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Petcoke and its role within the aluminium industry

McCloskey 6th Petcoke Conference

May 2008

Calvin Graham

Consultant CRU Analysis

E-mail calvin.graham@crugroup.com

Tel: (+44) 20 7903 2280

Slide 2

CRU is the world’s leading independent provider of consultancy, business analysis and conferences focusing on the mining, metals, power, cables, fertilizers and industrial chemicals sectors.

o Founded in the late 1960s

o Privately owned to ensure its independence

o Located in London, Beijing, Santiago, Sydney, Rio de Janeiro and key centres in the United States

o Employs more than 200 experts

Fundamental Analysis Strategic Consultancy Conferences & Events

Slide 3

o A team of 20 analysts, metallurgists, chemists and economists

o A multi-cultural team in the UK and abroad

o Undertake research, analysis, client and site visits, innovation

o Strength in depth to allow in-depth knowledge in areas such as power, carbon products and semi’s markets

o A recognition and emphasis on China, hence our office in Beijing

o 2008 aluminium conference in Chongqing, China Sep 21-24.

The Aluminium Business Unit

Slide 4

Structure of Presentation

• Aluminium market outlook

• Petcoke consumption by the aluminium industry

• Anode-grade petcoke production forecast

• Quality and pricing implications for smelters

• Conclusions

2,300

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3,000

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3,300

31-M

ay-0

6

26-J

ul-0

6

21-S

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6

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06

16-J

an-0

7

13-M

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25-F

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08

$/to

nn

e

LME3M 100 day MA

Data: LME; daily offical 3M price to 10th March

Aluminium price performance

LME 3Maluminium price (May 06 – Jun 08)

Forecast: rising operating costs lead to continued strong aluminium prices

Highlights:

-Reduction in expected market surplus and escalating costs from a weaker US dollar and higher oil prices lead to 2008 price rise

-Market balance in 2008 cut to 660,000 tonnes on output disruptions

-Strengthening yuan and higher Chinese power prices lead to 2009 price increase, surplus in H1 2009 all in China

-Continued high prices forecast 2010-2012 on higher costs expectation and tighter S/D balance

Risks: Global recession leads to fall in demand and lower LME prices Yuan appreciates more than our base case, leads to higher prices

coke demand, 2007-2012 ('000 tonnes)

Sector 2007 2008 2009 2010 2011 2012

Aluminium 18825 20598 22150 23623 25307 26847

(of which China) 6214 7255 8439 9410 10125 11012

EAF Steel 1850 1867 1867 1888 1903 1906

Recarburiser 1959 2042 2098 2197 2305 2410

TiO2 1144 1169 1197 1224 1252 1281

Other 2754 2929 3065 3174 3273 3352

WORLD TOTAL 26,532 28,605 30,378 32,105 34,040 35,796

Data: CRU

World forecast for calcinable green petroleum

(Chinese Aluminium)

31%

EAF Steel5%

Recarburiser7%

TiO24%

Slide 7

Calcinable green coke consumption forecast

0

5

10

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20

25

30

07 08 09 10 11 12

China

Middle East

CIS

Asia

N. America

L. America

Europe

Africa

E. Eur

Oceania

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Calcinable green coke consumption forecast for the aluminium industry

-1

0

1

2

3

4

5

6

7

8

9

08 09 10 11 12

Growth during 2007-2012

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50

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

4-5% Sulphur Anode useable Grade:

3-4% Sulphur Anode useable Grade:2-3% Sulphur Anode useable Grade:

1-2% Sulphur Anode useable Grade:0-1% Sulphur Anode useable Grade:

Aluminium Demand

Slide 9

World anode grade production has kept up with smelter consumption rates in recent years

0

5

10

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30

35

40

45

50

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

4-5% Sulphur Anode useable Grade:

3-4% Sulphur Anode useable Grade:2-3% Sulphur Anode useable Grade:

1-2% Sulphur Anode useable Grade:0-1% Sulphur Anode useable Grade:

Aluminium Demand

Slide 10

This will change over the next few years as the production of new low sulphur cokes stalls

Slide 11

The rapid rise of CPC costs in the last year

0

100

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Ap

r-03

Aug

-03

Dec

-03

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-04

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-04

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-05

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-05

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-06

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r-07

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-07

Dec

-07

Ap

r-08

Germany ($/t)

India ($/t)

USA ($/t)

China ($/t)

Weighted Index

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The rise and fall of Chinese green coke exports during 2005-2008

Slide 13

Chinese production of high quality cokes will not keep up with the rate of aluminium expansion

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30

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Thou

sand

s

4 - 5% sulphur

3.5 - 4% sulphur

3 - 3.5% sulphur

2.5 - 3% sulphur

2 - 2.5% sulphur

1.5 - 2% sulphur

1 - 1.5% sulphur

0 - 1% sulphur

Consumption (Alu)

Slide 14

Low sulphur levels are not the only concern when judging quality vs. marginal material

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0.3/11 0.4/12 0.5/13 0.6/14

Thou

sand

s

Ash and vanadium content

4.5-5%

4-4.5%

3.5-4%

3-3.5%

2.5-3%

2-2.5%

1.5-2%

1-1.5%

0.5-1%

0-0.5%

demand:

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Prices in China have diverged with some smelters forced to take lower grade materials:

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800

Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Anodes

Calcined High

Calcined Average

Calcined Low

Green High

Green Average

Green Low

Calcined Export

Green Export

2008

US$/t FOB

2007

Slide 16

Options for the aluminium industry are fairly limited:

1. Continue to pay higher prices until highest cost smelters close

2. Use lower grade material: either higher metal content or higher sulphur levels

3. Some new smelter projects in the Middle East may set up joint coke/calciner projects

4. Blend lower and higher grade materials together

5. Develop new smelting technology; eg. sulphur scrubbers or inert anodes

Slide 17

Inert Anodes are on the horizon, although still a few years away

1. Ceramic Metal Oxides – Physical properties are a problem, as are chemical reactions with the electrolyte

2. Metal-Based Anodes – such as Fe-Ni-Cu alloys, corrosion and contamination issues

3. Cermets – ceramic/metal mix to take advantage of each set of properties, NiFe2O4 + NiO + Cu is most tested

Researched being made by:• Moltech• Alcoa• NAT• Argonne National Lab• Noranda• UC RusAl• Chalco• Rio Tinto Alcan• Hydro• etc

Slide 18

Acceptance of lower grade cokes will bring down the price of coke in China

Base case assumes an average rise in

acceptable sulphur level from 2.5% to

3.3%

Calcined coke prices peaking at just over $700/t

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0

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95 96 97 98 99 00 01 02 03 04 05 06 H1 07

H2 07

H1 08

H2 08

H1 09

H2 09

H1 10

H2 10

H1 11

H2 11

H1 12

H2 12

4-5% coke available

3-4% coke available

2-3% coke available

1-2% coke available

0-1% coke available

Aluminium demand for coke

High price Scenario

base case price

Slide 19

Conclusions

We see strong growth in the primary aluminium market: 17.4m tpy of new capacity between 2007 and 2012.

In the west, 3.2m tpy of new anode grade green coke demand The only new major sources of coke for the aluminium industry will be

Brazil and China Quality will decrease and prices for high quality will continue to

escalate at smelters continuing to demand tight specifications Higher quality material will continue to carry a premium, but average

prices will stabilise and plateau

Slide 20

Primary AluminiumRaw Materials

Calvin GrahamConsultantCRU Analysis31 Mt PleasantLondon, WC1X 0ADUK+44 (20) 7903 2212calvin.graham@crugroup.com

Your contact at CRU:

Thank you for your attention.• We publish a bimonthly overview of

the latest developments in the anode grade carbon market including regional pricing and short term market assessments. Also available on-line at our www.crumonitor.com website.

• The 5-Year Carbon study – Published each November with a half-yearly update (through a conference call) covering the global carbon market and is a key tool for well-informed decision making. This year we continue to build on our findings about the carbon situation in China, especially concerning future availability of anode grade green petroleum coke.