External environment, opportunities and threats

OPPORTUNITIES AND THREATS AFFECTING OUR VALUE DRIVES

AVAILABILITY OF CAPITAL
AND INCENTIVES
CONVERSION MARGINS
AND METAL PRICES
PRIMARY INPUT SUPPLY AND COSTS (GAS, ELECTRICITY, LABOUR)
PRICE AND AVAILABILITY OF ALUMINIUM SCRAP INPUTS
AVAILABILITY OF
ROLLING SLAB
AVAILABILITY OF
PRIMARY ALUMINIUM
LOCAL/REGIONAL MARKET DEMAND AND MIX
EXPORT MARKET DEMAND AND MIX

Click on the numbers above to go to the relative sections

GLOBAL PRIMARY ALUMINIUM INDUSTRY
 

SITUATION AND TRENDS

 
  • Steady growth in global consumption of aluminium (driven predominantly by China, but also Brazil, India and North America)
 
  • However, global supply in excess of demand, resulting in underperformance of LME aluminium price relative to other metal commodities
 
  • Concerns over slower Chinese economic growth, volatile emerging market currencies and the curtailing of the Federal Reserve’s bond-buying programme have contributed to accelerated decline in the LME aluminium price
 
  • Predominance of high metal premiums in recent years, which have insulated marginal smelters from impact of low LME aluminium price. However, high premiums and increased volatility have put pressure on producer and consumer sectors
 
  • Impact of growing pressure to reduce carbon emissions and changing energy environments will place pressure on high-cost smelters
 
  • Global shift towards recycling scrap as an alternative input to primary aluminium gaining momentum
 

IMPACT, OPPORTUNITIES AND THREATS

1
  • High, rising and volatile metal premiums put pressure on producers and consumers, introduce “margin squeeze” risk, impact demand for aluminium products, put pressure on establishment and maintenance of multi-year/long-term contracts
2
  • Falling LME puts pressure on high-cost, marginal producers
SOUTH AFRICAN PRIMARY ALUMINIUM INDUSTRY
 

SITUATION AND TRENDS

 
  • Cost (labour) and price pressures (low LME aluminium price) on local BHP Billiton aluminium smelter
 
  • Local aluminium smelter is significant electricity consumer and has been the focus of significant negative media attention and public sentiment due to the preferential deal which it has with Eskom while local electricity supply is constrained and other consumers have incurred sharp escalations in electricity pricing
 
  • Local smelter exports the majority of primary aluminium in an unbeneficiated form, while the Bayside value-added products (VAP) casthouse is underutilised, leading to large-scale importation of aluminium VAPs by the local downstream industry at high cost. Opportunity for this to be addressed by growth of Isizinda Aluminium
 
  • Proposed carbon tax legislation will have a significant negative impact on the aluminium smelters which could potentially render them unviable; however, the local downstream industry, which is reliant on these smelters, is not carbon intensive
 

IMPACT, OPPORTUNITIES AND THREATS

3
  • Upward pressure on primary metal pricing to local semi-fabrication industry
4
  • Viability of local primary aluminium smelters under pressure: – Pressure on BHP Billiton’s Hillside smelter remains
5
  • Isizinda Aluminium can provide linkage between local smelter and downstream aluminium semi-fabrication and fabrication. (The transaction is subject to Competition Commission approval).
SOUTH AFRICAN ECONOMIC AND POLITICAL ENVIRONMENT
 

SITUATION AND TRENDS

 
  • Industrialisation is a national priority. Government policy is seeking to restructure the economy toward more value-adding, labour-intensive and environmentally sustainable growth. Focus on improving exports of beneficiated products
 
  • National focus on energy efficiency and recycling initiatives
 
  • South African government is becoming increasingly aware of role for trade agreements and regulatory frameworks to protect and support the economy
 
  • Labour costs escalating above inflation, combined with significant volatility and unrest in labour relations
 
  • Availability and supply shortages of local gas and increasing and high pricing. Opportunities to unlock shale gas
 
  • Constraints in availability of electricity supply and increased load shedding as well as increasing prices
 

IMPACT, OPPORTUNITIES AND THREATS

6
  • Increasing local cost base and reduction in supply availability (labour, electricity and gas)
7
  • Scrap export legislation will promote local processing of scrap for the benefit of local industry
8
  • Proposed carbon tax legislation will have a significant negative impact on smelters and could, in turn, severely impact downstream fabricators
9
  • Aluminium can play a significant role in supporting downstream fabrication and industrialisation, job creation, development of high-technology applications and industries and promoting reduced carbon intensity in the economy
GLOBAL ALUMINIUM SEMI-FABRICATION MARKET
 

SITUATION AND TRENDS

 
  • Significant demand growth in packaging, transport and infrastructure applications driven largely by the growth in developing economies
 
  • Significant growth in automotive consumption of rolled products in developed countries and ongoing development of new applications for aluminium
 
  • Significant roll-out of capacity in low-cost regions such as China and Middle East
 
  • Trade politics continues to influence global flows of aluminium semi-fabricated products
 
  • Global shift towards recycling scrap as an alternative input to primary aluminium gaining momentum
 

IMPACT, OPPORTUNITIES AND THREATS

10
  • Conversion margins under pressure due to additional capacity roll-out in low-cost and government-incentivised regions
11
  • Increased global demand for secondary metal impacts on price and availability thereof
12
  • Increased pressure from imports on domestic manufacturing
13
  • Growth in demand for new and non-traditional applications for aluminium, such as consumer electronics and military markets. Significant growth in automotive sectors forecast
REGIONAL MARKET DEVELOPMENT
 

SITUATION AND TRENDS

 
  • Rapid population expansion and urbanisation in sub-Saharan Africa resulting in increased infrastructure and transport spend growth, rising income levels and increasing consumer spend, leading to growing per capita spend on aluminium
 
  • Ongoing efforts by African states to secure regional economic development and industrial integration
 

IMPACT, OPPORTUNITIES AND THREATS

14
  • Growing regional consumption of aluminium primarily in consumer applications and packaging, transport and construction/infrastructure
15
  • Opportunities for increased investment in downstream fabrication industries in South Africa to capitalise on growth in the region
16
  • Increasing availability of aluminium scrap in the region

 

Risks

Opportunities

*