Aluminium / Alumina Market Outlook

Whats new?
Market sentiment has weighed on the LME aluminium price. In September, the LME 3M price dropped to US$2,240/t,
its lowest level since November 2010. Meanwhile the Chinese SHFE aluminium price continues to be supported by
power shortages and this has led to a widening of the LME-SHFE spread.
Consumers are running lean inventories to avoid the risk of locking in orders if market sentiment remains subdued or
demand deteriorates. Domestic Chinese inventories hit their lowest level in the past three years. While stable, LME
stocks remain elevated as global production holds steady.
Aluminium market premiums globally remain under pressure, with MJP and US premiums settling lower in 3Q2011.
The alumina price eased from US$380/t at the end of 2Q2011, to a range of US$355/t-US$365/t towards the end of
3Q2011. Buyers have delayed September re-stocking in anticipation of lower prices. In China, supply has remained
stable as increased alumina production has countered reduced imports.
Near term drivers
The transport sector remains strong in the US and Germany, hot weather helped underpin beverage cans demand in
Asia. On the downside, housing and manufacturing sectors have struggled to grow worldwide.
Power shortages in China caused smelters to cut back production, and a new mining code in Guinea has caused a
minor commotion in the markets.
Japanese shipments of aluminium was hit by slowing SE Asia demand and slower-than-expected domestic demand.
Prices of raw materials have lowered with some prices, e.g. caustic soda, coal tar pitch and cathode down compared
to 2Q2011, on the back of decreasing Chinese demand and lower oil prices.
Price outlook
Price arbitrage between SHFE and LME has reopened which will lend some support to LME prices. However further
souring of market sentiment could see prices coming under pressure and averaging between US$2,200/t-US$2,400/t.
Alumina markets are expected to remain largely balanced. Hence we dont expect prices to move significantly from
US$350/t-US$365/t, barring unforeseen supply disruptions.
BHP Billiton Marketing, October 14, 2011

Slide 1

Aluminium markets have been subdued

LME 3M dipped to its lowest level since Nov 2010

Leading to a re-opening of LME-SHFE spread

(US$/t)

(US$/t)
150

3,500

Aluminium price

100

3,000

50

2,500

2,000

-50

US$2,351/t

1,500

-100

1,000

-150

Despite drops in China, Al stocks remain elevated

(kt)
9,000

Premiums are stable, though under pressure

(US$/t)
240

China
Japan
6,000

LME
3,000

SHFE 3M-Cash
LME 3M-Cash

180

MW US Trans Premium
GW paid IW Rdam
CIF Japan premium

120
60

IAI
0

Source: IAI, CRU, Platts, BHPB Analysis

BHP Billiton Marketing, October 14, 2011

Slide 2

The Alumina market should remain balanced

Alumina prices have continued to ease...

...causing Chinese re-selling to be less attractive

(US$/t)

(US$/t)

500

450
China spot

400

400

300

350

200

300

100

250

Chinese imports of alumina have also fallen

Downward pressure exerted on raw material

prices

(kt)
2,000

700
(US$/t)
Bauxite imports (Aa equivalent)
Alumina imports

1,500
1,000

Caustic Soda

Pitch

600
500
400
300

500
0

200
100

Source: IAI, BHPB Analysis

BHP Billiton Marketing, October 14, 2011

Slide 3