Bauxite and Alumina
The global alumina market was oversupplied at the end of 2015. Platts alumina spot prices started the year at USD 355 per mt and ranged from USD 200 - 355 per mt, ending the year at USD 201 per mt. Prices averaged USD 301 per mt for the year, a decrease of 9 percent compared to 2014. Average prices as a percentage of LME increased and represented 17.8 percent for the year compared with 17.5 percent in 2014. Spot prices at the end 2015 represented 13.3 percent of LME.
Chinese alumina imports amounted to 4.7 million mt in 2015, a decrease of 12 percent compared with 2014. Bauxite imports into China increased to 56.1 million mt, or 54 percent higher compared to 2014. The increase was driven by imports from Malaysia which reached 24.2 million mt in 2015, up from 3.3 million mt in 2014. On January 15, 2016, Malaysia imposed a three month moratorium on bauxite mining to reduce environmental pollution caused by poorly controlled mining activities. Imports from Australia and India were 19.6 million mt and 7.8 million mt, respectively.
According to Chinese import statistics, the average delivered China bauxite price declined around 16 percent from USD 59 per mt in January 2015 to USD 50 per mt in December. Prices averaged USD 52.7 per mt for the year, a decrease of 8 percent compared to 2014.
Three month LME prices started the year around USD 1,850 per mt and reached a level of USD 1,938 per mt in the second quarter before falling to USD 1,435 towards end of November. At the end of the year, prices increased again to around USD 1,515 per mt. Prices averaged USD 1,800 per mt in the first half of 2015 and declined to an average of roughly USD 1,565 per mt in the second half of the year.
Standard ingot and product premiums were at record levels at the beginning of 2015, but fell throughout the year, ending the year at more historical levels. Average North American standard ingot premiums decreased to around USD 280 per mt or around 38 percent lower than average premiums in 2014. Corresponding standard ingot premiums in Europe declined to about USD 237 per mt or around 44 percent lower than in 2014. Premium developments have been influenced by exports of semi-finished products from China and increased metal available from warehouses partly due to a reduced contango during the year.
Global primary aluminium consumption increased by 4 percent to 56.3 million mt in 2015. Global supply increased by about 6 percent resulting in a surplus of around 1.2 million mt. For 2016, global primary aluminium demand is expected to increase by 3 - 4 percent while supply is expected to increase by about 1 percent, resulting in a largely balanced global market.
Demand for primary aluminium outside China increased by around 1.1 percent, while corresponding production increased by 1.6 percent. Ramp-up of new smelter capacity in the Middle East, India and Europe was partly offset by closures and curtailments. Overall, demand outside China exceeded production by close to 1 million mt in 2015. Demand for primary aluminium outside China is expected to grow around 2-4 percent 2016. Corresponding production is expected to be largely stable, resulting in a larger deficit in the world outside China in 2016.
Demand for primary metal in China increased around 7 percent to 29.1 million mt in 2015. Corresponding production increased by around 10 percent, resulting in a surplus of around 2.1 million mt for the year. Chinese primary production growth is expected to moderate in 2016 to around 2 percent influenced by announced curtailments and closures while primary demand is estimated to increase by around 4 percent, resulting in a continued but reduced surplus.
LME stocks fell throughout the year from 4.2 million mt at the end of 2014 to 2.9 million mt at the end of 2015. Most of the metal in warehouses continues to be owned by financial investors. Total inventories, including unreported inventories, however, were estimated to have increased by about 1.2 million mt throughout 2015, amounting to around 14.7 million mt at the end of 2015.
Demand for foundry alloys and sheet ingot in Europe has been solid during 2015 and increased compared to the previous year. Developments in the European wire rod market were also positive, with increasing volumes compared to 2014. Consumption of extrusion ingot was stable.
Consumption of extrusion ingot has been strong in the US in 2015 while the demand for primary foundry alloys increased moderately compared to 2014.
In Asia (excluding China), the market for extrusion ingot and primary foundry alloys showed moderate growth, but flattened towards the end of the year.
The European market for flat rolled products increased by around 2 percent in 2015. The automotive segment continued to be the dominant market driver due to the growing substitution of steel by aluminium together with an increase in European car production of around 6 percent in 2015. Demand in the building and construction segment remained relatively weak but showed signs of a recovery in parts of Southern Europe. The beverage can market segment was solid and improved after a weak start at the beginning of the year. Demand in the foil market showed a slightly positive development. Overall, increasing imports from China and Turkey resulted in increased margin pressure.
Demand for general extruded products was strong in North America compared to 2014, with an increase of more than 5 percent. European extrusion markets were stable. Market conditions for building systems continued to weaken in 2015, in Europe in general and in the key markets of France and Italy in particular. However, the weak European building and construction market was offset by growth in most other segments. The building and construction market represents almost 50 percent of the extrusion market in Europe.
In 2015, Nordic electricity prices declined further compared to the previous year. Prices fell sharply from May to August due to strong production from Nordic hydropower generation in addition to high continental solar and wind power generation. Nordic prices recovered during the fourth quarter due to drier weather conditions. However, prices came under pressure again towards the end of the year due to wet, mild and windy weather conditions.
Export restrictions, declining thermal generation costs and a corresponding decrease in continental energy prices also had a negative influence on Nordic prices during the year.
Nordic consumption increased by 1.9 TWh to 377.6 TWh in 2015. Total power production increased by 6.2 TWh to 393.4 TWh.
The Nordic hydrological balance ended the year at around 12 TWh above normal. Water reservoirs in Norway were 82.5 percent of full capacity at the end of the year, which is 14 percentage points above normal. Snow reservoirs were slightly below normal at the end of the year.
In Brazil, the economic downturn has had a negative effect on demand for power throughout the country compared with 2014. This, combined with higher than normal inflow in southern and central part of the country, and higher than normal thermal generation, has resulted in a more balanced power market compared to the previous year which was significantly influenced by severe drought conditions and a deteriorating hydrological balance.
As a result of smelter production growth, in China in particular, the 10 largest aluminium companies represent more than 50 percent of global aluminium production that amounted to roughly 30 million mt in 2015. Private companies in China have grown significantly in the last several years, in particular the Hongqiao group, which has become the world’s largest aluminium producer. Other private Chinese companies such as Xinfa and the East Hope group have also shown strong growth recently.
Conversely, state owned companies in China, in particular Chalco and State Power Investment Company have reduced their size along with a decline in economic performance. Outside China, the strongest production growth has been among companies active in the Middle East, in particular the EGA group which was established by the merger of Dubal and EMAL in 2014.
In Spring of 2015, BHP Billiton announced the demerger of South 32 Limited creating a new independent metals and mining company in the Southern Hemisphere focusing on the production of bauxite, alumina, aluminium, energy as well as metallurgical coal, manganese, nickel, silver, lead and zinc. Later in the year, Alcoa announced a plan to establish separate businesses for their upstream and downstream operations.
In 2015, Hydro maintained its position as the fifth largest producer outside of China, and ranked ninth globally in terms of annual primary aluminium production. The largest producer outside China continued to be Rusal followed by Rio Tinto Alcan and Alcoa. The ten largest producers world-wide include five operators in China which mainly focus on supplying the Chinese markets.
Bauxite and alumina price developments
Following consolidation in the alumina industry and bauxite pricing moving away from “cost plus” mechanisms, the price of alumina has increased relative to aluminum. Since 1990, average annual contract prices have risen from a level of around 12 percent of LME reference prices to above 17 percent in 2015. However, towards the end of the year the Platts alumina price index was close to USD 200 per mt, or around 13 percent of LME reference prices. Introduced in 2010, the Platts alumina price index reflects the fundamental supply and demand balance of the alumina market. The index continues to gain support in the industry and represents the main reference for contracts of various durations.
Bauxite and alumina prices have been strongly influenced by developments in China, which is heavily dependent on imported bauxite. China’s bauxite imports amounted to 56 million mt in 2015, 54 percent higher than the previous year driven by a significant increase of imports from Malaysia which has become the largest supplier of bauxite to China, ahead of Australia. Beginning January 15, 2016, Malaysia imposed a three month moratorium on bauxite mining to reduce the environmental pollution caused by the mining, transport and shipping of bauxite. In the previous year, bauxite imports to China decreased by 49 percent due to restrictions on Indonesian exports which became effective in January 2014. Previously, Indonesia was China’s most important bauxite supplier, accounting for 66 percent of China’s total bauxite imports between 2009 and 2014.
During 2015, the price of bauxite imported to China fluctuated based on the country of origin but trended downward on average. The December average CIF China bauxite price was USD 50 per mt, USD 9 per mt below the January average. However, bauxite prices declined less than alumina prices during 2015.
Aluminium price developments
Primary aluminium is traded on several metal exchanges, but primarily the London Metal Exchange (LME). The Shanghai Futures Exchange (SHFE) has grown in importance for international trade of standard ingots produced in China. Prices quoted on the SHFE include 17 percent value added tax and China has also had an export tax of 15 percent on primary aluminium for many years. China also has a 13 percent tax rebate on the export of semi-fabricated and finished aluminium products. In May 2015, the export tax was eliminated for several alloyed products while being maintained for pure primary aluminum ingots. This development implies that China intends to continue to discourage the export of pure primary aluminum while encouraging the export of higher value added products.
LME aluminium prices are heavily influenced by macroeconomic and market developments. Prices exhibited a historic decline during the financial crisis of 2008/2009 and began falling again during 2013 following a volatile period of improving prices. LME prices were further dampened by the significant accumulation of standard ingot inventories driven by financial investments. At the same time, standard ingot premiums increased significantly due to strong physical demand, partly compensating producers for the low LME prices. Product premiums also increased over this period. LME prices, including standard ingot premiums, peaked, however, towards end of 2014. In 2015, both LME prices and standard ingot premiums fell, influenced by surplus metal from China exported in the form of semi-fabricated products. Increased supply from LME warehouses, due to lower incentives for financial investments, together with a change in warehouse rules aimed at increasing the availability of metal in the market also put pressure on market prices. Prices have thereafter remained at a level that has resulted in closures, in particular in the US but also in China. See Market developments in the Financial and operating review section of this report for further information on price developments for 2015. The decline in premiums has reduced the incentive for Chinese exports which have declined from a peak at end of 2014. However, arbitrage opportunities are expected to continue to occur in the future, and will influence the magnitude of exports of semi-fabricated products from China and metal prices going forward. See section Risk Factors later in this report for a discussion on our exposure to competition from China.
Aluminium cost developments
World average production costs (business operating costs) increased in 2015 compared to 2014 due to higher operating costs in China. Outside China, operating costs fell despite lower casthouse premiums due to lower costs for alumina, power, labor and carbon among others. Currency movements also affected the relative position of companies on the cost curve. Developments in China were influenced by very low casthouse premiums as a result of the over-supply of primary metal and strong competition within the Chinese market. This was partly offset by large reductions in energy cost.
Value adding casthouse premiums are deducted from production costs to calculate business operating costs.
Annual report 2015
Annual report 2015
Annual report 2015
Annual report 2015