The Global Aluminium Market Outlook

1 The Global Aluminium Market Outlook Anil Patel, CRU AluminiumAluminium Valley In Business Trade Show 2017Qu bec, May 2017 What is driving Aluminium supply and demand?Will the Aluminium Market balance? Where are prices heading? 2 Structure of PresentationDemand:What is expected to drive demand?Supply:Will China implement environmental closures? Market balance:Can demand catch supply in 2017?Price forecast:Where are prices heading?Conclusions3 Global economy begins 2017 robustly2,002,102,202,302,402,502,602,70 2,802,903,002015Q12015Q22015Q32015Q42016 Q12016Q22016Q32016Q42017Q12017Q22017Q320 17Q42018Q12018Q22018Q32018Q4 Data: OE, CRUG lobalIndustrial Production (IP) IndexQuarterlyglobal IP, % y-o-y change0,000,501,001,502,002,503,003,5020 15Q12015Q22015Q32015Q42016Q12016Q22016Q3 2016Q42017Q12017Q22017Q32017Q42018Q12018 Q22018Q32018Q4 Data: OE, CRUG lobal GDPQ uarterlyglobal GDP, % y-o-y change47484950515253545556mars-15juin-15 sept-15d c-15mars-16juin-16sept-16d c-16mars-17 USEuropeAsiaAluminium Order Book IndexData: CRU, Markit47484950515253545556mars-15juin-15 sept-15d c-15mars-16juin-16sept-16d c-16mars-17 USEuropeAsiaExpected Purchasing IndexData.

2 CRU, Markit44 China : Supporting growth and containing risks are the goals ahead of this autumn s Party CongressSelected government targets for 20172016 target2016 outturn2017 targety/y % unless *Inflation (CPI) growth (TSF) deficit (% of GDP) : TSF = Total Social Finance. Fiscal deficit is a narrow measure that excludes off-balance sheet items, notably local government financing vehicles; including these raises 2016 s deficit to around 10%, according to IMF : * Or higher, if possibleSource: Chinese government, CEIC, CRUM onetary policy Officially: Prudent and neutral Reality: loose, some tightening nowFiscal policy Officially: Proactive Reality: extremely looseHousing policy Houses for living in, not investment Hot markets -tightening demand restrictions, instructed more land supply Over-supplied markets -instructed less land supply52017 Global primary demand once again spearheaded by ChinaShare of Global primary Aluminium consumption and 2017 y-o-y% growthData: CRUS ource.

3 CRU Aluminium Market Outlooky-o-y growth%Country/region share of Global Aluminium consumption, %63 MtIndiaChinaCentral & Sth AmericaRussiaRest of worldMiddle EastAfricaRest of AsiaUSAW estern Europe-4-2024680102030405060708090100C&S AmericaJapan34 MtTotal world demand growth in 2017: sector to fuel Global demand growthAluminium semi-finished product consumption by end-use sector 2016-2021, stockElectricalConsumer durablesMachinery & : The world s Aluminium semis factory2016 Semis Net Exports ( 000t)Categorised as: North America, Central & South America, Western Europe, Eastern Europe (w/Russia), Africa, Middle East, China, Japan, India, Rest of Asia, Australasia>1000500 999100 4990 99-99 0-499 -100 -999 -500<-1000-200kt-365kt66kt21kt13kt2001kt -47kt-499kt92kt-207kt-972kt8 Structure of PresentationDemand:What impact will greater Global tariffs have?

4 Supply:Will China implement environmental closures? Market balance:Can demand catch supply in 2017?Price forecast:Where are prices heading?Conclusions9 The old world s share of Aluminium production is droppingPrimary Aluminium production split by region0%10%20%30%40%50%60%70%80%90%100%2 0002005201020152020 Russia, India& Middle EastRest of worldexcluding ChinaInner MongoliaShandongXinjiangRest of China10 China is set to put in its strongest year for production growth on record. CRU expects China will increase production by in 2017, surpassing the last record of in 2010. Record output this year is despite the inclusion of 975,000t of unallocated closures in our base case for 2017. The closures include around 350,000-500,000t of environmentally led closures in November and Trends: China supply growth in focus24262830323436avr-15oct-15avr-16oct -16avr-17 China production CRU annualisedEx.

5 China production CRU annualisedWorld monthly annualised Aluminium production, million tonnes-1,0-0,8-0,6-0,4-0,20,02017Q12017Q 22017Q32017Q42018Q12018Q22018Q32018Q4 HenanShanxiShandongHebeiImpact of proposed seasonal cuts on production, million tonnes11 Chinese projects will add a cumulative over next 5 years without supply reformAluminium production, million :CRUS ource: CRU Aluminium Market Outlook12 Structure of PresentationDemand:What impact will greater Global tariffs have?Supply:Will China implement environmental closures? Market balance:Can demand catch supply in 2017?Price forecast:Where are prices heading?Conclusions13 Global Market will move into deficit in if China cuts supplyKey Assumptions925,000t and of Chinese closures needed in 2017 and 2018 Environmental closures should account for 455,000t and 600,000t of the closures in 2017 and 2018 Impact of supply reform policy uncertain at this stage but could be largeChinese consumption growth to fall in 2018 to net primary exports to rise from 500,000t in 2017 to 800,000t in 2018 RisksSupply policy response in China could sway prices either wayProjects still being added-mainly by SOEsCosts inflation from alumina, power and carbon 480-913344-538-1500-1000-500050010001500 2000404550556065702015201620172018 ProductionConsumptionBalance (right axis)Source.

6 CRU Aluminium Market Outlook14 Stock levels declining rapidly outside ChinaSource: CRU Aluminium Market Outlook847473675060708090024681012142015 201620172018Ex. ChinaChinaWorld days' inventories (right axis)Mtdays15 Structure of PresentationDemand:What impact will greater Global tariffs have?Supply:Will China implement environmental closures? Market balance:Can demand catch supply in 2017?Price forecast:Where are prices heading?Conclusions16 LME 7 Signals: China supply-reform the dominant topicKey LME drivers bullish, neutral or bearishCRU's Seven Price Signals (forecast)Bull/Bear/Neutral1 month aheadNext 6 monthsShort Term ViewUS Dollar: To remain stableNeutralThe dollar will strengthen a tad against the Euro. Trump wants a weaker dollar, but increases in US interest rates in 2017 will send the currency higher.

7 CRU anticipates a neutral impact on prices over the next 12 prices: Oil prices to remain stableNeutralCRU forecasts Brent will average $54/bbl in 2017. The price is currently trading around $53/bbl. Unless the oil Market moves into deficit there is unlikely to be much of a move in oil prices this year. We have a neutral impact on prices from changes to macroeconomic data: Remaining firmNeutralEconomic activity remains firm in 2017 with GDP and IP to rise and respectively. Chinese IP growth will ease from to y-o-y. Chinese Export Arbitrage: Exports expected to riseBearishFake semis exports in the form of CC coil for remelt are set to rise in the next quarter due to a widening of the price arbitrage in the last months.

8 However, the recent surge in the SHFE price may reduce export expectations into Q3 : Looking for more stringent Chinese policyBullishCapital inflows flowed into Aluminium in the last two months whilst other metals saw outflows of money. Expectations of supply reform in China keep investors on-board for now. But, if there is no meaningful reform then expect a quick exit of money. Visible stocks: China slower increase, LME record lowNeutralChinese reported warehouse stocks rose to in April. Further inflows will temper some investor expectation in coming months. LME stocks fell to a nine-year low providing a positive boost to prices. Stocks will continue to fall as deficits Market : Widened deficit outside ChinaBearishChina will remain in surplus this year unless there are rapid and meaningful supply reforms.

9 The deficit outside China will increase. Disruptions to supply at Alba and Vedanta have widened the Market remain bullish LME metalsMoney manager net long, '000 lots050100150200250300janv-16mai-16sept- 16janv-17 AluminiumLME metals excluding AluminiumInvestors starting to favour aluminiumMoney manager net long, '000 lotsAluminiumoutperforms non-ferrous metals in Q1 2017 Source: CRU Aluminium Market Outlook18 LME Price forecast: LME 3-month price upgraded to $1,885/t$1,516$1,632$2,010$2,050$2,050$1 ,775$1,725$1,700$1,582$1,709$1,850$1,930 $1,910$1,8501400150016001700180019002000 2100Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017Q4 2017 High CaseForward curve, March 27, 2017 Low CaseBase caseLME 3-month price forecast$/tData.

10 CRU, LMEHigh case, base case and low case LME 3-month price forecasts, $/tSource: CRU Aluminium Market Outlook19 Source: CRU Aluminium Market Outlook13314515015615874951281201257,59, 610,010,210,5024681012050100150200250300 Q1 2016Q2 2016Q3 2016Q4 2016Q1 2017Q2 2017Q3 2017Q4 2017 Rotterdam duty paidJapan 3-month CIFUS MidwestRegional ingot premiums hold firm(LHS) $/t, (RHS) /lbData: CRU20 Structure of PresentationDemand:What impact will greater Global tariffs have?Supply:Will China implement environmental closures? Market balance:Can demand catch supply in 2017?Price forecast:Where are prices heading?Conclusions21 ConclusionGlobal demand is expected to be robust in 2017 with a strengthening Global economy supporting increased uptake of Aluminium .