Market outlook - Norsk Hydro outlook Kathrine Fog Capital Markets Day 2015 Agenda market outlook • Macroeconomic and downstream outlook • Primary metal market • Bauxite and alumina

Market outlookKathrine Fog

Capital Markets Day 2015

Agenda market outlook

• Macroeconomic and downstream outlook

• Primary metal market

• Bauxite and alumina market

• Long-term outlook

1

2

3

4

2

01

Macroeconomic and

downstream outlook

3

Source: Global Insight, Markit, Thomson Reuters

Real GDP, annual growth

(%)Forecast

-6

-4

-2

0

2

4

6

8

10

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

World Industrialized countries Emerging markets

Manufacturing Purchasing Manager Indexes

40

45

50

55

60

Jan-14 May-14 Sep-14 Jan-15 May-15 Sep-15

Eurozone US ISM China Caixin Brazil India

Macro outlook affected by emerging markets slowdownImproving global economic growth medium term

4

Source: CRU, Hydro Analysis

0%

1%

2%

3%

4%

5%

6%

7%

2014 2015 E 2016 E 2017 E 2018 E

CRU estimate October 2014 CRU estimate October 2015

• Solid momentum in building & construction

• F-150 production lifting semis demand in transport

• Eurozone semis demand stable

-6%

-4%

-2%

0%

2%

4%

6%

Aluminium semis Zinc Copper Tin Steel

• Aluminium demand more diversified than other base metals

• Steel and copper more affected by construction market

Demand for selected base metals, China 2015 Semis demand, North America

Aluminium demand holding firm despite macro economic volatilityBoth macro and substitution effects driving demand growth

5

Annual growth Annual growth

• Moderating export levels during last

months on the back of reduced

arbitrage opportunity

• Some semis exports regarded as

semis for remelt

• Further shifts in Chinese surpluses

and liquidity issues might increase

export levels

Source: CRU, Antaike, Hydro Analysis

*Annualized YTD net semis exports (incl. October)

0

200

400

600

800

1000

1200

Q1 Q2 Q3 Q4

Min/max 2011-13 2014 2015

0%

2%

4%

6%

8%

10%

12%

0

5

10

15

20

25

30

35

40

45

50

2007

2008

2009

2010

2011

2012

2013

2014

2015 E

Net semis exports (LHS)

Semis demand domestic (LHS)

Net exports as share of total semis production (RHS)

Quarterly net semis exports Net semis exports as share of

total semis production

Comments

Increased Chinese semis exports over the last year

driven by arbitrageLargely stable development as share of total semis production

Thousand tonnes ShareMillion tonnes

6

Source: Hydro Analysis, Antaike

• 15 % export tax on primary

• VAT-rebates on semis exports

47%

10%

13%

11%

10%

7%3%

Asia key region for Chinese semis exportsTrade regulations and duties impacting trade flows

Chinese semis exports by destination

(2014)

Asia

Africa

North America

Europe

Middle East

Latin America

Oceania

7

US

• 3 – 6 % import duties

on semis

Asia

• In general low duties

• India assessing

higher duties

Europe

• 7.5 % import

duties on semis

• Turkey introducing

EU duties

41%

23%

14%

8%

8%

4%3%

Packaging

Transport

Construction

Consumer durables and other

Machinery & Equipment

Electrical

Other

Transport segment continues to drive demand for rolled productsTransport increasing its share of total rolled products demand

General rolled products demand,

selected regions• Strong demand contribution from increased

aluminium usage in transport segment

• Healthy growth expected in packaging segment

driven by end-consumer packaging

(2015)

-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 E 2016 E

North America Europe*

Global segment composition, rolled products


*Total EU27+EFTA

YoY-growth

Expected market development

8

65%

13%

12%

4%3%3%

Construction

Transport

Machinery & equipment

Consumer Durables

Electrical

Other-10%

-8%

-6%

-4%

-2%

0%

2%

4%

6%

8%

10%

2012 2013 2014 2015 E 2016 E

North America Europe*

Solid uptake in the US extrusion marketGradual improvement expected in Europe

Extrusion demand,

selected regions• US housing market sustaining positive momentum

• Construction activity in peripheral Europe showing

recovery signs, although from low levels

• Growth in transport segment

(2015)

Global segment composition, extrusion

Expected market development

YoY-growth

9


*Total EU27+EFTA

02

Primary metal market

10

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 E 2015 E

Supply Demand

Recap Capital Markets Day 2014: Expectations for modest

inventory decline also in 2015 Tight market balance continuing

World ex-China

Thousand tonnes


Supply

influences

Few new projects

India & other Asia

Potential restarts

and curtailments?

Demand

influences

Transport segment

Sustained US momentum

Mixed development

in Eurozone

Semis export

from China

Demand growth

base case: 3-4 %

11

10,000

12,000

14,000

16,000

18,000

20,000

22,000

24,000

26,000

28,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 E

Supply Demand

Market balance progressing largely in line with expectations


Happened to a limited extent Happened to a large extent

Weaker demand in some emerging markets, semis for remelt exports from China limiting market deficit

World ex-China

Thousand tonnes Demand growth:

1-2 %

Supply

influencesDemand

influences

12

Few new projects

India & other Asia

Potential restarts

and curtailments?

Transport segment


Mixed development

in Eurozone

Semis export

from China

Global surplus expected to moderate in 2016Surplus moderating from ~1 million tonnes to 0-1 million tonnes


30,000

35,000

40,000

45,000

50,000

55,000

60,000

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 E 2016E

Supply Demand

Global

Thousand tonnes

Supply

influences

Key regions in China

adding capacity

Indian projects

Further curtailments

Demand

influences

Chinese construction sector

Continued strong transport segment


Emerging markets weakness

Regional effects from

Chinese semis exports

13

Global growth

expectations 2016:

Demand: 4-5 %

Supply: 2-4 %

Aluminium costs affected by lower energy cost and FX developmentsOil and coal prices trending lower, large movements in currencies vs USD

Source: Thomson Reuters

Coal price

Oil price

14

90

110

130

150

170

190

210

aug. 14 nov. 14 feb. 15 mai. 15 aug. 15 nov. 15

NOK

BRL

RMB

CAD

AUD

RUB

Currencies Indexed vs USD, Aug 1st 2014=100USD/barrel

USD/tonnes

0

50

100

150

200

2003 2006 2009 2012 2015 2018 2021

Historical Price BrentBlendCurrent fwd curve

Fwd curve 1 year ago

Fwd curve 5 years ago

0

50

100

150

200

250

2003 2006 2009 2012 2015 2018 2021

Historical Price CIF ARAcoalCurrent fwd curve

Fwd curve 1 year ago

Fwd curve 5 years ago

0

400

800

1,200

1,600

2,000

2,400

0 10,000 20,000 30,000 40,000 50,000 60,000

2014 2015


15

(thousand tonnes)

• USD denominated

smelters losing relative

competitiveness

• Chinese smelters to a

larger extent benefitting

from lower coal prices

• Lower premiums pushing

business operating

costs up

Global Business operating cost, 2015

USD/tonne

Currency movements influencing relative positions on global cost curve

Lower costs

Lower premiums

400

60 000

1 600

2 000

0

800

2 400

1 200

35 00025 000 40 0005 000 20 000 30 0000 55 00010 000 15 000 50 00045 000

(‘000 ktpy)

Most Chinese smelters in the 3rd and 4th quartile on the

global cost curve


USD/t

China

Rest of World

• Roughly half of global smelter

capacity currently cash

negative, most of this located

in China

Current LME 3m ~1475 USD/t

16

Market balance in China remains uncertain

Source: Hydro Analysis, Thomson Reuters

• Large capacity increases of past years unlikely to be repeated

• Focus shifting from top-line growth to bottom-line profitability

• Slower demand growth not yet impacting investments

• Continued focus on supporting local employment, but financial

positions are becoming constrained

Uncertain

supply growth

Softer demand

growth

Upstream

positioning

• Depleting domestic bauxite resources affecting costs

• Investment focus may shift from inland (Xinjiang / Inner

Mongolia) to coastal areas (Shandong)

• Power market reform reducing power cost

• Construction activity still weak, but housing prices picking up

• Transport sales rebounding, moderate car production

• Government stimuli

17

5000

10000

15000

20000

25000

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

RMB/tonne

SHFE 3 month prices at all-time low

Global reported stocks decreasing, uncertain unreported volumes


Re

po

rted

Global reported stocks and inventory days

18

Total global stocks and inventory days

0

20

40

60

80

100

120

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

200

5 Q

1

200

6 Q

1

200

7 Q

1

200

8 Q

1

200

9 Q

1

201

0 Q

1

201

1 Q

1

201

2 Q

1

201

3 Q

1

201

4 Q

1

201

5 Q

1

Global estimated unreported

Global reported

Total inventory days

• Reported stocks decreasing over last

year

• LME stocks lowest since the financial

crisis

− Influenced by new LME warehousing

regulations

• High uncertainty regarding absolute

level of unreported volumes

Inventory daysInventory days

0

20

40

60

80

100

120

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

200

5 Q

1

200

6 Q

1

200

7 Q

1

200

8 Q

1

200

9 Q

1

201

0 Q

1

201

1 Q

1

201

2 Q

1

201

3 Q

1

201

4 Q

1

201

5 Q

1

Reported China

Other reported ROW

LME stocks

Global reported inventory days

Thousand tonnes Thousand tonnes

Regional standard ingot premiums falling back to historical levels,

all-in price fall in NOK moderated by currency effect


Regional standard ingot premiums

0

100

200

300

400

500

600

Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15

US Mid West Japan Europe (duty-paid)

11,000

12,000

13,000

14,000

15,000

16,000

17,000

18,000

1,000

1,200

1,400

1,600

1,800

2,000

2,200

2,400

2,600

2,800

3,000

Jan 11 Mar 12 May 13 Jul 14 Sep 15

LME cashLME cash + Europe duty paidLME cash + Europe duty paid NOK (RHS)

NOK/mt

19

All-in price

USD/tonne USD/tonne

03

Bauxite and

alumina market

20

Chinese primary production dependent on imported resourcesAround 40% based on imported raw material in 2012-2014

Source: CRU, China customs

21

0

10

20

30

40

50

60

70

80

90

100

Primary production Alumina Bauxite

100 %~90 %

~10 %

60-70 %

30 -40 %

% of Primary Production

Imported

Imported

Domestic

Domestic

Chinese bauxite import dependency expected to increase

Chinese bauxite import requirements remain high

• New domestic resources not sufficient to meet demand

longer term

• Domestic bauxite resources with lower quality and

higher costs

• Current new investments and announcements in

alumina refineries in coastal areas dependent on

imported bauxite

Domestic bauxite production not keeping pace with demand

Source: CM Group

0

20

40

60

80

100

120

140

160

180

200

2006 2009 2012 2015 2018

Bauxite equivalent imports

Domestic bauxite production

Million tonnes

22

Malaysia emerging as largest bauxite exporter to China in 2015

23

Source: China Customs

40

50

60

70

Ja

n-1

3

Ma

r-13

Ma

y-1

3

Ju

l-1

3

Sep

-13

Nov-1

3

Ja

n-1

4

Ma

r-14

Ma

y-1

4

Ju

l-1

4

Sep

-14

Nov-1

4

Ja

n-1

5

Ma

r-15

Ma

y-1

5

Ju

l-1

5

Sep

-15

Lower freight

Indonesia ban Malaysia entrance

USD/tonne

Bauxite price CIF China

Brazilian bauxite traded at a premium on the back of higher freight, but also higher value in use

0

10

20

30

40

50

60

70

80

90

100

2009 2010 2011 2012 2013 2014 2015

Indonesia Australia India Brazil Guinea Malaysia

Bubble size represents volume = ~5 million tonnes

USD/tonne CIF

China bauxite imports, volume and price by country

Alumina prices falling on the back of oversupply and lower costs

24

Source: China customs, CRU, Hydro analysis

100

150

200

250

300

350

400

450

0 20,000 40,000 60,000

2014 2015

0

200

400

600

800

1000

1200

1400

1600

1800

Q1 1

0

Q3 1

0

Q1 1

1

Q3 1

1

Q1 1

2

Q3 1

2

Q1 1

3

Q3 1

3

Q1 1

4

Q3 1

4

Q1 1

5

Q3 1

5

Cost curves shifting down

Chinese alumina imports

quarterly, thousand tonnes

Alumina price falling

World ex. China

USD/tonne

12%

13%

14%

15%

16%

17%

18%

19%

20%

200

250

300

350

400

450

Au

g 2

010

Se

p 2

011

Se

p 2

012

Se

p 2

013

Se

p 2

014

Oct

20

15

PAX % of LME

USD/tonne Share of LME

Lower Chinese alumina imports

creating oversupply ex. China

Alumina prices falling on the back of oversupply and lower costs

Cost curves shifting down …but falling less in BRL

World ex. China

USD/tonne

BRL/tonneUSD/tonne

0

200

400

600

800

1 000

1 200

200

250

300

350

400

450

aug

. 1

0

sep

. 11

sep

. 12

sep

. 13

sep

. 14

sep

. 15

PAX (USD/mt) lhs

PAX (BRL/mt) rhs

Source: China customs, CRU, Hydro analysis

100

150

200

250

300

350

400

450

0 20,000 40,000 60,000

2014 2015

25

Lower Chinese alumina imports

creating oversupply ex. China

Chinese alumina imports

quarterly, thousand tonnes

0

200

400

600

800

1000

1200

1400

1600

1800

Q1 1

0

Q3 1

0

Q1 1

1

Q3 1

1

Q1 1

2

Q3 1

2

Q1 1

3

Q3 1

3

Q1 1

4

Q3 1

4

Q1 1

5

Q3 1

5

Few new alumina projects seen world ex-China in the coming years

(26)

Source: CRU, China customs

*CIF China bauxite relative to Chinese alumina price (Ex-Henan). Proxy for November using actual alumina data and CIF bauxite for October

Further curtailments probable

Bauxite/Alumina Price* (%)

• Alumina prices falling, while bauxite prices have

remained largely stable over the last months

• Chinese refineries using imported bauxite facing

margin pressure

10%

11%

12%

13%

14%

15%

16%

17%

Jan

-12

Apr-

12

Jul-

12

Oct-

12

Jan

-13

Apr-

13

Jul-

13

Oct-

13

Jan

-14

Apr-

14

Jul-

14

Oct-

14

Jan

-15

Apr-

15

Jul-

15

Oct-

15

World ex. China

50

60

70

80

Million tonnes per year

Capacity 2020Curtailments

Announced

2015/16

Projects

2016-2020

Capacity

increase

2008-2015

Capacity 2007 Curtailments

2008-2015

Pacific ex. China

Atlantic

04

Long-term outlook

27

Strong demand drivers in key aluminium segments

Strong growth drivers across segments providing solid

demand outlook


Urbanization

Copper substitution

Urbanization

Housing market recovery in mature regions

Energy neutral buildings

Improving industrial sentiment in mature regions

Manufacturing activity and industrial growth in emerging countries

Urbanization

Environmentally-friendly solutions

Transport

Construction

Electrical

Machinery &

equipment

Packaging

Growth in automotive vehicle production

Aluminium content in cars increasing

Growth in other transport modes, e.g. railway Global semis

demand:

4 – 5 %

Short-term macroeconomic volatility, long term fundamentals still in place

5 – 6 %

3 – 4 %

5 – 6 %

4 – 5 %

3 – 4 %

Semis demand CAGR 2015 – 2025

28

Global demand outlook

Growth in global semis demand creates opportunities for both

primary and recycled material


*Post-consumed and fabrication scrap

0

20

40

60

80

100

120

2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Primary Recycled material* Semis

Recycling share increasing, primary demand growth remains firm

Million tonnes

CAGR 2015 – 2025

Semis

4 – 5 %

Primary

3 – 4 %

Recycling

5 – 6 %

29

• Demand in mature regions boosted by

transport segment, short-term softness in

emerging markets

• Lower aluminium prices amid lower input

costs, FX developments & market surplus

• Roughly half of global smelter capacity

currently cash-negative; most of this located in

China

• Chinese bauxite import dependency continue

to increase

• Solid long-term demand outlook supported by

strong growth drivers across segments

30

Documents

Market outlook - Norsk Hydro outlook Kathrine Fog Capital Markets Day 2015 Agenda market outlook • Macroeconomic and downstream outlook • Primary metal market • Bauxite and alumina