
-37%
*
14
12.9e
>PRODUCTION
15
*
GAP
NARROWING
7
9
CONSUMPTION
0
´95 ´96 ´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08 ´09 ´10 ´11
Source: HARBOR intelligence with WBMS data
<25>
3
´95 ´96 ´97 ´98 ´99 ´00 ´01 ´02 ´03 ´04 ´05 ´06 ´07 ´08 ´09 ´10 ´11
Source: HARBOR intelligence with WBMS data
Chinese domestic bauxite concerns
• Silica content of domestic ores increasing, leading to higher
alumina and caustic losses
• Assisted Bayer technology used but at high cost, driving
higher total domestic production costs in some region
• Central refineries importing bauxite
• IM refinery modelled on imported bauxite
• Indonesian and Indian bauxite risks
• Vietnam large resources, little infrastructure
• Australia exporter but one company
• Does this make Atlantic a viable alternative?
Alumina wash jeans
<26>
What could the full costs of an Atlantic and Pacific bauxite mix in
How
might
50% Atlantic bauxite mix in China look in 2012?
China
lookalike?
Indonesia bauxite conversion ratio has risen in some cases to 3:1
Cost of alumina production in Shandong (US$/t)
450
406
400
45
350
65
409
High bauxite
grades reduce
caustic
consumption
45
53
300
250
108
107
Other
Caus c
Energy
200
Bauxite
150
100
188
204
Assumptions:
- Atlantic bauxite US$ 90/t delivered
- Asia-Pacific bauxite US$ 70/t delivered
- Atlantic bauxite grade A/S = 11.75
>Bauxite cost only
marginally higher
due to high grade of
Atlantic bauxite
50
0
Current Bauxite Mix
New Bauxite Mix
Source: Clark & Marron
>27
China – importer or exporter of alumina?
 Chinese alumina refineries exist to satisfy internal demand
 Chinese smelters import when domestic alumina prices are
high
 China may limit imports or opportunistically export when
arbitrage exists
– similar to re-selling contracted import cargoes
– high cost production (and export capacity) shuts down when import
prices are low
– imports will recommence when arbitrage closes
 Exports unlikely for extended periods:
–
–
–
–
<28>
no VAT export rebate (unlike Australia)
inland and sea freight cost disadvantage
logistical issues – most Chinese alumina is bagged
alumina quality variance risks for RoW smelters
Chinese alumina - medium to long term outlook
 Expect continued capacity growth over next 5-10 years
 Higher operating costs, particularly due to bauxite cost
increases (whether imported or domestic)
 Alumina capacity may stop growing after 10 years*, as:
 Most of China's bauxite resources will have been
allocated; unlikely for greenfield refinery to be built on
domestic bauxite
 - China's aluminium demand and alumina supply likely to
be balanced after 10 years (then aluminium recycling focus)
 - Refineries importing bauxite will have no cost advantage
*Source: Aladdiny and Clark & Marron
<29>
Summary
 Balanced alumina market in 2012 with some uncertainty
until European debt resolved and with expansions underway
 Strong long-term demand for alumina but potential
shortfalls in supply given difficulties facing current projects
 Insufficient new greenfield alumina capacity outside China
likely at current prices
 Continued growth in China expected, although at a higher
bauxite cost
<30>
Appendices
AWAC Alumina Refineries
Name Capacity(2)
(MTPY)
AWAC Share
(MTPY)
AWAC
2.2
4.2
2.6
2.2
4.2
2.6
Alumar
Rio Tinto Alcan Inc (10%)
Aluminio (15%)
BHP Billiton (36%)
AWAC (39%)
3.5
1.4
Jamaica
Jamalco
AWAC (55%)
Alumina Production Ltd (Government of Jamaica)
(45%)
1.5
0.8
Spain
San Ciprian
AWAC
1.5
1.5
Suriname
Suralco
AWAC
2.2
2.2
US
Point
Comfort
AWAC
2.3
2.3
20.0
17.2
Country
Facility
Australia
Kwinana
Pinjarra
Wagerup
Brazil
Total
(1)
(2)
<32>
Owners
(%) of ownership where not 100% AWAC)(1)
All assets owned 100% by AWAC, except for Alumar (AWAC 39%) and Jamalco (AWAC 55%)
Nameplate capacity is an estimate based on design capacity and normal operating efficiencies and does not necessarily
represent maximum possible production
AWAC Bauxite Assets
(1)
CBG Guinea
Manchester
Plateau
Jamaica
Suriname
Mines
AWAC 100%
AWAC 23%
AWAC 55%
AWAC 100%
2046
Refer Note (2)
2038
2042
2033(3)
7,000 square
km
39,382
hectares
30,000
hectares
2,360
square km
10,761
hectares
4,286 hectares
33%
49%
47%
51%
41%
45%
Active Bauxite
Mines
Huntly &
Willowdale
Australia
MRN Brazil
Juruti Brazil
Ownership
AWAC 100%
AWAC 9.6%
2045
Area available to
mine/exploration
Approx average
per cent available
alumina4
Expiration/
renewal date of
mining rights
Other Bauxite
Interests
Cape
Bougainville
Mitchell
Plateau
Arnhem
Land
Juruti
East
Trelawny
Suriname
Mines
Location
Australia
Australia
Australia
Brazil
Jamaica
Suriname
Area available
for exploration
9,000
hectares
186,000
hectares
1,930
square km
180,000
hectares
31,400
hectares
19,063
hectares
Az Zabirah
Saudi Arabia
(25.1% AWAC)
14,700
hectares
(exploration lease
application)
(1)
(2)
(3)
(4)
<33>
This page contains general information only in relation to AWAC’s bauxite assets. For further details, refer to Alumina Limited’s 2010 Form 20-F
Mining rights available until exhaustion of deposit
Caramacca mine rights expire in 2012
The calculation of available alumina grades has not been prepared in accordance with the Australasian Code for reporting of exploration results, mineral
resources and ore reserves. The amount of available alumina is based on exploration and analysis of samples performed over a period time
Converting FOB WA price to Chinese port
prices
WA FOB (apparent) vs CMAAX (USD/t)*
500
450
13
442
Port Handling
Ex-Port Price
1
441
62
400
27
350
340
USD/t
300
250
200
150
100
50
0
FOB
Fob Australia
USD:RMB = 6.32
*
<34>
Freight to China
As at 8 November 2011
Source: Platts and Clark & Marron
VAT 17%
Import Premium CMAAX Ex-works
Adjusted spot alumina import prices*
560
140
Australia (Real)
CMAAX
Import Premium
130
540
120
Adjusted WA spot
price ‘free-ontruck’ China port
520
110
100
500
USD/t
480
80
70
460
60
Differential, or
‘import
premium’
440
420
50
40
30
400
380
20
>Trigger Price: Approximately USD 30/t, or RMB200/t
360
4/01/11
*
<35>
10
Chinese smelters more likely to import spot
alumina at a price differential lower than
US$30/t
0
-10
4/02/11 4/03/11
4/04/11 4/05/11
4/06/11 4/07/11
4/08/11
Platts FOB Australia prices have been adjusted to reflect a Chinese port price
Source: Clark & Marron
4/09/11 4/10/11
4/11/11
Price Differen al USD/t
90
Chinese alumina imports reflect price
arbitrage

Alumina imports into China reached record low in August 2011 due to price differential between
China and import prices

Imports bounced back in September and expected to increase in Q4 2011 (227k in November)
<36>
Source: Clark & Marron