Aluminium Market Outlook

Justin William Hughes

Head, Aluminium Raw Materials

March 2021
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Shape of the recovery

Stylised illustration of stages of

recession and recovery • Phase I: Deep and sharp downturn at time
Level of output, illustrative scale of Covid-19 outbreak (Q1 in China, Q2 in
Pre-Covid19 output trend Europe and USA)
V-shaped
145
140 Phase I Phase III Phase IV • Phase II: Sharp rebound in Q3 as the
135
deep the long slog new norm
Loss in
economy re-opens – quick wins
recession
130 output
Phase II
125 strong • Phase III: Long-slog – getting the economy
120 rebound
back to normal while social distancing
115
remains in place
110
105
100 • Phase IV: New normal – unclear when we
95 will get there and what it will look like in
2019Q1
2019Q2
2019Q3
2019Q4
2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4

aggregate (trends will vary by region, some

winners and other losers)
Source: CRU Global Economic Outlook
Bauxite market relies on continued growth of Guinea export
China CIF Bauxite price, USD/dmt LHS, % RHS

55 25

China CIF as % of API (RHS) Bauxite price (China CIF)

20

50

15

45
10

40 5
May-20

Feb-21
Jun-20

Jul-20

Aug-20

Sep-20

Jan-21
Nov-20

Nov-20

Dec-20
Oct-20
Apr-20

Apr-20
Mar-20
Alumina market well supplied with stable prices forecast
CRU Alumina Price Index, USD/t CRU China Alumina Basket Price, RMB/t

CRU Alumina Price Index, FOB (LHS) CRU China Alumina Basket Price (LHS)
LME 3-month (RHS) SHFE 3-month (RHS)
350 2,200
3,200 17,000
16,500
3,000 16,000
2,000
15,500
300
2,800 15,000
14,500
1,800
2,600 14,000
13,500
250
2,400 13,000
1,600
12,500
2,200 12,000
11,500
200 1,400
2,000 11,000
Apr-20
Apr-20

Sep-20
Jul-20
Aug-20

Nov-20
Nov-20
Dec-20

Feb-21
May-20

Oct-20
Jun-20

Jan-21
Mar-20

Aug-20
Sep-20

Feb-21
Jun-20

Jan-21
Jul-20

Oct-20
Apr-20
Apr-20
May-20
Mar-20

Nov-20
Nov-20
Dec-20
Market Outlook summary
Production
World ex. China output will rise by 4.0% y/y in 2021, the
second highest y/y tonnage growth this century
In China, production will rise by 7.9% y/y in 2021 to 39.8Mt.
the current run-rate in China is 39.3Mt, if production flatlined
at current levels China would still deliver 6.4% y/y growth.
However risks to production have emerged in Inner Mongolia
Consumption
World ex. China demand will rise by 12.2% in 2021, we have
upgraded demand by 115,000 t in 2021. The upgrade is
driven by better economic growth and tight scrap supply
In China, demand will rise by 5.7% in 2021. Demand in the
first two months of the year has been stronger than we
forecast and we have upgraded demand by 322,000t
Market balance and prices
Market balance
• Global market surplus in 2021 will fall to 1.4Mt from
2.5Mt in 2020, China will see a small surplus after primary
net imports. The ex. China surplus has contracted to
1.1Mt from 1.5Mt in the last report
• China aluminium trade: import arbitrage is now open,
unfavourable price differentials will hurt exporters in 2021
Price forecast
• LME 3-month price to will rally to a high of $2,350 /t in the
next three months
• SHFE cash price to hold around RMB16,500-17,000 /t.
There is upside risk in March and prices could correct
more severely than we forecast in H2 2021
• Premiums US Midwest premium to rally to 20 ¢/lb in Q2
on low stocks and the need to attract imports from duty
paying countries
World ex. China consumption: momentum is building
World ex. China aluminium consumption, y/y % change Reported shipments from major aluminium producers, y/y
% change

40% Rolled products Extrusions

10% 7%
30.2%
5%
full year,
20% 12.2%
0%
-4% 4%
11.0%
-5% -9%
6.9%
4.9%
1.0% -7%
0% -10%

-8.1% -15%
-11.9% -12%
-21%
-20%
-20%
full year, -
12.7% -25%
-30.5%
-30% -32%

-40%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 -35%
2020 2020 2020 2020 2021 2021 2021 2021 Q1 20 Q2 20 Q3 20 Q4 20
China consumption: Shorter holiday boosts Q1 demand
China aluminium consumption, y/y % change
30%

20% 21.8%

10% full year, 5.7%

8.1% 8.3% 9.4%

2.3% 1.9% 1.4%

0%
full year, 4.2%

-10% -10.9%

-20%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2020 2020 2020 2021 2021 2021 2021

China daily primary aluminium consumption, 3 month moving average, '000 tonnes

140
Jun-21, 118 kt
Jun-20, 115 kt
120

100

80

60
Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21
World ex. China production: No closures, also no restarts
World ex. China aluminium production, y/y % change
9%

6% 6.2%
5.5%
4.4%
3% 2.5% full year, 0.5% full year, 4.0%

0% 0.0% -0.1% -0.2%

-0.6%

-3%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2020 2020 2020 2021 2021 2021 2021

Additional production over Q4 2020, annualised '000 t

Kitimat, Husnes & Nag Hammadi Salco Asalouyeh Puerto Madryn Samalaju Jharsuguda Taishet

1,600

1,200

800

400

0
2021 Q1 2021 Q2 2021 Q3 2021 Q4 2022
China production: Risks mount in Inner Mongolia
China aluminium production, y/y % change
12%
10.3% full year, 7.9%
10.0%
9.1%
8% 7.5%
5.3% 5.2%
4%
2.0% full year, 4.6%
1.1%
0%

-4%
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
2020 2020 2020 2020 2021 2021 2021 2021

China annualised production, Mt

42
Dec 2021, 40.4 Mt

40 Feb 2021, 39.4 Mt

38

36

34
Jan-19 May-19 Sep-19 Jan-20 May-20 Sep-20 Jan-21 May-21 Sep-21
Inventories: China seasonal build playing out, but will peak
China SHFE plus unregistered warehouse inventories, million tonnes
2.0
1.8
1.6
1.4 1,300kt
1.2 2019
1.0 800kt
0.8
0.6
2021
830kt 750kt 2020
0.4
0.2
0.0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

LME aluminum inventories, million tonnes

LME on warrant LME off warrant

3.5
3.0
2.5
1.1 Mt 1.2 Mt 1.4 Mt 1.6 Mt 1.6 Mt 1.7 Mt
2.0 1.6 Mt
1.0 Mt
0.9 Mt
1.5 0.8 Mt 0.8 Mt

1.0
1.5Mt 1.6Mt 1.6Mt 1.6Mt 1.5Mt 1.5Mt
1.2Mt 1.4Mt 1.4Mt 1.3Mt
0.5 1.1Mt

0.0
Feb-20 Apr-20 Jun-20 Aug-20 Oct-20 Dec-20
Balance: Shrinking surplus on better demand
2020 aluminium market balance, million tonnes
Dec '20 Update Jan '20 Report Feb '21 Update
3 2.50 Mt 2.35 Mt
2

1
0.15 Mt
0

-1
-1.00 Mt
-2
World balance China balance Ex. China balance China net exports

2021 aluminium market balance, million tonnes

Dec '20 Update Jan '20 Report Feb '21 Update
2

1.37 Mt
1.08 Mt
1

0.29 Mt

-0.36 Mt

-1
World balance China balance Ex. China balance China net exports
Premiums: US Midwest set to breach 20 ¢/lb
Regional ingot premiums, Europe and Japan $/t,

Rotterdam, d-u, western, prompt Rotterdam, d-p, western, prompt Japan, cif, 3m, western

200

180
177
160
166 169
153 152
140
139 135
130 125
120 122
106 110 115 115
100 102 105 110
97
83 88 105
80 82
81 79
60

2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4

Regional ingot premiums, US ¢/lb

25.0
US midwest, P1020, prompt (¢/lb)

20.0
19.5 20.0
19.0
15.0
16.0
14.0 13.4
12.7
10.0

8.2
5.0

0.0

2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4

LME price forecast: Pulled higher by macroeconomics
LME aluminium 3-month price, $/t

2400

2200

2000

1800

1600

1400
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21

CRU LME 3-month price forecast, $/t

2500
LME forward curve Feb 25 December forecast 2275 2150
2300
January forecast February forecast 2120
2100 2040
1927
1900
1713 1741
1700
1527
1500
Q1 2020 Q2 2020 Q3 2020 Q4 2020 Q1 2021 Q2 2021 Q3 2021 Q4 2021
SHFE price forecast: Surely the last hurrah
SHFE cash price, RMB/t

18000
17000
16000
15000
14000
13000
12000
11000
10000
Jan-20 Feb-20 Mar-20 Apr-20 May-20 Jun-20 Jul-20 Aug-20 Sep-20 Oct-20 Nov-20 Dec-20 Jan-21 Feb-21

CRU SHFE cash price forecast, RMB/t

18000 SHFE forward curve Feb 25

December forecast 16,750

17000 January forecast

February forecast
15,850 16,000
16000 15,602
15,350

15000 14,526

14000 13,338
12,911
13000

12000
2020 Q1 2020 Q2 2020 Q3 2020 Q4 2021 Q1 2021 Q2 2021 Q3 2021 Q4
ICE to EV conversion
EV vs ICE percentage of total light vehicle sales
%

ICE PHEV/HEV BEV

100%

80%

60% ICE

EV >25%
40%

20% EV > 50%

0%
2015 2020 2025 2030 2035 2040 2045
Electric vehicles – aluminium intensity
Aluminium Intensity (Europe) Aluminium Intensity (North America)
kg/vehicle kg/vehicle
PHEV/HEV BEV PHEV/HEV BEV
200 200

150 150

100 100

50 50

0 0
2015 2020 2025 2030 2015 2020 2025 2030

Aluminium content in BEV batteries Aluminium content in HEV and PHEV batteries
kg/vehicle kg/vehicle

Rolled Extrusions Castings Total Al Rolled Extrusions Castings Total Al

300 80
70
250
60
200 50

150 40
30
100
20
50 10

0 0
0-40 kWh 40-60 kWh 60-80 kWh 80-100 kWh 0-10 kWh 10-20 kWh 0-10 kWh 10-20 kWh

BEV PHEV HEV

Is low-carbon aluminium the future?
Emission definitions

•Direct GHG emissions are emissions from sources that are owned or
Direct emissions controlled by the reporting entity.

•Indirect GHG emissions are emissions that are a consequence of the activities
Indirect emissions of the reporting entity, but occur at sources owned or controlled by another
entity.

Scope 1 •Scope 1 GHG emissions are from sources that lie within the entity boundary of
the mine or plant.
(Direct emissions)
Scope 2 •Scope 2 GHG emissions are those from electricity, heat or steam purchased
by the mine or plant and brought into the entity boundary of the mine or plant.
(Indirect energy emissions)
•Scope 3 GHG emissions are consequences of the activities of the entity but
Scope 3 are outside their boundary excluding those covered in Scope 2.
(Other indirect emissions) •There are fifteen categories of Scope 3 emissions. CRU’s estimates include
those most relevant for benchmarking by value chain or by product.

•Please see the GHG protocol . If you want more detail on CRU application
Need more detail? and coverage please ask CRU cost experts
Commodity supercycle?
CRU’s commodity price basket indexed to 100 on 3 January 2020
US HRC

180 62% Fe

140 Crops
Cu Ni
Fertz

Al
100

Brent

60

20
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb
Aluminium supercycle or classical growth?
Aluminium Benchmark Price LME 3M $/t, Real 2015

Residual
5000 China's Modernisation
Business Cycle Super Cycle
4500
Super Cycle
4000 Trend
Real Price
3500

3000

2500

2000

1500

1000

500

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015
Thank you for your time

Justin W Hughes
Head of Aluminium Raw Materials
Justin.hughes@crugroup.com
0044 207 903 2089