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RBC - Aluminium Market Outlook

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					RBC Dominion Securities Inc.
H. Fraser Phillips (Analyst)              Metal Prospects
(416) 842-7859
fraser.phillips@rbccm.com                 Aluminium Market Outlook – Fourth Quarter 2012
Robin Kozar (Analyst)
(416) 842-7861                            Demand
robin.kozar@rbccm.com                     • Global aluminium demand grew by 5.7% in 2011. Western World demand grew by 3.4%,
Patrick Morton (Analyst)                    while Chinese demand grew by 9.7%. We expect Western World growth to decline to only
(416) 842- 9957                             0.6% in 2012 and Chinese growth to increase to 11.8%. Our analysis assumes a recession
patrick.morton@rbccm.com                    in Europe in 2012, anemic growth in the US and a modest slowing in Chinese growth. We
                                            forecast growth of 5.2% in 2012 and 6.8% in 2013 down from 6.7% and 7.1% one quarter
Adam Schatzker (Analyst)
                                            ago. We forecast further growth of 6.9% in 2014 and trend growth of a little over 5.0%
(416) 842-7850
adam.schatzker@rbccm.com                    thereafter.

Steve Bristo (Associate)                  Supply
(416) 842-7826
steve.bristo@rbccm.com                    • The correction in Q2/12 and Q3/12 brought the aluminium price down below the 50th
                                            percentile of the cash cost curve and has led to the announcement of over 1.1 million
Jennifer Provan (Associate)                 tonnes of production curtailments. However, the closures have been slow to take effect and
(416) 842-5339                              are being partially offset by production restarts, and more closures are required to balance
jennifer.provan@rbccm.com                   the market in the face of continued growth in Chinese capacity and production. We forecast
Wen Tian (Associate)                        total supply growth of 2.5% in 2012, 5.3% in 2013, 6.7% in 2014, 5.2% in 2015, and 5.1%
(416) 842-4126                              in 2016.
wen.tian@rbccm.com
Andrew D. Wong (Associate)                Market Balance and Inventories
(416) 842-7830                            • We expect inventories to remain above critical levels throughout our forecast period,
Andrew.d.wong@rbccm.com                     limiting upside price potential. We forecast a surplus of 727,000 tonnes in 2012, as
                                            production growth in China offsets curtailments in the rest of the world. However, we
                                            expect prices at current levels will likely lead to enough production curtailments to balance
                                            the market. In 2013 and beyond we therefore forecast a roughly balanced market, with
                                            capacity additions and rising utilization rates meeting our forecast growth in demand. As a
                                            result, we do not anticipate a meaningful absolute decline in inventories during our forecast
September 18, 2012                          period.
This report is priced as of market
close September 17, 2012 ET.              Price Forecasts
All values are in U.S. dollars unless     • Given high inventories and low-capacity utilization rates, we believe the marginal cost of
otherwise noted.                            production could be a key determinant of prices over the next three to five years. Our cost
                                            analysis and the historical inventory/price relationship suggest fundamental price support of
For Required Non-U.S. Analyst
                                            approximately $1.00/lb–$1.10/lb. Our forecast assumes pricing remains below this level in
and Conflicts Disclosures,
please see page 22.                         2012 in order to generate enough production curtailments to move the market back toward
                                            a balanced position. We forecast an average price of $0.90/lb in 2012, $1.00/lb in 2013,
Aluminium Price Forecast (US$/lb)           $1.00/lb in 2014, $1.05/lb in 2015, and $1.10/lb in 2016. Our long-term forecast is $1.10/lb
               New       Old     % Chg.     in 2012 US$.
2012E          $0.90    $0.95       -5%
2013E          $1.00     n/c        n/c   Risks to the Forecast
2014E          $1.00     n/c        n/c   • Economic Growth – A 1% decrease in forecast 2012 global demand would decrease our
2015E          $1.05     n/c        n/c     forecast growth rate from 5.2% to 4.1% and increase our forecast surplus by 450,000
2016E          $1.10     n/c        n/c     tonnes.
Long-term
               $1.10     n/c        n/c   • Investment Demand – Investment demand remains a key driver of commodity prices,
(2012$)
                                            leaving prices vulnerable to increased volatility.
Note: Price changes were originally       • China – Slower demand growth than we are currently assuming could increase our forecast
published in our September 6, 2012
research comment, Q4 2012 Commodity         surpluses, while lower capacity growth than we are currently forecasting could push the
Price Revisions & Outlook: Hunting For      market into deficit.
Opportunity This Autumn.
                                          • Supply – Current low prices could lead to additional production curtailments and lower
                                            supply growth than we currently forecast.

                     anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                 September 18, 2012

Table of Contents
        Supply/Demand      Exhibit 1: Refined Aluminium Supply/Demand Balance............................................................................... 3
                           Exhibit 2: Global Aluminium Supply/Demand .............................................................................................. 3
                           Exhibit 3: Global Aluminium Supply/Demand and Prices............................................................................. 3
    Production Changes     Exhibit 4: Summary of Aluminium Production Changes (Compared to 2011A; ’000 tonnes) ...................... 4
                           Exhibit 5: Global Aluminium Production Increases (Compared to 2011A; ’000 tonnes) .............................. 4
                           Exhibit 6: Global Aluminium Production Increases from Potential Projects (Compared to 2011A; ’000
                           tonnes)............................................................................................................................................................ 5
                           Exhibit 7: Global Aluminium Production Decreases (Compared to 2011A; ’000 tonnes) ............................. 5
        Current Trends     Exhibit 8: Aluminium Production (Monthly and 12-Month Moving Average).............................................. 6
                           Exhibit 9: Aluminium Monthly Production.................................................................................................... 6
                           Exhibit 10: Aluminium Deliveries (Monthly and 12-Month Moving Average)............................................. 6
                           Exhibit 11: Aluminium Monthly Deliveries................................................................................................... 6
                           Exhibit 12: Smelter Capacity and Production (ex-China) .............................................................................. 6
                           Exhibit 13: Smelter Capacity Utilization (ex-China) and LME Price ............................................................ 6
                           Exhibit 14: World Aluminium Deliveries and Economic Growth ................................................................. 7
                           Exhibit 15: World Aluminium Deliveries ex-China and Economic Growth .................................................. 7
                           Exhibit 16: Physical Aluminium Premia ........................................................................................................ 7
     Inventory and Price   Exhibit 17: Total Aluminium Inventories versus Real Prices ........................................................................ 8
                           Exhibit 18: Total Aluminium Inventory, Price, and Critical level.................................................................. 8
                           Exhibit 19: Total Aluminium Inventories and Price....................................................................................... 8
                           Exhibit 20: Aluminium Exchange Inventory and Price.................................................................................. 9
                           Exhibit 21: Total Aluminium Inventory and LME Prices .............................................................................. 9
                           Exhibit 22: Total Aluminium Inventory in Weeks of Consumption and Price............................................... 9
           Consumption     Exhibit 23: Primary Aluminium Consumption............................................................................................. 10
                           Exhibit 24: Aluminium Consumption Patterns............................................................................................. 11
                           Exhibit 25: Global Aluminium Consumption by Region ............................................................................. 12
                           Exhibit 26: Global Aluminium Consumption .............................................................................................. 12
                           Exhibit 27: Aluminium Consumption by Major Region .............................................................................. 12
   Refined Capacity and    Exhibit 28: Global Aluminium Capacity...................................................................................................... 13
            Production     Exhibit 29: Global Aluminium Smelter Capacity and Production ............................................................... 13
                           Exhibit 30: Global Aluminium Smelter Capacity Utilization....................................................................... 13
                           Exhibit 31: Global Aluminium Production .................................................................................................. 14
                           Exhibit 32: Global Aluminium Production Patterns..................................................................................... 14
       Aluminium Costs     Exhibit 33: 2012E Aluminium Cash Costs (C1)* ........................................................................................ 15
                           Exhibit 34: 2012E Aluminium Total Costs (C2)** ...................................................................................... 15
                           Exhibit 35: 2012E Aluminium Total Cost (C2)** Components................................................................... 15
                           Exhibit 36: Aluminium Cash Cost Increases (2007–2011) .......................................................................... 16
                           Exhibit 37: 2017E Aluminium Total Costs (C2)** ...................................................................................... 16
                           Exhibit 38: 2017E Aluminium Total Cost (C2)** Components................................................................... 16
               Alumina     Exhibit 39: Alumina Supply/Demand Balance............................................................................................. 17
                           Exhibit 40: Global Alumina Supply/Demand Balance and Prices ............................................................... 17
                           Exhibit 41: Alumina Production................................................................................................................... 18
                           Exhibit 42: Alumina Production by Region ................................................................................................. 18
                           Exhibit 43: 2011 Alumina Production by Region ........................................................................................ 18
          Alumina Costs    Exhibit 44: 2012E Alumina Cash Costs (C1)*............................................................................................. 19
                           Exhibit 45: 2012E Alumina Total Costs (C2)** .......................................................................................... 19
                           Exhibit 46: 2012E Alumina Cash Cost (C1)* Components ......................................................................... 19
                           Exhibit 47: Alumina Cost Increases (2007–2011)........................................................................................ 20
                           Exhibit 48: 2017E Alumina Total Costs (C2)** .......................................................................................... 20
                           Exhibit 49: 2017E Alumina Cash Cost (C1)* Components ......................................................................... 20
 Appendix I: Projections   Exhibit 50: Consumption Regressed with IP................................................................................................ 21
        for Aluminium      Exhibit 51: Consumption Regressed and Against Time ............................................................................... 21
          Consumption      Exhibit 52: Long-Term Growth Rates for Consumption (’000 tonnes)........................................................ 21

                           Required Disclosures ................................................................................................................................... 22




2 H. Fraser Phillips

            anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                                                                    Aluminium Market Outlook

Exhibit 1: Refined Aluminium Supply/Demand Balance
                                                                                     2006         2007          2008            2009         2010                  2011     2012E      2013E      2014E     2015E     2016E
Supply                                                     '000 tonnes              33,985     38,196       39,704             37,181       41,462                44,564    45,699     48,130     51,355    54,001    56,751
% change                                                                               6.5%        12.4%             3.9%         -6.4%       11.5%                  7.5%      2.5%       5.3%       6.7%      5.2%      5.1%

Total Global Primary Demand                                 '000 tonnes             34,274     37,786       37,276             35,017       40,452                42,756    44,972     48,037     51,353    53,960    56,739
% change                                                                               7.1%        10.2%         -1.3%            -6.1%       15.5%                  5.7%      5.2%       6.8%       6.9%      5.1%      5.2%

Implied Surplus / (Deficit)                                '000 tonnes                (289)        411          2,428           2,164        1,010                 1,808      727         94          1        41        12

Total Reported Stocks                                       '000 tonnes              3,682        3,881         5,510           7,006        7,079                 7,596     8,323      8,417      8,418     8,459     8,471

Weeks of Consumption (Western World)                                                   8.1          8.6          12.6            19.1         16.3                  17.0      18.5       18.2       17.6      17.3      16.9

Nominal LME Cash Price                                     US$/lb                    $1.16        $1.20         $1.17            $0.75       $0.99                 $1.09     $0.90      $1.00      $1.00     $1.05     $1.10
Long Term Price (2017 and beyond) 2012 US$                 US$/lb                                                                                                                                                      $1.10

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 2: Global Aluminium Supply/Demand                                                                                                                         We forecast global demand growth of
                                                                                                                                                                  5.2% in 2012, down from 6.7% one
                    3,000                                                                                                          62,000                         quarter ago. Western World growth is
                                                                                                           Forecast                58,000
                    2,500                                                                                                                                         expected to slow to just 0.6% following
                                                                                                                                   54,000
                    2,000                                                                                                          50,000
                                                                                                                                                                  growth of 3.4% in 2011. China remains
                    1,500                                                                                                          46,000                         the main driver with forecast growth of




                                                                                                                                                  (000s tonnes)
  (000s tonnes)




                    1,000                                                                                                          42,000                         11.8% in 2012, down from 15.4% last
                                                                                                                                   38,000                         quarter. This follows growth of 9.7% in
                      500                                                                                                          34,000                         2011. The key risk to our forecast is the
                           0                                                                                                       30,000
                                                                                                                                   26,000
                                                                                                                                                                  strength of global economic growth in
                     (500)
                                                                                                                                   22,000                         2012 and 2013. Our analysis assumes a
                   (1,000)                                                                                                         18,000                         recession in Europe in 2012, anemic
                   (1,500)                                                                                                         14,000                         growth in the US and a modest slowing in
                                88    90    92   94   96   98   00    02       04    06      08     10     12        14     16                                    Chinese growth. A 1% decrease in
                     Implied Surplus/Deficit (LS)               Total Global Supply (RS)                        Total Global Demand (RS)                          forecast 2012 global demand would
                                                                                                                                                                  decrease our forecast growth rate from
Source: RBC Capital Markets estimates, Bloomberg, Brook Hunt                                                                                                      5.2% to 4.1% and increase our forecast
                                                                                                                                                                  surplus by 450,000 tonnes.
Exhibit 3: Global Aluminium Supply/Demand and Prices                                                                                                              Our analysis continues to point to a
                                                                                                                                                                  market with significant excess capacity
                  3,000                                                                                                                   $1.75                   and inventory and little scope for
                  2,500                                                                                         Forecast                                          eliminating those excesses during our
                                                                                                                                          $1.50
                  2,000                                                                                                                                           forecast period. The correction in Q2/12
                  1,500                                                                                                                   $1.25                   and Q3/12 brought prices down to the
  (000s tonnes)




                                                                                                                                                                  40th percentile of the cash cost curve,
                                                                                                                                                    (US$/lb)




                  1,000
                                                                                                                                          $1.00                   pushing many producers into loss making
                    500
                                                                                                                                                                  positions and leading to announced
                       0                                                                                                                  $0.75
                                                                                                                                                                  production curtailments of over 1.1
                   (500)
                                                                                                                                          $0.50                   million tonnes. However, more closures
                  (1,000)                                                                                                                                         are required to balance the market. Our
                  (1,500)                                                                                                                 $0.25                   forecast assumes pricing remains at or
                               88    90    92    94   96   98    00       02   04     06      08      10        12        14     16                               below the 90th percentile of the cash cost
                               Implied Surplus/Deficit '000 tonnes (LS)                      Nominal LME Cash Prices US$/lb (RS)                                  curve in order to slow production growth
                                                                                                                                                                  and move the market back into balance.
Source: RBC Capital Markets estimates, Bloomberg, Brook Hunt                                                                                                      With more than enough excess capacity
                                                                                                                                                                  to meet our forecast demand growth, we
                                                                                                                                                                  do not currently foresee a meaningful
                                                                                                                                                                  absolute decline in inventories or a
                                                                                                                                                                  significant increase in price during our
                                                                                                                                                                  forecast period. Our analysis suggests
                                                                                                                                                                  that China will likely remain self-
                                                                                                                                                                  sufficient in aluminium through 2016.




                                                                                                                                                                                                H. Fraser Phillips 3
                                anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                              September 18, 2012

Exhibit 4: Summary of Aluminium Production Changes                                                             We forecast a net increase in supply –
(Compared to 2011A; ’000 tonnes)                                                                               after taking into account cutbacks and
                                                                                                               closures at existing operations – of 19.8
 Change              Type                        2012E     2013E         2014E           2015E       2016E
                                                                                                               million tonnes by 2016. Of the increased
 Increases           Existing Operations        4,677      10,150       15,030       18,044          20,585
                     New Projects                  -           53          198          338             527
                                                                                                               supply, approximately 98% comes from
                     Sub-Total                  4,677     10,203       15,228       18,382          21,112
                                                                                                               existing operations and projects that have
                                                                                                               already been approved.
 Reductions          Existing Operations        (1,716)    (1,161)      (1,317)      (1,317)         (1,317)
                     TOTAL                      2,961      9,041       13,910       17,065          19,794

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 5: Global Aluminium Production Increases                                                               Our analysis continues to point to strong
(Compared to 2011A; ’000 tonnes)                                                                               growth in capacity throughout our
Country                           Smelter                   2012E     2013E      2014E     2015E      2016E    forecast period.
Abu Dhabi                         Taweelah                      26        51      202        566       591
Azerbaijan                        Ghyandia                      44        85        94         94        94    China continues to grow its capacity
Brazil                            Sorocaba/Mairinque             3        28        28         28        75    aggressively, and many Western producers
Canada                            AP60                        -           30        60         60        60
Canada                            Kitimat                     -          -        138        138       138
                                                                                                               have major growth plans. By 2016, we
Canada                            Baie Comeau                 -          -        110        110       110     expect that production increases at existing
China                             Dingxi                        40        90        90         90        90    operations and previously approved new
China                             Yinchuan                   249        249       249        249       249
China                             Zunyi                         95      135       135        135       135     projects will likely contribute 20.6 million
China                             Jinning Aluminium             55        80      213        445       460     tonnes of new supply relative to 2011.
China                             Huomei Hongjun             350        350       350        350       350
China                             Datang Power                  50      312       312        312       312
China                             Dongxing Aluminium         490        490       490        530       530
China                             Pingguo                    378        386       398        398       398
China                             Fushun                      -           69        80         80        80
China                             Jinyuan Aluminium              2      153       153        153       153
China                             Nanping                       50        50        50         50        50
China                             Longlin                       75        75        75         75        75
China                             Liancheng                  230        240       240        240       240
China                             Baotou                        62      162       162        162       162
China                             Sanmenxia Tianyuan          -           60        60         60        60
China                             Baotou East Hope           210        210       210        210       210
China                             Xining City                125        200       200        200       200
China                             Shenhuo                       86      211       268        268       268
China                             Changii                    226        380       638        787       787
China                             Weiqiao                    300        300       300        300       300
China                             Nanshan                       43      128       150        150       150
China                             Shanxi                     103        110       110        110       110
China                             Pengshan, Sichuan             30        50        80         80        80
China                             Chiping County               19         49        79       179       179
China                             Sichuan Meishan               50        50        50         50        50
China                             Wujiaqu City               101        226       376        376       376
Iceland                           Helguvik                    -          -          11         88        90
India                             Korba                       -         147       215        220       225
India                             Aditya                      -           83      309        360       360
India                             Mahan                      118        323       337        337       337
India                             Jharsuguda                 103        328       623        720       720
Iran                              Hormozgan                     67        90        90         90        90
Nigeria                           Akwa Ibom                     22        52      110        169       169
Qatar                             Dohar                        58         58        58         58        58
Russia                            Boguchanskoye               -           70      147        165       428
Russia                            Taishet/Irkutsk             -           25      247        381       592
Saudi Arabia                      Rez Az Zawr                 -         125       565        770       740
Argentina                         Puerto Madryn                 25        31        31         31        49
Australia                         Kurri Kurri                 -          -         -          -         -
Australia                         Point Henry                 -          -         -          -         -
Australia                         Boyne Island                -          -         -          -         -
Australia                         Bell Bay                    -          -         -          -         -
China                             Other                      285      3,141     5,434      6,913     8,898
Other                             < 50 ktpa                  792      3,809     6,137      7,620     9,605
Aluminum Sub-Total                                         4,677     10,150    15,030     18,044    20,585

Source: RBC Capital Markets estimates, Brook Hunt




4 H. Fraser Phillips
                anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                        Aluminium Market Outlook

Exhibit 6: Global Aluminium Production Increases from Potential Projects                                   Our forecast continues to make provisions
(Compared to 2011A; ’000 tonnes)                                                                           for new supply from some projects that
Country               Smelter                         2012E      2013E      2014E     2015E      2016E     have yet to be approved. We have included
India                 Jharsuguda II                     -          136        601       630       630      five significant projects that could be
INDONESIA             Sumatra                           -           -          -         -        188
                                                                                                           categorized as potential. In aggregate, these
MALAYSIA              Samalaju                          -            75       175       240       240
MALAYSIA              East Sarawak                      -           -          -          76      438      projects could contribute 2.1 million tonnes
Qatar                 Dohar II                          -           -           15      406       610      of new supply by 2016.
Other                 < 50 ktpa                         -           -          -         -         -
Aluminium Sub-Total                                     -          211        791     1,352     2,106      Our base case supply/demand balance
                                                                                                           assumes that only 25% of this potential – or
Total Potential Projects                                -          211        791     1,352     2,106
                                                                                                           0.53 million tonnes – will ultimately come
Base Case Supply - Demand = 25% of Potential            -           53        198       338       527      on stream within this timeframe.
Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 7: Global Aluminium Production Decreases                                                           Our list of production decreases includes
(Compared to 2011A; ’000 tonnes)                                                                           only permanent closures of capacity.
Country                         Smelter              2012E      2013E      2014E      2015E      2016E     Many high-cost production facilities have
China                           Zhengzhou               (58)       (58)       (58)       (58)       (58)   already been closed. At this point, we
Poland                          Maliniec                (55)       (55)       (55)       (55)       (55)   forecast only limited permanent closures.
United Kingdom                  Lynemouth              (134)      (178)      (178)      (178)      (178)
USA                             Evergreen               -          -         (116)      (116)      (116)   In addition to these permanent closures,
China                           Other                (1,368)      (757)      (797)      (797)      (797)
Other                           < 50 ktpa              (101)      (113)      (113)      (113)      (113)
                                                                                                           Brook Hunt currently estimates that a
Aluminium Sub-Total                                 (1,716)    (1,161)    (1,317)    (1,317)    (1,317)    total of just over 1.1 million tonnes of
                                                                                                           smelting capacity has been idled because
Source: RBC Capital Markets estimates, Brook Hunt
                                                                                                           it is unprofitable at current price levels.




                                                                                                                                 H. Fraser Phillips 5
                 anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                                                               September 18, 2012

Exhibit 8: Aluminium Production (Monthly and 12-Month                                                                     Exhibit 9: Aluminium Monthly Production
Moving Average)
                              4,300
                                                                                                                                           4,100

                              3,800                                                                                                        3,600




                                                                                                                              000 tonnes
                                                                                                                                           3,100
              000 Tonnes




                              3,300

                                                                                                                                           2,600
                              2,800
                                                                                                                                           2,100
                              2,300
                                                                                                                                           1,600

                              1,800




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                                               12-Month Moving Average                    Total Monthly Production
                                                                                                                                                         2007          2008         2009           2010     2011          2012

Source: RBC Capital Markets estimates, IAI, Bloomberg
                                                                                                                          Source: RBC Capital Markets, IAI, Bloomberg

Exhibit 10: Aluminium Deliveries (Monthly and 12-Month                                                                    Exhibit 11: Aluminium Monthly Deliveries
Moving Average)
                                4,000                                                                                                      4,000
                                3,800                                                                                                      3,500
                                3,600
                                                                                                                                           3,000
                                3,400
                                                                                                                                           2,500
                                3,200                                                                                        000 tonnes
                                                                                                                                           2,000
                 000 Tonnes




                                3,000
                                                                                                                                           1,500
                                2,800
                                                                                                                                           1,000
                                2,600
                                                                                                                                             500
                                2,400
                                2,200                                                                                                          0
                                2,000




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                                                                                                                                                                                                    No
                                                                                                                                                                                                   Se
                                         00    01    02    03    04       05   06   07   08    09   10     11    12


                                               12 Month Moving Average                    Total Monthly Deliveries                                       2007          2008         2009           2010      2011         2012



                                                                                                                          Source: RBC Capital Markets, IAI, Bloomberg
Source: RBC Capital Markets estimates, IAI, Bloomberg

Exhibit 12: Smelter Capacity and Production (ex-China)                                                                    Exhibit 13: Smelter Capacity Utilization (ex-China) and LME
                                                                                                                          Price
                       2,500
                                                                                                                            115%                                                                                             $1.80
                       2,250
                                                                                                                            110%                                                                                             $1.60

                       2,000                                                                                                105%                                                                                             $1.40
                                                                                                                            100%                                                                                             $1.20
 000 Tonnes




                       1,750
                                                                                                                             95%                                                                                             $1.00
                       1,500                                                                                                 90%                                                                                             $0.80
                                                                                                                             85%                                                                                             $0.60
                       1,250
                                                                                                                             80%                                                                                             $0.40
                       1,000                                                                                                 75%                                                                                             $0.20
                                                                                                                             70%                                                                                             $0.00
                              750
                                                                                                                                           73 75 77 79 81 83 85 87 89 91 93 95 97 99 01 03 05 07 09 11
                                    74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14


                                               Total Capacity (x-China)                       Production (x-China)
                                                                                                                                              Total Capacity Utilization (x-China, %), LS                 LME Price (US$/lb), RS


Source: RBC Capital Markets estimates, IAI, Bloomberg                                                                     Source: RBC Capital Markets estimates, IAI, Bloomberg




6 H. Fraser Phillips
                                              anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                  Aluminium Market Outlook

Exhibit 14: World Aluminium Deliveries and Economic Growth                                                        Global economic leading indicators point to
                                                                                                                  a deteriorating macroeconomic
 12%                                                                                                              environment, and commodity demand and
     9%
                                                                                                                  price risk. The OECD CLI bottomed in late
     6%
                                                                                                                  2011 and rose in early 2012. However,
                                                                                                                  readings over the past number of months from
     3%
                                                                                                                  purchasing managers’ indices and other
     0%
                                                                                                                  leading indicators from around the globe,
  -3%
                                                                                                                  including China, have pointed to slowing
  -6%                                                                                                             growth, and the OECD composite leading
  -9%                                                                                                             indicators have reversed, highlighting the risks
-12%                                                                                                              associated with the global economy.
-15%

-18%
             78    80     82    84   86   88   90   92    94   96   98    00   02   04     06   08   10   12



                  US Recessions                                       OECD IP (YoY)
                  OECD CLI (YoY, 6 month advance)                     World Al Deliveries (Y/Y, Moving Average)


Source: RBC Capital Markets estimates, OECD, IAI

Exhibit 15: World Aluminium Deliveries ex-China and Economic Growth                                               China remains the main driver of
                                                                                                                  aluminium demand growth, although
  12%                                                                                                             demand outside China rebounded strongly
     9%
                                                                                                                  in 2010 on the back of restocking.
     6%

     3%

     0%

   -3%

   -6%

   -9%

 -12%

 -15%

 -18%
             78    80     82    84   86   88   90   92   94    96   98    00   02   04     06   08   10   12
                                           US Recessions
                                           World Al Deliveries x-China (Y/Y, Moving Avg)
                                           OECD CLI (YoY, 6 month advance)
                                           OECD IP (YoY)

Source: RBC Capital Markets estimates, OECD, IAI

Exhibit 16: Physical Aluminium Premia                                                                             Increases in physical premia in Europe,
                                                                                                                  Japan and the US reflect a lack of liquidity
              300
                                                                                                                  in exchange inventories due to financing
                                                                                                                  deals rather than strong underlying
              250
                                                                                                                  demand. The 2011 spike in US premia
                                                                                                                  reflected long wait times of up to one year to
              200
                                                                                                                  withdraw metal from the LME’s Detroit
 US$/tonne




                                                                                                                  warehouse, the location of the only available
              150
                                                                                                                  metal in the LME warehouse system at the
                                                                                                                  time. Long wait times to withdraw metal from
              100
                                                                                                                  warehouses remain and continue to contribute
                                                                                                                  to the strength of physical premia.
                  50


                  0
                       97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12
              US Midwest             Japan CIF Duty Unpaid          European Duty Unpaid

Source: Bloomberg




                                                                                                                                           H. Fraser Phillips 7
                               anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                                                                              September 18, 2012

Exhibit 17: Total Aluminium Inventories versus Real Prices                                                                                                                                  The correction in the first eight months of
                                                                                                                                                                                            the year brought aluminium prices down to
                                   $3.00                                                                                                                                                    the 40th percentile of the cash cost curve.
                                                                                                                                                                                            Despite a recent rebound, prices remain
                                   $2.50                                                                                                                                Year                below what we would view as sustainable
                                                                                                                                                                        80-85               cost support levels at about the 90th
  Real Aluminum Price ( S$/lb)




                                   $2.00                                                                                                                                85-90               percentile of the curve. As a result, further
                      U




                                                                                                                                                                        90-95
                                                                                                                                                                                            downside risk should be limited. While
                                   $1.50                                                                                                                                                    inventories are below their peak in February
                                                                                                                                                                        95-00
                                                                                                                                                                                            2012, they remain at historically high levels.
                                                                                                                                                                        00-Present          At current levels, prices are consistent with the
                                   $1.00
                                                                                                                                                                                            historical inventory/price relationship. Our
                                   $0.50
                                                                                                                                                                                            supply/demand forecast, cost analysis (see
                                                                                                                               August '12
                                                                                                                                                                                            Exhibit 33 on page 15), and the historical
                                                                                                                                                                                            inventory/price relationship suggest sustainable
                                   $0.00
                                                                                                                                                                                            fundamental price support of approximately
                                                          5                10               15             20                              25                    30
                                                                                Total Inventory - Weeks of Consumption                                                                      $1.00/lb–$1.10/lb. We expect prices to move
                                                                                                                                                                                            up to this range once sufficient production cuts
Source: RBC Capital Markets estimates, Brook Hunt                                                                                                                                           have been made to balance the market.

Exhibit 18: Total Aluminium Inventory, Price, and Critical level                                                                                                                            Total inventories are currently 17.5 weeks of
                                                                                                                                                                                            consumption, the same level as at the
                                                   40.0                                                                                                                 $1.80
                                                                                                                                                                                            beginning of 2012. While below the peak of
                                                                                                                                                                                            18.9 weeks at the beginning of 2010, the
                                                   30.0                                                                                                                 $1.35               current level is materially above the critical
 Weeks of Consumption




                                                                                                                                                                                            level of 9.5 weeks of consumption. Even
                                                                                                                                                                                            assuming strong demand growth in 2012 and
                                                                                                                                                                                   US$/lb



                                                   20.0                                                                                                                 $0.90
                                                                                                                                                                                            beyond, the current level of total inventories
                                                                                                                                                                                            could take some time to be drawn back down
                                                   10.0                                                                                                                 $0.45               to the critical level that would support a strong,
                                                                                                                                                                                            sustainable rebound in price.
                                                    0.0                                                                                                                 $0.00               The critical level has declined to 9.5 weeks
                                                          82   84    86    88    90     92    94    96    98    00        02     04        06        08    10    12
                                                                                                                                                                                            beginning in 1995 from 15 weeks of
                                                                                 Total Inventory                LME Prices                           Critical Level                         consumption in 1975–1985.


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 19: Total Aluminium Inventories and Price                                                                                                                                           We expect inventories to remain above
                                                                                                                                                                                            critical levels throughout our forecast
                                                    25                                                                                                                $1.50                 period, limiting upside price potential. We
                                                                                                                                                 Forecast                                   forecast a surplus of 727,000 tonnes in 2012,
                                                    20                                                                                                                $1.25                 as production growth in China and the restart
                                                                                                                                                                                            of involuntarily idled capacity offsets
                            weeks of consumption




                                                                                                                                                                                            curtailments outside of China leading to a
                                                    15                                                                                                                $1.00
                                                                                                                                                                                            surplus for the sixth year in a row. However,
                                                                                                                                                                              US$/lb




                                                                                                                                                                                            we expect prices at current levels will
                                                    10                                                                                                                $0.75                 eventually lead to enough production
                                                                                                                                                                                            curtailments to balance the market. In 2013
                                                                                                                                                                                            and beyond we therefore forecast a roughly
                                                     5                                                                                                                $0.50
                                                                                                                                                                                            balanced market, with capacity additions and
                                                                                                                                                                                            rising utilization rates meeting our forecast
                                                     0                                                                                                                $0.25                 growth in demand. As a result, we do not
                                                          88    90    92    94     96    98    00    02    04        06    08         10        12        14    16                          anticipate a meaningful absolute decline in
                                                               Weeks of Consumption (LS)                  LME Price (RS)                    Critical Level (LS)                             inventories during our forecast period.
Source: RBC Capital Markets estimates, Bloomberg, Brook Hunt




8 H. Fraser Phillips
                                                               anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                                                                                                                                    Aluminium Market Outlook

Exhibit 20: Aluminium Exchange Inventory and Price                                                                                                                                                                                        Total exchange inventories increased by
                                                                                                                                                                                                                                          only 67,000 tonnes in the first eight
                                                                  Aluminium Weekly Inventory & LME Prices                                                                                                                                 months of 2012. Inventories increased to
                        6,000,000                                                                                                                                                                       $1.50
                                                                                                                                                                                                                                          a high of approximately 5,454,000 tonnes
                                                                                                                                                                                                                                          at the end of February, declined to a low
                                                                                                                                                                                                                                          of 5,135,000 tonnes in June, and have
                        5,000,000                                                                                                                                                                       $1.25
                                                                                                                                                                                                                                          since increased to 5,254,000 tonnes.




                                                                                                                                                                                                                  LME Al Price (US$/lb)
                        4,000,000                                                                                                                                                                       $1.00
 Inventory (tonnes)




                        3,000,000                                                                                                                                                                       $0.75


                        2,000,000                                                                                                                                                                       $0.50


                        1,000,000                                                                                                                                                                       $0.25


                                   0                                                                                                                                                                    $0.00
                                       Jun-04


                                                         Jun-05


                                                                             Jun-06



                                                                                                Jun-07


                                                                                                                   Jun-08


                                                                                                                                     Jun-09


                                                                                                                                                       Jun-10



                                                                                                                                                                         Jun-11


                                                                                                                                                                                            Jun-12
                                                Dec-04


                                                                   Dec-05



                                                                                       Dec-06


                                                                                                          Dec-07


                                                                                                                            Dec-08


                                                                                                                                              Dec-09



                                                                                                                                                                Dec-10


                                                                                                                                                                                   Dec-11
                                  LM E Inventory                                  Shanghai Inventory                                          Comex Inventory                                         LM E Prices

Source: RBC Capital Markets, Brook Hunt

Exhibit 21: Total Aluminium Inventory and LME Prices                                                                                                                                                                                      Total reported inventories increased by
                                                                                                                                                                                                                                          only 20,000 tonnes in the first eight
                        8,000                                                                                                                                                                        $2.00                                months of 2012. This compares to our
                                                                                                                                                                                                                                          forecast surplus of 727,000 tonnes for
                        6,000                                                                                                                                                                        $1.50
                                                                                                                                                                                                                                          2012 as a whole, suggesting a continued
                                                                                                                                                                                                                                          build up of unreported inventories.
  000' tonnes




                                                                                                                                                                                                                US$/lb




                        4,000                                                                                                                                                                        $1.00



                        2,000                                                                                                                                                                        $0.50



                              0                                                                                                                                                                      $0.00
                                  82      84        86        88            90        92        94       96        98       00        02        04        06        08        10        12

                           Total IAI Inventory                                             Total Exchange Inventories                                                      LME Prices


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 22: Total Aluminium Inventory in Weeks of Consumption and Price                                                                                                                                                                   While total aluminium inventories
                                                                                                                                                                                                                                          reached new record levels in absolute
                         28                                                                                                                                                                          $2.00                                terms in first quarter 2012, they have
                                                                                                                                                                                                                                          remained below all-time highs in terms
                         21                                                                                                                                                                          $1.50
                                                                                                                                                                                                                                          of weeks of consumption.
 Weeks of Consumption




                                                                                                                                                                                                                US$/lb




                         14                                                                                                                                                                          $1.00



                          7                                                                                                                                                                          $0.50



                          0                                                                                                                                                                          $0.00
                              82       84       86        88          90         92         94           96        98       00        02        04        06        08            10        12

                              Total IAI Inventory                                           Total Exchange Inventories                                                     LME Prices


Source: RBC Capital Markets, Bloomberg, Brook Hunt




                                                                                                                                                                                                                                                             H. Fraser Phillips 9
                                       anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                               September 18, 2012

Exhibit 23: Primary Aluminium Consumption
Western World Aluminium Consumption                  2006      2007       2008       2009       2010      2011     2012E     2013E      2014E     2015E     2016E


Africa                                '000 tonnes     466        494        644        715        711       701       709       730        752       770       789

Canada                                '000 tonnes      846       597        600        571        577       629       635       655        674       691       707
USA                                   '000 tonnes    6,150     5,545      4,906      3,854      4,243     4,060     4,100     4,175      4,278     4,382     4,488
North America Total                   '000 tonnes    6,996     6,142      5,506      4,425      4,819     4,689     4,735     4,829      4,952     5,072     5,195

Latin America Total                   '000 tonnes    1,369     1,485      1,633      1,545      1,604     1,716     1,733     1,786      1,840     1,884     1,930

Japan                                 '000 tonnes    2,323     2,197      2,250      1,523      2,025     1,946     1,970     2,038      2,101     2,152     2,204
South Korea                           '000 tonnes    1,153     1,081        964      1,038      1,255     1,233     1,260     1,341      1,426     1,461     1,496
Taiwan                                '000 tonnes      422       368        362        288        400       432       438       457        477       489       501
India                                 '000 tonnes    1,080     1,207      1,284      1,458      1,475     1,569     1,596     1,674      1,757     1,800     1,843
Other Asia                            '000 tonnes    2,275     2,414      2,522      2,468      3,328     3,565     3,602     3,711      3,823     3,915     4,010
Asia Total                            '000 tonnes    7,252     7,267      7,381      6,774      8,483     8,744     8,866     9,221      9,584     9,817    10,054

Germany                               '000 tonnes    1,823     2,008      1,936      1,277      1,912     2,103     2,105     2,155      2,221     2,274     2,330
France                                '000 tonnes      713       737        689        538        549       584       572       572        578       592       606
Spain                                 '000 tonnes      620       642        603        481        537       524       427       393        408       418       428
Italy                                 '000 tonnes    1,021     1,087        951        661        867       982       993     1,023      1,054     1,079     1,105
United Kingdom                        '000 tonnes      362       364        339        270        270       270       273       281        290       297       304
Other Western Europe                  '000 tonnes    2,262     2,366      2,323      1,665      2,285     2,209     2,232     2,300      2,369     2,427     2,485
Western Europe Total                  '000 tonnes    6,802     7,204      6,841      4,891      6,420     6,673     6,602     6,724      6,919     7,087     7,258

Oceania Total                         '000 tonnes     374        396        385        359        319       355       359       370        381       390       400

Western World Total                   '000 tonnes   23,597    23,360     22,759     19,057     22,543    23,301    23,432    24,101     24,882    25,485    26,102

Western World YoY Change
USA                                   %                0.6%      -9.8%    -11.5%      -21.4%    10.1%      -4.3%      1.0%      1.8%       2.5%      2.4%      2.4%
Japan                                 %                2.0%      -5.4%       2.4%     -32.3%    33.0%      -3.9%      1.3%      3.4%       3.1%      2.4%      2.4%
South Korea                           %               -4.0%      -6.3%    -10.8%        7.7%    20.9%      -1.7%      2.2%      6.4%       6.4%      2.4%      2.4%
Taiwan                                %                2.5%    -12.9%       -1.7%     -20.4%    39.1%       7.8%      1.5%      4.4%       4.5%      2.4%      2.4%
India                                 %               12.7%     11.8%        6.4%      13.5%     1.2%       6.4%      1.7%      4.9%       4.9%      2.4%      2.4%
Germany                               %                3.7%     10.1%       -3.6%     -34.0%    49.7%      10.0%      0.1%      2.4%       3.0%      2.4%      2.4%
France                                %               -0.8%       3.4%      -6.6%     -21.9%     2.1%       6.3%     -2.1%      0.1%       1.0%      2.4%      2.4%
Spain                                 %               -0.7%       3.5%      -6.0%     -20.3%    11.7%      -2.4%    -18.4%     -8.0%       3.9%      2.4%      2.4%
Other WW                              %                4.7%       2.8%       2.0%     -11.9%    18.0%       6.9%      1.0%      3.0%       3.0%      2.4%      2.4%
Western World Total                   %                2.8%     -1.0%      -2.6%     -16.3%     18.3%       3.4%      0.6%     2.9%        3.2%      2.4%      2.4%

Former Eastern Bloc Aluminium Consumption
Eastern Europe Total                  '000 tonnes     832        884        910        736        990       985       988       993        994     1,012     1,031

China                                 '000 tonnes    8,648     12,347     12,413     14,300     16,068    17,629    19,709    22,095     24,629    26,599    28,727
Russia                                '000 tonnes    1,047      1,020      1,020        750        685       685       687       690        691       704       716
Ukraine                               '000 tonnes       40         51         51         49         43        32        32        32         32        33        33
North Korea                           '000 tonnes       22         22         22         22         22        22        22        22         22        22        23
Other Eastern Bloc Total              '000 tonnes    9,845    13,542     13,607     15,223     16,920    18,469    20,552    22,942     25,477    27,463    29,606

Total Eastern Bloc                    '000 tonnes   10,677    14,426     14,517     15,959     17,909    19,454    21,540    23,935     26,471    28,475    30,637

Former Eastern Bloc YoY Change
China                                 %               21.5%     42.8%       0.5%      15.2%      12.4%      9.7%     11.8%     12.1%      11.5%      8.0%      8.0%
Other EB                              %                5.3%      2.5%       1.3%     -21.2%      11.0%     -0.9%      0.3%      0.5%       0.1%      1.8%      1.8%
Former Eastern Bloc Total             %               18.0%     35.1%       0.6%       9.9%      12.2%      8.6%     10.7%     11.1%      10.6%      7.6%      7.6%

Global Total Aluminium Consumption
Total Consumption                     '000 tonnes   34,274    37,786     37,276     35,017     40,452    42,756    44,972    48,037     51,353    53,960    56,739
Total YoY Change                      %                7.1%     10.2%      -1.3%      -6.1%      15.5%      5.7%      5.2%      6.8%       6.9%      5.1%      5.2%

Source: RBC Capital Markets estimates, Brook Hunt




10 H. Fraser Phillips
                      anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                           Aluminium Market Outlook

Exhibit 24: Aluminium Consumption Patterns
     2011 Western World Primary Aluminium Consumption              2011 Global Primary Aluminium Consumption by Region
                        by End Use
                                       Other                                                      Latin America
                                                                                         Other         4%
             Machinery &                7%                                                                        Africa
                                                   Building &                                2%
                Equipment                                                                                           2%               USA
                                                 Construction
                   8%                                                                                                                 10%
                                                      18%

     Consumer Goods                                                       China

           9%                                                             43%
                                                                                                                               Asia
                                                     Transport                                                                 22%

       Packaging                                         28%
          18%
                                                                                   Oceania
                        Electrical                                                                          Western
                                                                                        1%
                            12%                                                                              Europe
                                                                                                              16%



    2011 Mature Market Primary and Secondary Aluminium           2011 Chinese Aluminium Primary and Secondary Consumption
                 Consumption by End Use                                                 by End Use

                                       Other                                                                Other
                        Machinery                                                        Machinery
                                        5%                                                                   4%
                            9%                 Construction                                   6%
                                                   15%
                                                                             Consumer                                      Construction
          Consumer
                                                                                  16%                                          37%
             6%


                                                                         Packaging

            Packaging
                                                                            4%

                21%
                                                Transport
                                                                                  Electrical
                                                   35%                                                  Transport
                          Electrical                                                 16%
                                                                                                             17%
                              9%


Source: RBC Capital Markets, Brook Hunt




                                                                                                                      H. Fraser Phillips 11
                anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                September 18, 2012

Exhibit 25: Global Aluminium Consumption by Region                                                                           Global aluminium demand
                                                                                                                             grew by 5.7% in 2011 following
                                                                                      Forecast                               growth of 15.5% in 2010.
                60,000
                                                                                                        Other                Western World demand grew by
                50,000                                                                                  A frica              3.4% in 2011, while demand in
                                                                                                        Oceania              China grew by 9.7%. We are
                40,000                                                                                  Canada
                                                                                                                             currently forecasting Western
  '000 tonnes




                                                                                                                             World growth of just 0.6% in
                                                                                                        China
                30,000                                                                                                       2012, with declines in Europe
                                                                                                        Latin A merica
                                                                                                                             and only modest growth in the
                20,000                                                                                  Russia               US offset by stronger growth in
                                                                                                        A sia                Asia outside of China.
                10,000                                                                                  Western Euro pe

                                                                                                        USA
                    0
                         90    92   94     96    98   00   02     04   06   08   10   12    14    16


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 26: Global Aluminium Consumption                                                                                     Global demand grew by 5.7%
                                                                                                                             in 2011. We forecast growth of
                                                                                                                  Forecast   5.2% in 2012, 6.8% in 2013,
                60,000
                                                                                                                             6.9% in 2014, and trend growth
                                                                                                                             of just over 5.0% in 2015 and
                50,000
                                                                                                                             2016. The key risk to our forecast
                                                                                      1998-2008                              is the strength of global economic
  '000 tonnes




                40,000
                                                                                           5.8%                              growth in 2012 and 2013. Our
                                                                                                                             analysis assumes a recession in
                30,000
                               1974-1982                   1982-1998                                                         Europe in 2012, anemic growth
                                 1.7%                        2.2%                                                            in the US and a modest slowing
                20,000
                                                                                                                             in Chinese growth. A 1%
                                                                                                                             decrease in forecast 2012 global
                10,000
                                                                                                                             demand would decrease our
                         74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14                                      forecast growth rate from 5.2% to
                                                                                                                             4.1% and increase our forecast
Source: RBC Capital Markets estimates, Brook Hunt                                                                            surplus by 450,000 tonnes.

Exhibit 27: Aluminium Consumption by Major Region                                                                            China has been the main driver
                                                                                                                             of global aluminium demand
                                                                                                                Forecast     growth in the past five years
                35,000
                                                                                                                             and remains the key to the
                30,000                                                                                                       outlook. Chinese demand
                25,000
                                                                                                                             increased 12.4% in 2010 and
                                                                                                                             9.7% in 2011. We forecast
  '000 tonnes




                20,000                                                                                                       growth of 11.8% in 2012, 12.1%
                15,000
                                                                                                                             in 2013 and 11.5% in 2014.
                                                                                                                             China imported aluminium in
                10,000                                                                                                       2009. However, a sharp rebound
                 5,000                                                                                                       and continued growth in Chinese
                                                                                                                             aluminium production has
                     0                                                                                                       eliminated the need for imports,
                          74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16                                  and we expect China to be self-
                                                                                                                             sufficient in aluminium through
                                         China                  USA              Japan                 Europe
                                                                                                                             2016.
Source: RBC Capital Markets estimates, Bloomberg, Brook Hunt




12 H. Fraser Phillips
                              anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                                                                             Aluminium Market Outlook

Exhibit 28: Global Aluminium Capacity
Western World                                                                                          2006               2007           2008           2009      2010      2011     2012E      2013E      2014E     2015E     2016E
Africa                                                                  '000 tonnes                    2,065              2,077          2,083          1,995     1,995     2,019     2,049      2,079      2,137     2,196     2,196
Canada                                                                  '000 tonnes                    3,078              3,078          3,078          3,052     3,031     3,031     3,124       3,154     3,435     3,435     3,435
USA                                                                     '000 tonnes                    3,664              3,664          3,662          3,675     3,675     3,675     3,699       3,718     3,602     3,602     3,602
North America Total                                                     '000 tonnes                    6,742              6,742          6,740          6,727     6,706     6,706     6,823       6,872     7,037     7,037     7,037
Latin America Total                                                     '000 tonnes                    2,533              2,665          2,725          2,689     2,624     2,620     2,648      2,679      2,679     2,679     2,744
Japan                                                                   '000 tonnes                       20                 20             20              7         7         7         7          7          7         7         7
India                                                                   '000 tonnes                    1,135              1,254          1,274          1,546     1,810     1,895     2,134      2,814      3,417     3,573     3,578
Other Asia                                                              '000 tonnes                    2,205              2,331          2,562          2,779     3,608     4,652     4,825      5,003      5,594     6,163     6,158
Asia Total                                                              '000 tonnes                    3,360              3,605          3,856          4,332     5,425     6,554     6,966      7,824      9,018     9,743     9,743

Germany                                                                 '000 tonnes                      676                540            621            618       618       622       627        627        627       627       627
Norway                                                                  '000 tonnes                    1,357              1,329          1,330          1,233     1,235     1,265     1,266      1,276      1,276     1,276     1,276
Other Western Europe                                                    '000 tonnes                    2,728              3,031          3,092          3,087     2,995     3,002     2,889      2,863      2,890     2,968     2,970
Western Europe Total                                                    '000 tonnes                    4,761              4,900          5,043          4,938     4,848     4,889     4,782      4,766      4,793     4,871     4,873

Oceania Total                                                           '000 tonnes                    2,292              2,319          2,319          2,324     2,324     2,329     2,329      2,329      2,329     2,329     2,329

Western World Total                                                     '000 tonnes                21,753             22,308            22,767         23,004    23,922    25,117    25,596     26,549     27,993    28,855    28,922
% change                                                                                                 2.6%                  2.6%           2.1%        1.0%      4.0%      5.0%      1.9%        3.7%      5.4%      3.1%      0.2%


Former Eastern Bloc                                                                                    2006               2007           2008           2009      2010      2011     2012E      2013E      2014E     2015E     2016E
China                                                                   '000   tonnes               11,617                14,711        17,856         21,005    21,732    23,693    26,208      31,116    34,077    36,077    38,077
Russia                                                                  '000   tonnes                3,790                 3,946         4,199          4,205     4,175     4,183     4,184       4,310     4,620     4,772     5,246
Eastern Europe                                                          '000   tonnes                  613                   626           638            639       639       639       566         566       566       566       566
Other Eastern Bloc                                                      '000   tonnes                  622                   695           695            620       745       751       790         831       840       840       840

Eastern Bloc Total                                                      '000 tonnes                16,642             19,978            23,388         26,469    27,292    29,266    31,748     36,823     40,103    42,255    44,729
% change                                                                                                 8.8%               20.0%            17.1%       13.2%      3.1%      7.2%      8.5%       16.0%      8.9%      5.4%      5.9%

Probable Projects                                                       '000 tonnes                         -                  -              -           -         -         -         -           53        198       338       527

Global Aluminium Smelter Capacity                                       '000 tonnes                38,395             42,286            46,155         49,473    51,213    54,384    57,344     63,425     68,294    71,448    74,178
% change                                                                                                 5.2%               10.1%             9.1%        7.2%      3.5%      6.2%      5.4%       10.6%      7.7%      4.6%      3.8%


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 29: Global Aluminium Smelter Capacity and Production                                                                                           While growth rates are projected to be somewhat
                                                                                                                                                       lower than they were over the past nine years, our
               80,000
               75,000                                                                                                      Forecast                    analysis continues to point to significant growth in
               70,000                                                                                                                                  capacity throughout our forecast period. China
               65,000
               60,000                                                                                                                                  continues to add capacity, although at a slower rate than
               55,000
 '000 tonnes




               50,000                                                                                                                                  was the case over the past 10 years. Significant capacity
               45,000
               40,000
                                                                                                                                                       additions are also being made in India and the Middle
               35,000                                                                                                                                  East.
               30,000
               25,000
               20,000
               15,000
                        88    90        92        94    96    98   0           2       4     6     8            10        12       14    16

                              Aluminium Smelter Capacity                            Global Total Smelter Production


Source: RBC Capital Markets, Brook Hunt

Exhibit 30: Global Aluminium Smelter Capacity Utilization                                                                                              The correction in the first eight months of 2012
                                                                                                                                                       brought the aluminium price down to the 40th
  110%                                                                                                                                                 percentile of the cash cost curve, pushing many
                                                                                                                                   Forecast
                                                                                                                                                       producers into loss making positions and leading to
  100%                                                                                                                                                 announced production curtailments of over 1.1
                                                                                                                                                       million tonnes. However, more closures are required
       90%                                                                                                                                             to balance the market in the face of growing Chinese
                                                                                                                                                       production. Chinese aluminium production increased
                                                                                                                                                       10.3% in the first seven months of 2012, and we estimate
       80%
                                                                                                                                                       a 9.1% increase for 2012 as a whole, which together with
                                                                                                                                                       a 2.9% decrease in production in the Western World will
       70%
                                                                                                                                                       result in global growth of 2.2%. Our forecast assumes
                  88     90        92        94        96    98    00          02      04     06       08            10        12       14        16
                                                                                                                                                       pricing remains below the 90th percentile of the cash cost
                                                                                                                                                       curve in 2012 and 2013 in order to slow production
Source: RBC Capital Markets, Brook Hunt
                                                                                                                                                       growth and move the market back toward a balanced
                                                                                                                                                       position.




                                                                                                                                                                                                     H. Fraser Phillips 13
                              anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                               September 18, 2012

Exhibit 31: Global Aluminium Production
Western World Smelter Production                                         2006      2007                    2008       2009      2010      2011     2012E     2013E      2014E       2015E        2016E
Africa                                            '000 tonnes            1,869     1,816                   1,714      1,690     1,742     1,813     1,660     1,611      1,592       1,620        1,625
Canada                                            '000 tonnes            3,051     3,083                   3,119      3,030     2,963     2,983     2,530     2,444      2,559       2,533        2,542
USA                                               '000 tonnes            2,281     2,560                   2,659      1,727     1,727     1,984     2,996     2,882      2,684       2,657        2,666
North America Total                               '000 tonnes            5,332     5,642                   5,778      4,758     4,690     4,967     5,526     5,326      5,243       5,190        5,208

Latin America Total                               '000 tonnes            2,494     2,558                   2,669      2,510     2,307     2,187     2,145     2,076      1,996       1,976        2,031

Japan                                             '000 tonnes                6         6                       7          5         5         5         6         5          5           5            5
India                                             '000 tonnes            1,105     1,222                   1,308      1,479     1,610     1,660     1,729     2,181      2,546       2,635        2,648
Other Asia                                        '000 tonnes            2,177     2,259                   2,357      2,776     3,296     4,052     3,908     3,877      4,168       4,545        4,557
Asia Total                                        '000 tonnes            3,289     3,486                   3,671      4,260     4,910     5,716     5,642     6,064      6,718       7,185        7,210

Germany                                           '000 tonnes              516       551                     606        292       403       433       508       486        467         462          464
Norway                                            '000 tonnes            1,427     1,357                   1,368      1,098     1,090     1,202     1,025       989        951         941          944
Other Western Europe                              '000 tonnes            2,676     2,783                   3,064      2,676     2,630     2,738     2,340     2,219      2,153       2,189        2,198
Western Europe Total                              '000 tonnes            4,619     4,690                   5,038      4,066     4,122     4,373     3,873     3,694      3,571       3,592        3,606

Oceania Total                                     '000 tonnes            2,267     2,312                   2,290      2,214     2,272     2,302     1,886     1,805      1,735       1,718        1,723

Western World Total                               '000 tonnes        19,870       20,505                  21,160     19,497    20,044    21,357    20,733    20,576     20,855     21,281        21,402
% change                                                                   2.3%      3.2%                    3.2%      -7.9%      2.8%      6.6%     -2.9%     -0.8%        1.4%          2.0%      0.6%

Former Eastern Bloc Smelter Production                                   2006      2007                    2008       2009      2010      2011     2012E     2013E      2014E       2015E        2016E
China                                             '000   tonnes          9,358    12,588                  13,178     12,891    16,244    18,062    19,709    22,095      24,629     26,599       28,727
Russia                                            '000   tonnes          3,718     3,955                   4,190      3,815     3,947     3,992     3,862     3,978       4,265      4,405        4,775
Eastern Europe                                    '000   tonnes            585       618                     596        471       642       616       522       522         522        522          515
Other Eastern Bloc                                '000   tonnes            454       530                     580        508       586       536       729       767         775        775          765

Eastern Bloc Total                                '000 tonnes        14,115       17,692                  18,544     17,684    21,419    23,206    24,823    27,363     30,191     32,302        34,781
% change                                                                  13.1%     25.3%                    4.8%      -4.6%     21.1%      8.3%      7.0%     10.2%       10.3%          7.0%      7.7%

Probable Projects                                 '000 tonnes              -         -                       -          -         -         -         -          41        147            249       390

Global Total Smelter Production                   '000 tonnes        33,985       38,196                  39,704     37,181    41,462    44,564    45,556    47,979     51,194     53,832        56,574
% change                                                                   6.5%     12.4%                    3.9%      -6.4%     11.5%      7.5%      2.2%      5.3%        6.7%          5.2%      5.1%

Capacity Utilization                                                     2006      2007                    2008       2009      2010      2011     2012E     2013E      2014E       2015E        2016E
Western World                                                            91.3%     91.9%                   92.9%      84.8%     83.8%     85.0%     81.0%     77.5%       74.5%      73.8%         74.0%
China                                                                    80.6%     85.6%                   73.8%      61.4%     74.7%     76.2%     75.2%     71.0%       72.3%      73.7%         75.4%
Remaining Former Eastern Bloc                                            94.7%     96.9%                   97.0%      87.7%     93.1%     92.3%     92.3%     92.3%       92.3%      92.3%         91.0%
Global Total Capacity Utilization                                        88.5%     90.3%                   86.0%      75.2%     81.0%     81.9%     79.4%     75.6%       75.0%      75.3%         76.3%

Capacity Creep                                                                                                                              -        180       199         215            225       233

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 32: Global Aluminium Production Patterns
           2011 Global Aluminium Production by Region                                                                   Global Aluminium Production by Region
                               Other                                                                      45,000
                                       USA
                                3%             Western Europe                                             40,000                                                                   Other
                      Africa           4%
                                                                                                          35,000                                                                   Africa
                                                         10%
                       4%                                                                                                                                                          China
                                                                                                          30,000
                                                                                            '000 tonnes




                                                         Russia                                           25,000                                                                   Asia

                                                          9%                                              20,000                                                                   Oceania

              China                                      Latin America                                    15,000                                                                   Canada

                40%                                           5%                                          10,000                                                                   Latin America

                                                         Canada                                            5,000                                                                   Russia

                                                            7%                                                   0                                                                 Western Europe
                                                                                                                 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010            USA
                                              Oceania
                                       Asia
                                                5%
                                       13%

Source: RBC Capital Markets estimates, Brook Hunt

Additions to capacity and the restart of idled production resulted in growth in aluminium production of 7.5% in 2011.
We forecast growth in production of 2.2% in 2012, 5.3% in 2013, 6.7% in 2014, 5.2% in 2015, and 5.1% in 2016 as capacity
continues to grow and utilization rates ultimately increase to meet our forecast growth in demand.
The correction in aluminium prices has led to the announcement of approximately 1.1 million tonnes of production
curtailments outside of China according to Brook Hunt. However, the cuts have so far not been sufficient to offset continued
capacity additions in China and the restart of capacity that was idled as a result of production problems rather than in
response to low prices, with the IAI reporting an increase in global production of 3.1% in the first seven months of 2012.
China remains self sufficient in aluminium. Our analysis suggests that China will not reach full capacity utilization
rates before 2017 at the earliest and thus will likely remain a net exporter of aluminium over the next five years.


14 H. Fraser Phillips
                      anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                     Aluminium Market Outlook

Exhibit 33: 2012E Aluminium Cash Costs (C1)*                                                                                  In 2012, we expect weighted average
                                                                                                                              cash costs to decrease slightly to
                       $2,600
                                                                                                                              $0.92/lb ($2,027/tonne) from
                       $2,400
                                                   Weighted Average       2,027                                               $0.93/lb ($2,056/tonne) in 2011.
                       $2,200
                                                                                                                   2,450      Weighted average cash costs increased
                       $2,000
                                                                                                                              to $0.71/lb ($1,556/tonne) in 2008
 US$/tonne Aluminium




                       $1,800
                       $1,600                                                                                                 from $0.64/lb ($1,399/tonne) in 2005.
                       $1,400                                                                                                 In 2009, weighted average cash costs
                       $1,200                                                                                                 fell back to $0.64/lb ($1,402/tonne)
                       $1,000                                                                                                 then increased again to $0.72/lb
                        $800                                                                                                  ($1,594/tonne) in 2010.
                        $600
                        $400                                                                                                  At current spot prices, producers with
                        $200                                                                                                  costs at the 55th percentile or above
                          $0                                                                                                  should have negative cash margins.
                                0%    10%   20%        30%         40%       50%       60%       70%   80%   90%       100%
                                                           Cumulative Percent of Global Production

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 34: 2012E Aluminium Total Costs (C2)**                                                                                In 2012, we expect weighted average
                                                                                                                              total costs to decrease slightly to
                       $2,600
                                                                                                                              $0.96/lb ($2,125/tonne) from
                       $2,400
                                                   Weighted Average       2,125                                               $0.98/lb ($2,158/tonne) in 2011.
                       $2,200
                                                                                                                   2,537      Weighted average total costs (C2)
                       $2,000
                                                                                                                              increased to $0.74/lb ($1,637/tonne) in
 US$/tonne Aluminium




                       $1,800
                       $1,600                                                                                                 2008 from $0.67/lb ($1,480/tonne) in
                       $1,400                                                                                                 2005. In 2009, weighted average total
                       $1,200                                                                                                 costs fell to $0.68/lb ($1,503/tonne)
                       $1,000                                                                                                 then increased again to $0.77/lb
                        $800                                                                                                  ($1,688/tonne) in 2010.
                        $600
                        $400                                                                                                  At current spot prices, producers at the
                        $200                                                                                                  45th percentile or above are losing
                          $0                                                                                                  money on a full-cost basis.
                                0%    10%   20%        30%         40%       50%       60%       70%   80%   90%       100%
                                                           Cumulative Percent of Global Production

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 35: 2012E Aluminium Total Cost (C2)** Components                                                                      In 2012, we estimate that alumina
                                                                  Other
                                                                                                                              and energy will likely represent
                                                      Labour       7%                                                         73% of the total cost to produce
                                                        5%                                                                    aluminium (C2), up from 65% in
                                                                                             Alumina                          2005 but still below the 75%
                                                                                               37%                            recorded in 2008.



                                                  Energy
                                                   36%



                                                                                  Raw Mtl
                                                                                    15%

Source: RBC Capital Markets estimates, Brook Hunt
* Cash costs (C1) include all direct operating expenditures incurred at site, including mining processing
as well as selling, general, and administration expenses (SG&A).
** Total costs (C2) include all direct cash costs (C1), indirect cash costs (such as corporate SG&A and
interest charges), and non-cash charges for depreciation.




                                                                                                                                             H. Fraser Phillips 15
                                     anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                                               September 18, 2012

Exhibit 36: Aluminium Cash Cost Increases (2007–2011)                                                                                                                    Production costs have increased
                                                                                                                                                                         sharply across the entire curve
                                             $3,200
                                             $3,000
                                                                                                                                                                         during the past five years on the
                                             $2,800                                                                                                                      back of significant increases in
                       US$/tonne Aluminium




                                             $2,600                                                                                                                      energy, alumina, and other raw
                                             $2,400                                                                                                                      material costs.
                                             $2,200
                                             $2,000
                                             $1,800
                                             $1,600
                                             $1,400
                                             $1,200
                                             $1,000
                                                       0%         10%         20%         30%     40%         50%      60%     70%          80%          90%      100%

                                                                                    Cumulative Percent of Global Production
                                                                  2007                    2008                 2009                 2010                   2011


Source: RBC Capital Markets, Brook Hunt

Exhibit 37: 2017E Aluminium Total Costs (C2)**                                                                                                                           In the longer term, our analysis
                                                                                                                                                                         suggests that 90% of total
                          $2,600
                                                                                                                                                                         production will have total costs
                          $2,400
                          $2,200
                                                                                                                                                                         (C2)** of $1.13/lb ($2,497/tonne)
                          $2,000                                                                                                                 2,497                   or less.
 US$/tonne Aluminium




                          $1,800
                          $1,600
                                                                                    Weighted Average                                                                     As a result, our long-term price
                                                                                               2,093
                          $1,400                                                                                                                                         estimate is $1.10/lb in 2012 US$
                          $1,200                                                                                                                                         terms.
                          $1,000
                                      $800
                                      $600
                                      $400
                                      $200
                                             $0
                                                  0%        10%         20%         30%         40%      50%         60%      70%          80%       90%       100%
                                                                                     Cumulative Percent of Global Production

Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 38: 2017E Aluminium Total Cost (C2)** Components                                                                                                                 In the longer term, energy and
                                                                                                      Other                                                              alumina are expected to increase
                                                                                      Labour                                                                             slightly as a percentage of total
                                                                                                       7%
                                                                                        4%                                                                               costs as labour costs decline in
                                                                                                                                                                         relative terms as production
                                                                                                                                Alumina
                                                                                                                                                                         moves away from the US and
                                                                                                                                  38%
                                                                                                                                                                         Western Europe and into China
                                                                                                                                                                         and other lower-wage regions.

                                                                              Energy
                                                                               36%




                                                                                                                    Raw Mtl
                                                                                                                      15%
Source: RBC Capital Markets estimates, Brook Hunt
** Total costs (C2) include all direct cash costs (C1), indirect cash costs (such as corporate SG&A and interest charges), and non-cash charges for
depreciation.




16 H. Fraser Phillips
                                                       anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                                                                    Aluminium Market Outlook

Exhibit 39: Alumina Supply/Demand Balance
                                                                                        2006           2007           2008                 2009      2010       2011     2012E         2013E         2014E         2015E         2016E
Total Alumina Production                                                                73,939         80,732         86,878               78,039    88,371    97,077    95,782        100,877      107,635       113,182       118,947
% change                                                                                  11.1%           9.2%           7.6%               -10.2%     13.2%      9.9%     -1.3%           5.3%         6.7%          5.2%           5.1%
    Less NMA Production                                         '000 tonnes              5,753          5,542          5,621                4,743     5,982     5,982     5,855          6,167        6,580         6,919         7,271
% change                                                                                   4.3%          -3.7%           1.4%               -15.6%     26.1%      0.0%     -2.1%           5.3%         6.7%          5.2%           5.1%
Total Base Case SGA Supply                                      '000 tonnes             68,186         75,190         81,257               73,296    82,389    91,095    89,927        94,711       101,056       106,263       111,676
% change                                                                                  11.7%          10.3%           8.1%                -9.8%     12.4%     10.6%     -1.3%           5.3%         6.7%          5.2%           5.1%


Aluminium Production - Western World                            '000 tonnes             19,870         20,505         21,160               19,497    20,044    21,357    20,733         20,576       20,855        21,281        21,402
Aluminium Production - Former Eastern Bloc                      '000 tonnes             14,115         17,692         18,544               17,684    21,419    23,206    24,823         27,363       30,191        32,302        34,781
Aluminum Production - New Projects + Creep                      '000 tonnes                   -           -              -                    -         -         -         143           192           308           419           568
Total Global Aluminium Production                               '000 tonnes             33,985         38,196         39,704               37,181    41,462    44,564    45,699        48,130        51,355        54,001        56,751
% change                                                                                   6.5%          12.4%           3.9%                -6.4%     11.5%      7.5%      2.5%           5.3%         6.7%          5.2%           5.1%


SGA Consumption - Western World                                 '000 tonnes             38,930         40,337         41,865               38,280    40,219    42,750    40,798         40,489       41,038        41,876        42,116
% change                                                                                   1.8%           3.6%           3.8%                -8.6%      5.1%      6.3%     -4.6%          -0.8%         1.4%          2.0%           0.6%
SGA Consumption - Former Eastern Bloc                           '000 tonnes             27,655         34,803         36,689               34,720    42,978    46,451    48,846         53,845       59,411        63,563        68,443
% change                                                                                  12.6%          25.8%           5.4%                -5.4%     23.8%      8.1%      5.2%          10.2%        10.3%          7.0%           7.7%
SGA Consumption - New Projects + Creep                          '000 tonnes                   -           -              -                    -         -         -      281.90         377.34       606.69        823.64       1,116.75
% change                                                                                   0.0%           0.0%           0.0%                 0.0%      0.0%      0.0%      0.0%          33.9%        60.8%         35.8%          35.6%
Total Global SGA Demand                                         '000 tonnes             66,584         75,140         78,554               73,001    83,197    89,200    89,927        94,711       101,056       106,263       111,676
% change                                                                                   6.0%          12.8%           4.5%                -7.1%     14.0%      7.2%      0.8%           5.3%         6.7%          5.2%           5.1%


Capacity Utilization                                                                    2006           2007           2008                 2009      2010       2011     2012E         2013E         2014E         2015E         2016E
Western World                                                                            95.8%         94.6%          93.5%                78.1%     81.1%      83.5%     76.4%          77.1%        80.4%         82.9%         86.4%
China                                                                                   101.8%         94.5%          81.2%                67.2%     81.8%      80.7%     76.4%          77.1%        80.4%         82.9%         86.4%
Remaining Former Eastern Bloc                                                            98.9%         87.9%          86.6%                73.6%     77.5%      84.1%     76.4%          77.1%        80.4%         82.9%         86.4%
Global Total Capacity Utilization                                                       97.2%          93.9%          89.0%                74.1%     81.0%      82.4%     76.4%          77.1%        80.4%         82.9%         86.4%


Supply/Demand Balance                                                                   2006           2007           2008                 2009      2010      2011E     2012E         2013E         2014E         2015E         2016E
SGA Implied Surplus / (Deficit)                                 '000 tonnes              1,602            50           2,702                 296       (808)    1,895       -             -             -             -             -


Nominal Alumina Contract Price                                  US$/tonne               $577.45        $279.50        $341.00              $250.00   $348.00   $383.00   $307.54        $352.74       $374.78       $393.52       $412.26
% of Aluminium Nominal Price                                                                  22%         11%            13%                  15%       16%        16%          16%           16%           17%           17%           17%
Nominal Alumina Spot Price                                      US$/tonne               $420.33        $352.92        $362.00              $245.00   $333.00   $374.00   $315.00        $340.00       $360.00       $380.00       $400.00
% of Aluminium Nominal Price                                                                  16%         13%            14%                  15%       15%        16%          16%           15%           16%           16%           16%


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 40: Global Alumina Supply/Demand Balance and Prices                                                                                  Average contract and spot alumina prices rose for
                                                                                                                                             the second year in a row in 2012 to their highest
                 4,000                                                                                                $750
                                                                                                    Forecast
                                                                                                                                             level since the extraordinary heights of 2006.
                 3,000                                                                                                                       However, the spot price fell steadily from May to
                                                                                                                      $575                   December of 2011 and has been trading in a range
                 2,000
                                                                                                                                             of $300 to $325/tonne since the beginning of 2012.
 (000s tonnes)




                                                                                                                             (US$/tonne)




                 1,000
                                                                                                                      $400                   We forecast an average spot price of $315/tonne in
                      0
                                                                                                                                             2012, as the industry continues to suffer from
                 (1,000)                                                                                                                     oversupply. After a sharp drop in 2009, global
                                                                                                                      $225
                 (2,000)                                                                                                                     alumina demand rebounded strongly in 2010 and grew
                 (3,000)                                                                                              $50
                                                                                                                                             again in 2011. Alumina production also increased
                           88   90   92    94   96   98    00       02   04   06   08    10       12    14       16                          significantly in 2011, resulting in a market surplus that
                                     Implied Surplus/Deficit (LS)                   Nominal Contract Price (RS)
                                                                                                                                             put significant downward pressure on prices in the
                                                                                                                                             second half of 2011. Our analysis indicates that there
Source: RBC Capital Markets estimates, CRU, Brook Hunt                                                                                       is significant excess capacity in the global alumina
                                                                                                                                             industry that is available to meet our forecast growth
                                                                                                                                             in demand. As a result, while we forecast rising
                                                                                                                                             capacity utilization, we expect rates to remain well
                                                                                                                                             below full-effective utilization throughout our forecast
                                                                                                                                             period, keeping prices below previous cycle highs.
                                                                                                                                             In the long term, we expect alumina to average 14% of
                                                                                                                                             our forecast long-term LME aluminium price of
                                                                                                                                             $1.10/lb in 2012 US$, or $340/tonne, which lies just
                                                                                                                                             below the 90th percentile of the long-term alumina cost
                                                                                                                                             curve (see page 20).




                                                                                                                                                                                              H. Fraser Phillips 17
                                anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                                                          September 18, 2012

Exhibit 41: Alumina Production
Western World Refinery Production                                                            2006         2007      2008      2009      2010      2011       2012E      2013E       2014E      2015E      2016E
Africa                                                            '000 tonnes                    530       526        594      530       597        560        596        602         627        646        674

Canada                                                            '000 tonnes                1,474        1,440     1,504     1,244     1,423     1,468       1,223      1,234       1,287      1,326      1,382
USA                                                               '000 tonnes                5,325        4,636     4,655     3,035     3,923     4,196       3,939      3,977       4,147      4,272      4,452
North America Total                                               '000 tonnes                6,799        6,076     6,160     4,279     5,345     5,665       5,162      5,211       5,434      5,598      5,834

Brazil                                                            '000 tonnes                6,720        7,076     7,859     8,650     9,518     10,545      8,573      8,670       9,057      9,331      9,773
Jamaica                                                           '000 tonnes                4,106        3,997     4,161     1,773     1,783      1,961      3,263      3,294       3,435      3,539      3,688
Suriname                                                          '000 tonnes                2,153        2,178     2,156     1,476     1,274      1,350      1,687      1,702       1,775      1,829      1,906
Other Latin America                                               '000 tonnes                1,892        1,859     1,592     1,376     1,236      1,244      1,473      1,486       1,550      1,597      1,664
Latin America Total                                               '000 tonnes               14,872       15,110    15,768    13,276    13,811    15,100      14,995     15,153      15,817     16,295     17,032

Japan                                                             '000 tonnes                  683          726       609       682       818       831         673        679         708        729        760
India                                                             '000 tonnes                2,991        3,181     3,625     3,687     3,622     3,828       4,086      4,125       4,301      4,431      4,618
Other Asia                                                        '000 tonnes                  349          377       394       318       393       385         341      1,084       1,844      2,925      3,230
Asia Total                                                        '000 tonnes                4,023        4,284     4,627     4,688     4,832     5,045       5,100      5,887       6,853      8,086      8,609

France                                                            '000 tonnes                  626          655       633       405       507       552         535        540         563        580        605
Germany                                                           '000 tonnes                  909          952       984       750       966     1,029         764        771         804        829        864
Other Western Europe                                              '000 tonnes                5,837        5,746     5,885     3,675     4,529     4,661       4,826      4,871       5,080      5,233      5,454
Western Europe Total                                              '000 tonnes                7,371        7,353     7,502     4,830     6,002     6,242       6,125      6,183       6,447      6,642      6,923

Oceania Total                                                     '000 tonnes               18,607       19,249    19,728    20,263    20,124    19,637      17,721     19,045      19,859     20,460     21,324

Western World Total                                               '000 tonnes               52,202       52,598    54,379    47,865    50,712    52,248      49,700     52,080      55,038     57,727     60,395
% change                                                                                          4.1%      0.8%      3.4%    -12.0%      5.9%      3.0%       -4.9%       4.8%        5.7%       4.9%       4.6%

Former Eastern Bloc Refinery Production                                                      2006         2007      2008      2009      2010      2011       2012E      2013E       2014E      2015E      2016E
China                                                             '000   tonnes             13,740       20,900    25,370    23,850    31,000    38,000      38,867     41,218      44,186     46,225     48,243
Russia                                                            '000   tonnes              3,245        3,322     3,109     2,794     2,856     2,825       2,381      2,403       2,506      2,581      2,690
Eastern Europe                                                    '000   tonnes              2,788        1,962     1,970     1,793     2,163     2,335       2,180      2,200       2,294      2,363      2,463
Other Eastern Bloc                                                '000   tonnes              1,964        1,950     2,050     1,736     1,640     1,669       1,883      2,112       2,212      2,279      2,375

Eastern Bloc Total                                                '000 tonnes               21,737       28,134    32,499    30,173    37,659    44,829      45,310     47,933      51,198     53,448     55,772
% change                                                                                         32.6%     29.4%     15.5%     -7.2%     24.8%     19.0%        1.1%       5.8%        6.8%       4.4%       4.3%

Probable Projects                                                                                 -         -         -         -         -          -          -           51         531      1,094      1,821

Total Global Refinery Production                                  '000 tonnes               73,939       80,732    86,878    78,039    88,371    97,077      95,009    100,064     106,767    112,269    117,988
% change                                                                                         11.1%      9.2%      7.6%    -10.2%     13.2%      9.9%       -2.1%       5.3%        6.7%       5.2%       5.1%

Capacity Utilization                                                                         2006         2007      2008      2009      2010      2011       2012E      2013E       2014E      2015E      2016E
Western World                                                                                 95.8%       94.6%     93.5%     78.1%     81.1%     83.5%       76.4%      77.1%       80.4%      82.9%      86.4%
China                                                                                        101.8%       94.5%     81.2%     67.2%     81.8%     80.7%       76.4%      77.1%       80.4%      82.9%      86.4%
Remaining Former Eastern Bloc                                                                 98.9%       87.9%     86.6%     73.6%     77.5%     84.1%       76.4%      77.1%       80.4%      82.9%      86.4%
Global Total Capacity Utilization                                                            97.2%        93.9%     89.0%     74.1%     81.0%     82.4%       76.4%      77.1%       80.4%      82.9%      86.4%
Source: RBC Capital Markets estimates, Brook Hunt


Exhibit 42: Alumina Production by Region                                                                                                                 Chinese alumina production
                                                                                                                                                         increased 30% in 2010 and a further
               100,000
                90,000                                                                                   Brazil                                          23% in 2011. We forecast Chinese
                80,000                                                                                   Eastern Europe                                  production growth of 2% in 2012, 6%
                70,000                                                                                   Russia
                                                                                                                                                         in 2013, 7% in 2014, 5% in 2015, and
 '000 tonnes




                60,000                                                                                   China
                50,000
                                                                                                         Oceania
                                                                                                                                                         4% in 2016. A restriction on bauxite
                40,000
                30,000
                                                                                                         Western Europe                                  exports from Indonesia threatens to
                                                                                                         USA
                20,000                                                                                                                                   disrupt supply to Chinese refineries.
                10,000                                                                                   Canada
                   -                                                                                     Other
                                                                                                                                                         However, at this juncture, we assume
                         88   90   92     94     96   98    00    02        04    06   08   10                                                           that the Indonesian initiative is more
                                                                                                                                                         likely to raise costs through increased
Source: RBC Capital Markets, Brook Hunt                                                                                                                  export taxes than reduce supply.
Exhibit 43: 2011 Alumina Production by Region                                                                                                            We estimate that Chinese capacity
                                               Eastern Europe
                                                                                                                                                         has grown by approximately 450%
                                        Russia        3%                                                                                                 since 2005. After growth of 7% in
                                                           Other                                                                                         2010, Chinese capacity grew by a
                                          3%
                                                            5% Canada
                         China
                                                                                                                                                         further 24% in 2011. We expect
                                                                      2%
                          41%                                         USA                                                                                Chinese capacity to increase 8% in
                                                                      5%                                                                                 2012, 5% in 2013, 3% in 2014, 2% in
                                                            Brazil                                                                                       2015, and then increase by less than
                                                                12%                                                                                      0.5% in 2016. Capacity in the Western
                                                                                                                                                         World is expected to grow by 3.9% in
                                                  Western Europe                                                                                         2012, 3.8% in 2013, 1.3% in 2014,
                                   Oceania                 7%                                                                                            1.8% in 2015 and 0.4% in 2016.
                                        22%

Source: RBC Capital Markets, Brook Hunt




18 H. Fraser Phillips
                                anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                        Aluminium Market Outlook


Exhibit 44: 2012E Alumina Cash Costs (C1)*                                                                                  In 2012, we expect weighted average
                     $500                                                                                                   cash costs to decrease slightly to
                     $450
                                                                                                                            $269/tonne from $271/tonne in 2011.
                                                                                                                            Weighted average alumina cash costs
                     $400
                                                                                                      330.47                increased to $267/tonne in 2008 from
                     $350
                                                                                                                            $187/tonne in 2005, an increase of 43%. In
 US$/tonne Alumina




                     $300
                                                                                                                            2009, weighted average cash costs fell to
                     $250                                                                                                   $196/tonne, then increased again in 2011 to
                                                                  269.09
                     $200                                                                                                   $271/tonne.
                                                  Weighted Average
                     $150
                                                                                                                            At current spot alumina prices, producers at
                     $100                                                                                                   about the 85th percentile of the cost curve
                      $50                                                                                                   or above have negative cash margins.
                       $0
                            0%   10%   20%       30%       40%      50%     60%       70%           80%      90%     100%

                                                  Cumulative Percent of Global Production


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 45: 2012E Alumina Total Costs (C2)**                                                                                In 2012, we expect weighted average
                                                                                                                            total costs to decrease slightly to
                     $500
                                                                                                                            $294/tonne from $296/tonne in 2011.
                     $450
                                                                                                                            Weighted average total costs (C2)
                     $400
                                                                                                    358.85                  increased to $286/tonne in 2008 from
                     $350                                                                                                   $201/tonne in 2005, an increase of 42%. In
 US$/tonne Alumina




                     $300                                                                                                   2009, weighted average total costs fell to
                     $250                                                                                                   $221/tonne, then increased again to
                                                                 294.27
                     $200                                                                                                   $296/tonne in 2011.
                                                Weighted Average
                     $150

                     $100

                      $50

                       $0
                            0%   10%   20%     30%        40%     50%      60%     70%        80%         90%      100%

                                                Cumulative Percent of Global Production


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 46: 2012E Alumina Cash Cost (C1)* Components                                                                        In 2012, we estimate that energy and
                                                       Other
                                                                                                                            caustic soda will represent 47% of the
                                                                                  Bauxite
                                                       14%                         20%
                                                                                                                            cash cost to produce alumina (C1).

                                         Labour
                                           9%

                                                                                              Freight
                                                                                               10%




                                             Energy                                       Caustic
                                              31%                                          16%



Source: RBC Capital Markets estimates, Brook Hunt
* Cash costs (C1) include all direct operating expenditures incurred at site, including mining processing as well as selling, general, and
administration expenses (SG&A).
** Total costs (C2) include all direct cash costs (C1), indirect cash costs (such as corporate SG&A and interest charges), and non-cash charges for
depreciation.




                                                                                                                                               H. Fraser Phillips 19
                                 anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                                                                      September 18, 2012

Exhibit 47: Alumina Cost Increases (2007–2011)                                                                              Alumina production costs rose again
                         $400                                                                                               in 2011, back to the levels they
                                                                                                                            reached in 2008. Operating costs have
                         $350                                                                                               risen sharply since 2006 on the back of
                                                                                                                            significant increases in energy and raw
   US$/tonne Aluminium




                         $300
                                                                                                                            material costs. The largest increases
                         $250
                                                                                                                            have occurred at the upper end of the
                                                                                                                            cost curve with the addition of a
                         $200                                                                                               significant amount of high-cost Chinese
                                                                                                                            capacity.
                         $150


                         $100
                                0%   10%    20%      30%      40%     50%      60%      70%       80%         90%    100%
                                                     Cumulative Percent of Global Production

                                           2007             2008          2009            2010               2011


Source: RBC Capital Markets, Brook Hunt

Exhibit 48: 2017E Alumina Total Costs (C2)**                                                                                In the longer term, we expect that
                                                                                                                            90% of global production will have
                         $400
                                                                                                        346.01
                                                                                                                            total costs (C2) of $346/tonne or less.
                         $350                                                                                               Our long-term forecast is $340/tonne in
                                                                                                                            2012 US$ terms.
                         $300
 US$/tonne Alumina




                         $250
                                                                      283.10
                         $200
                                                            Weighted Average
                         $150

                         $100

                          $50

                           $0
                                0%   10%    20%       30%      40%      50%      60%     70%        80%        90%   100%

                                                      Cumulative Percent of Global Production


Source: RBC Capital Markets estimates, Brook Hunt

Exhibit 49: 2017E Alumina Cash Cost (C1)* Components
                                                             Other
                                                                                          Bauxite
                                                             13%
                                                                                           21%

                                                  Labour
                                                   8%


                                                                                                          Freight
                                                                                                            9%




                                                  Energy
                                                   32%                                           Caustic
                                                                                                  17%


Source: RBC Capital Markets estimates, Brook Hunt
* Cash costs (C1) include all direct operating expenditures incurred at site, including mining processing as well as selling, general, and
administration expenses (SG&A).
** Total costs (C2) include all direct cash costs (C1), indirect cash costs (such as corporate SG&A and interest charges), and non-cash charges for
depreciation.




20 H. Fraser Phillips
                                     anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                              Aluminium Market Outlook

Appendix I: Projections for Aluminium Consumption
We have generated bottom-up forecasts for aluminium consumption using the following three methods:
Correlation with IP: This method of prediction was used to generate medium-term forecasts for the large, mature Western
World economies. In Exhibit 50, we show that the eight nations for which we have used this method for predicting demand
represent 29% of current global consumption. Data from 1970 to 2011 were used to develop the regression equations, and the
average coefficient of correlation for these countries is 63%. Forecasts for changes in IP were taken from consensus forecasts
developed by Consensus Economics Inc. Our base case forecasts are adjusted to reflect reported consumption in the first 6
months of 2012.
Exhibit 50: Consumption Regressed with IP
                                           Demand ('000 tonnes)              Change in IP                      Base Forecast                       Adjusted Forecast
                               R2                   2011A            2012E        2013E     2014E     2012E       2013E         2014E      2012E        2013E      2014E
USA                            36%                  4,060             4.1%        2.6%       3.5%      2.8%        1.8%         2.5%       1.0%          1.8%          2.5%
Japan                          55%                  1,946             3.2%        3.0%       2.7%      3.7%        3.4%         3.1%       1.3%          3.4%          3.1%
South Korea                    85%                  1,233             6.4%        6.4%       6.4%      6.4%        6.4%         6.4%       2.2%          6.4%          6.4%
Taiwan                         44%                   432              6.1%        6.1%       6.1%      4.3%        4.4%         4.5%       1.5%          4.4%          4.5%
India                          96%                  1,569             5.0%        5.0%       5.0%      4.9%        4.9%         4.9%       1.7%          4.9%          4.9%
Germany                        85%                  2,103             0.2%        2.1%       2.7%      0.2%        2.4%         3.0%       0.1%          2.4%          3.0%
France                         21%                   584             -1.9%        0.1%       1.5%      -1.3%       0.1%         1.0%       -2.1%         0.1%          1.0%
Spain                          83%                   524             -6.3%        -4.3%      2.0%     -11.1%       -8.0%        3.9%       -18.4%        -8.0%         3.9%
Total / Average               63%                   12,451
Global Total                                        42,756
% of total                                           29%

Source: RBC Capital Markets estimates, Consensus Economics Inc.

Correlation with Time: For the remaining 71% of global consumption, we base our medium-term forecast on a combination
of historical year-over-year change and the prediction generated by regression of consumption over time. For example, the
correlation of growth in Chinese consumption against time implies demand growth of 12.8% in 2012, 12.1% in 2013, and
11.5% in 2014, while the historical CAGR in Chinese consumption has been 14.3%. For China, we used the regression-
implied growth, while for the remainder of the Western World and the former Eastern Bloc, we apply an equal weighting to
the regression-implied growth and historical CAGR to arrive at a demand change forecast. Our base case forecasts are
adjusted as noted above.
Exhibit 51: Consumption Regressed and Against Time
                        Demand Change               Trend Change in Consumption             Average             Base Forecast                       Adjusted Forecast
                           2011A             R2             2012E    2013E        2014E      YoY       2012E       2013E         2014E      2012E          2013E       2014E
Rest of WW                  6.9%            94.7%            2.3%    2.2%         2.2%       3.9%       3.1%        3.0%         3.0%        1.0%          3.0%         3.0%
China                       9.7%            99.0%           12.8%    12.1%        11.5%      14.3%     12.8%        12.1%        11.5%       11.8%         12.1%        11.5%
Rest of Eastern Bloc        -0.9%           86.6%            -1.8%   -2.5%        -3.3%      3.5%       0.8%        0.5%         0.1%        0.3%          0.5%         0.1%

Source: Brook Hunt, RBC Capital Markets estimates

Average Year-Over-Year Growth: For the longer term (post-2014), we base our forecasts of demand on the historical
CAGR for demand. Exhibit 52 illustrates our assumptions for the Western World, representing 54% of global demand in
2011. For China, we estimated long-term growth in demand to be 60% of the historical CAGR, or 8.0% per annum.
Exhibit 52: Long-Term Growth Rates for Consumption (’000 tonnes)
                                        2011 Demand                      Start Date                   CAGR
USA                                        4,060                             1985                     -0.2%
Japan                                      1,946                             1985                     0.3%
South Korea                                1,233                             1985                     8.6%
Taiwan                                      432                              1985                     4.2%
India                                      1,569                             1985                     6.6%
Germany                                    2,103                             1985                     2.2%
France                                      584                              1985                     0.0%
Spain                                       524                              1985                     3.6%
Western World Total                       23,301                             1971                     2.4%
Global Total                              42,756
% of total                                 54%

Source: Brook Hunt, RBC Capital Markets




                                                                                                                                         H. Fraser Phillips 21
                   anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
Aluminium Market Outlook                                                                               September 18, 2012

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22 H. Fraser Phillips
             anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
September 18, 2012                                                                                                                        Aluminium Market Outlook

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                                                                                                                                                   H. Fraser Phillips 23
                  anonymous@anonymous.com FIRST LAST 09/19/12 01:21:45 PM Hong Kong Highpower
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