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Sandeep biswas luxor - presentation final

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  • 1. Aluminium industry global trends and growth in the Middle East Sandeep Biswas Senior Vice-President, Business Development & Growth Rio Tinto Alcan ARABAL 2010 2 November 2010 Luxor, Egypt
  • 2. October 2010 Aluminium industry global trends and growth in the Middle East ٢ Cautionary statement This presentation has been prepared by Rio Tinto plc and Rio Tinto Limited (“Rio Tinto”) and consisting of the slides for a presentation concerning Rio Tinto. By reviewing/attending this presentation you agree to be bound by the following conditions. Forward-Looking Statements This presentation includes forward-looking statements. All statements other than statements of historical facts included in this presentation, including, without limitation, those regarding Rio Tinto’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Rio Tinto’s products, production forecasts and reserve and resource positions), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Rio Tinto, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding Rio Tinto’s present and future business strategies and the environment in which Rio Tinto will operate in the future. Among the important factors that could cause Rio Tinto’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, levels of actual production during any period, levels of demand and market prices, the ability to produce and transport products profitably, the impact of foreign currency exchange rates on market prices and operating costs, operational problems, political uncertainty and economic conditions in relevant areas of the world, the actions of competitors, activities by governmental authorities such as changes in taxation or regulation and such other risk factors identified in Rio Tinto's most recent Annual Report on Form 20-F filed with the United States Securities and Exchange Commission (the "SEC") or Form 6- Ks furnished to the SEC. Forward-looking statements should, therefore, be construed in light of such risk factors and undue reliance should not be placed on forward-looking statements. These forward-looking statements speak only as of the date of this presentation. Nothing in this presentation should be interpreted to mean that future earnings per share of Rio Tinto plc or Rio Tinto Limited will necessarily match or exceed its historical published earnings per share.
  • 3. October 2010 Aluminium industry global trends and growth in the Middle East ٣ Market update and outlook Industry growth – drivers and challenges Aluminium growth in the Middle East Rio Tinto Alcan in the Middle East Conclusion
  • 4. October 2010 Aluminium industry global trends and growth in the Middle East ٤ Strong recovery but cautious about short term volatility Industrial Production Index (2007 = 100) Positive pressures • China growth • Government tightening to prevent bubbles • Improving OECD demand Negative pressures • Sovereign risk and debt concerns • Risk of over aggressive measures to cool the Chinese property market • Diminishing effect of stimulus measures80 85 90 95 100 105 110 Jan-07 Jan-08 Jan-09 Jan-10 OECD Global
  • 5. October 2010 Aluminium industry global trends and growth in the Middle East ٥ Aluminium price has recovered, inventory levels remain high 0 500 1 000 1 500 2 000 2 500 3 000 3 500 4 000 4 500 janv 89 janv 92 janv 95 janv 98 janv 01 janv 04 janv 07 janv 10 0 5 10 15 20 Aluminium price vs. inventory • LME aluminium price remains in contango • Strong demand recovery in 2010 versus 2009 – 18-20% China, about 15% globally • Physical inventory balances stabilized and dropping in weeks of consumption • Inventory tied up in financial deals • Increasing marginal cost of production providing higher price floor 2009$ / tonne weeks Price Inventory
  • 6. October 2010 Aluminium industry global trends and growth in the Middle East ٦ Global alumina market situation Source: CRU, Global Insight Medium-Term AluminaBalanceBenchmark (250) 0 250 500 750 1000 1250 1500 1750 2000 2010 2011 2012 2013 2014 ktpa BHJune2010 CRUQ2 2010 CRU Average Spot Price 0 100 200 300 400 500 600 700 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 US$/tAlumina
  • 7. October 2010 Aluminium industry global trends and growth in the Middle East ٧ Market update and outlook Industry growth – drivers and challenges Aluminium growth in the Middle East Rio Tinto Alcan in the Middle East Conclusion
  • 8. October 2010 Aluminium industry global trends and growth in the Middle East ٨ • Our base case is for ~4%-5% growth in aluminium demand over the next two decades • Current energy surplus in China expected to be temporary • Increasing competition for energy in China from residential and transportation sectors Long-run story continues to be attractive Global Aluminium Consumption (million tonnes) 0 20 40 60 80 100 120 140 160 2000 2010 2020 2030 2040 2050 One Saguenay system required every nine months
  • 9. October 2010 Aluminium industry global trends and growth in the Middle East ٩ Continued cost pressure on marginal cost producers will provide upward price lift 2010 world BOC curve (2010$/t) Source: CRU (LME assumption = $2,044/t) 1,000 1,250 1,500 1,750 2,000 2,250 2,500 2,750 3,000 0% 25% 50% 75% 100% • Electricity cost (particularly in China) • Raw material prices including alumina • Renminbi appreciation • CO2 costs • Capital charges of new capacity
  • 10. October 2010 Aluminium industry global trends and growth in the Middle East ١٠ Aluminium is well positioned for the future Increased focus on carbon emissions reduction will favour the use of aluminium in transportation, building and thermal transfer • Aluminium has an excellent strength to weight ratio; aluminium is 2.7 times lighter than steel; although steel is generally stronger some Aluminium alloys have similar or greater strength than the common A36 steel • Aluminium contributes to global CO2 emissions reductions though recycling and the light-weighting of vehicles • Aluminium has outstanding thermal and electrical conductivity properties – it is therefore widely used in applications such as heat exchangers, air conditioning systems, electrical cables • Technological developments in production lowering carbon associated with primary production, for example Rio Tinto Alcan’s proprietary AP50 technology
  • 11. October 2010 Aluminium industry global trends and growth in the Middle East ١١ Market update and outlook Industry growth – drivers and challenges Aluminium growth in the Middle East Rio Tinto Alcan in the Middle East Conclusion
  • 12. October 2010 Aluminium industry global trends and growth in the Middle East ١٢ Aluminium growth in the Middle East The region is already a major primary aluminium producer with more growth to come in the near future. 0 1,000 2,000 3,000 4,000 5,000 6,000 2000 2008 2010 2015F KSA Qatar Oman UAE Iran Bahrain Egypt Note: 2015 forecast is with the confirmed/under serious consideration projects Global CAGR of 5.4% per year versus Middle East CAGR of 9% per year in same period
  • 13. October 2010 Aluminium industry global trends and growth in the Middle East ١٣ Middle East aluminium industry growth drivers Energy advantage Availability - Carbon - footprint - Proximity to emerging markets and Europe Capital availability Cost-effective logistics and infrastructure Growth in downstream transformation Economic diversification Job creation
  • 14. October 2010 Aluminium industry global trends and growth in the Middle East ١٤ 18 15 14 13 11 9 66 3 ChinaUSAMiddle East OceaniaSouth Africa EuropeLatin America Canada India Aluminium smelter carbon emission intensity, including power source emissions Tons CO2e per ton of aluminium produced SOURCE: Rio Tinto Alcan Middle East has a carbon emission intensity advantage Hydro/nuclear power and/or lower energy consumption technology Coal power and/or higher energy consumption technology Aluminium production mostly natural gas powered Natural gas power
  • 15. October 2010 Aluminium industry global trends and growth in the Middle East ١٥ • Competitively priced natural gas • Competition and demand for power • Attracting qualified talent and training and educating local and regional workforce • Sourcing of key raw materials of acceptable quality and at a competitive price – Procuring alumina is a significant challenge • Increasing alumina pricing and delinking the price from the LME • Achieving a sustainable business model Middle East: Industry Challenges
  • 16. October 2010 Aluminium industry global trends and growth in the Middle East ١٦ Market update and outlook Industry growth – drivers and challenges Aluminium growth in the Middle East Rio Tinto Alcan: A partner of choice in the Middle East Conclusion
  • 17. October 2010 Aluminium industry global trends and growth in the Middle East ١٧ Bauxite 30.7Mt Alumina 8.8Mt Aluminium 3.9Mt Solid operating growth strategy: long-life, large-scale, low-cost assets, leveraging competitive advantages • Global presence & scale – Best bauxite reserves and resources – No. 2 for aluminium production – No. 3 for Alumina production – B&A ‘hub’ in North East Australia to add value over long term • Fully integrated, long in bauxite and alumina, providing growth opportunities and robust supply chain • Very strong electricity position – low-cost with low- carbon footprint • Modern large-scale smelters and refineries – Smelter assets average in Q2 cost curve and modernization programs will continue enhancing position – With Yarwun II, alumina production moving down cost curve – Transformation to continue lowering costs • Leadership position in R&D and technology • Strong reputation on sustainable development External Sales All volumes shown reflect Rio Tinto Alcan share of production for 2009, including joint ventures. External Sales
  • 18. October 2010 Aluminium industry global trends and growth in the Middle East ١٨ Clean, low-cost energy supply Secured energy sources Short & medium- term contracts (5%) Self-generated (48%) Long-term contracts (47%) • 3,815MW owned hydro electric generating installed capacity in Canada • Compares favourably to global aluminium industry total of about 35% hydro based power for smelting • Long-standing water rights in Canada • Compares favourably to global aluminium industry average of about 35% self- generated power for smelting Hydro (67%) Nuclear (11%) Gas/coal thermal (24%) Unrivalled position in clean, renewable, self-generated power Only 16% of power contracts linked to LME
  • 19. October 2010 Aluminium industry global trends and growth in the Middle East ١٩ Increasing growth opportunities through technology leadership with AP5X AP5X industry benchmark for productivity, energy efficiency, and GHG emissions • Unsurpassed amperage of 545+ kA • Using the same number of pots, an AP5X potline can produce approximately 50% more than the latest versions of AP3X technology • Up to $50-$100 per ton full economic cost (FEC) advantage over AP3X technology • AP5X Pilot Plant currently under construction will act as the platform for development of AP6X operating at 600+ kA AP5X platform for breakthrough technologies APXe well within this decade • Absolute Specific Energy Efficiency benchmark for Hall-Héroult process • Enabling containment of direct emissions of GHG form smelting • Highest health and safety standards AP technology further reduces capital and operating costs through – Fewer pot-tending assemblies (PTAs) – Improved building and equipment design – Comprehensive engineering packages and training modules – Experienced support teams at all project stages – Reduced construction and start-up times
  • 20. October 2010 Aluminium industry global trends and growth in the Middle East ٢٠ Global options in our project pipeline Africa Europe South America North America Australasia Asia Additional opportunities in early stages of development AP 50 Pilot Plant Arvida, Canada (100%) • Ph 1 under construction: ~60kt • Potential Ph 2: ~140–340kt (replacing current Arvida smelter with capacity of ~165kt) Alma II, Canada (100%) • ~180-240kt Yarwun II, Australia (100%) • ~2.0Mt Kitimat, Canada (100%) • ~400kt (replacing current plant with capacity of ~275kt) Malaysia (60%) • ~460-920kt Sohar, Oman (20% Ph 1) • Ph 1 completed: ~360kt • Potential Ph 2: ~360kt Guinea (45%) • 1.6 – 3.2 Mt ISAL, Iceland (100%) • ~45kt Edea, Cameroon (47%) • ~600-700kt Alumina greenfield Aluminium greenfield Aluminium brownfield Alumina brownfield Under construction Under consideration
  • 21. October 2010 Aluminium industry global trends and growth in the Middle East ٢١ Sohar: the world’s most modern smelter • Rio Tinto Alcan led project development team and is managing partner • Secure, long term, low cost electricity Project structure Construction completed on schedule and budget at $340m (Rio Tinto Alcan share) First metal poured in June 2008 • Advanced AP 36 technology, • Largest single potline in the world Technology Sohar will operate in the first quartile of the industry cash cost curve
  • 22. October 2010 Aluminium industry global trends and growth in the Middle East ٢٢ Rio Tinto Alcan - The partner of choice in aluminium for the Middle East • Strong operating experience – 5 bauxite mines, 10 refineries and 23 smelters on 5 continents • Backstop alumina supply from world-class refineries in Australia • State-of-the-art technology, engineering and technical solutions • Growth-driven mindset and organisation-wide commitment to sustainable development • Significant experience working in diverse locations • Strong corporate governance and recognized for a solid reputation
  • 23. October 2010 Aluminium industry global trends and growth in the Middle East ٢٣ Market update and outlook Industry growth – drivers and challenges Aluminium growth in the Middle East Rio Tinto Alcan: A partner of choice in the Middle East Conclusion
  • 24. October 2010 Aluminium industry global trends and growth in the Middle East ٢٤ Conclusion • Long-term aluminium industry fundamentals remain strong with short-term volatility • Middle East is well positioned to capture more than its share of primary aluminium production growth • Industry must focus on meeting the challenges facing aluminium producers in the Middle East – Competitively priced natural gas – Competition and demand for power – Attracting qualified talent and training and educating local and regional workforce – Sourcing of key raw materials of acceptable quality and at a competitive price • Procuring alumina is a significant challenge – Increasing alumina pricing and delinking the price from the LME – Achieving a sustainable business model • Rio Tinto Alcan is a partner of choice for the Middle East