The Global Mg Industry in 2011...Presentation Structure MARCH 7TH 2012 2011 GLOBAL MG INDUSTRY...

The views expressed herein contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward-looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect. This presentation must not be relied upon as a recommendation or forecast by C&M.

The Global Mg Industry in 2011

The Impact of Chinese Production, Costs and Shipments

IMA Annual Conference San Francisco, California, USA Monday May 21 2012

Presentation Structure

MARCH 7TH 2012 2011 GLOBAL MG INDUSTRY REVIEW

  CM Group operating for over 10 years in China   Focus on collecting primary data – we ‘get out to find out’   CM Group data unlikely to align with official statistics   Our data and analysis has stood the test of time

•  Overview •  Global Mg Supply •  Global Mg Demand •  Prices •  Industry Outlook

CM Group’s ‘7-Step Assessment Process’

Key Takeaways •  2011 demand of 693 kt up 10% yoy •  2011 supply of 733 kt up 15% yoy •  Previous 5 yr demand growth of 4.9% pa and 6.1% over

past 10yrs •  Chinese production estimated at 607 kt or (83%) of total

primary supply in 2011. •  Production from Shaanxi up from 35% to 46% of

Chinese total. •  Utilisation of 43% of Chinese active capacity (1.4 million

tonnes) to produce 0.6 million tonnes in 2011. •  190kt of new capacity now under construction in China. •  Mg uptake in China and EU enhanced by a competitive

price ratio to Al. Not so in the USA, due to a relatively high Mg price.

•  Forecast demand growth of 6.6% pa to 950 kt over the next 5 and to 1,370 kt over 10 years (7.1% pa).

•  The emergence of new capacity outside China to provide security-of-supply.

2011 GLOBAL MG INDUSTRY REVIEW

Price Indexes since the GFC

•  W, Zn, Cu back to pre-GFC levels (no significant supply base in China

•  SiMn, Ni, Al, Mg all lower, all have established supply base in China

•  W prices higher tan all others - controlled by the Chinese

•  Mg Prices lower than all others – controlled by the Chinese

Metals Price Indices June ‘08 to April ’12

Source C&M, Metal Pages

Primary Mg prices have not recovered like other metals. Unlike tungsten, Chinese producers have been ineffective in controlling prices – but this remains a potential threat to the industry.

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2010 to 2011 •  Demand up 10% •  Supply up 15%

2006 to 2011 (5yrs) •  Demand 4.9% pa •  Supply 6.2% pa

2001 to 2011 (10yrs) •  Demand 6.1% pa •  Supply 5.6% pa

Primary Mg Supply-Demand Balance 2003 to 2011 (kt/yr)

Source C&M, GTIS, NBS

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Supply currently running significantly ahead of demand. Primary Al alloying remains the largest Mg market sector.

CAGR %pa 2010-2011 1 year

2006-2011 5 years

2001-2011 10 years

Demand 10.1% 4.6% 6.1%

Supply 14.6% 6.2% 5.6%

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Primary Mg Supply

•  China 83% of primary supply

•  New capacity in Malaysia

•  Other non-China projects under assessment

Global Primary Mg Supply 1990 to 2011 (kt/yr)

Source IMA, GTIS, CM

Chinese producers continue to supply the bulk of global primary Mg requirements.

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Supply of Primary Mg in China

•  Over the past 10 years ~ 80% of production has been from Central China - Shanxi & Shaanxi

•  Qinghai set to emerge with the commissioning of relocated Hydro Ltd electrolysis plant in 2013.

Chinese Primary Mg Supply by Province (kt/yr)

Source NBS, CM

Production from Shaanxi has continued to increase, as forecast, due to favourable energy supply arrangements.

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Supply - Chinese Overcapacity Remains Plant closures in south Shanxi, migrate to North Shanxi and Shaanxi, where next?

Regions with low cost energy (coke gas) – Xinjiang?

Closure of smaller outdated plants

Adoption of vertical retorts to reduce costs One new electrolytic plant for 2013.

  Overcapacity a problem   Capacity migration   Closures evident   Cost pressures mounting


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•  Production migration to low energy cost regions

•  Elimination of small inefficient plants

•  Emphasis on performance and emissions standards

•  New investment in electrolytic production

Chinese capacity may now be peaking.

Chinese Primary Capacity (kt/yr)

Source NBS, CM

2011 estimate of 1.9 mln t total capacity, 1.4 mln t (72%) active capacity for a total of 0.6 million tonnes of production (43% of active capacity). 2012 we estimate 190kt of new capacity will be constructed.

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China’s Primary Mg


FeSi usage accounts for around 50% of Mg cash cost.

FeSi production is exposed to the electricity market and rising prices.

The Mg-FeSi ratio is a measure to show the relationship between these two prices.

Prices and Ratios for FeSi and Mg, 2001 to 2011 ($/t)

Source Metal Pages, CM Source Metal Pages, CM

Mg/FeSi price ratio historically around 2.5. No threat of substitution in Al but the highly competitive die-casting and wrought markets make it difficult for Mg producers to pass on rises in FeSi prices.

Integrated FeSi-Mg producers have some protection from FeSi price fluctuations.

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Magnesium competes with a variety of other materials.

In automotive die-casting, Mg competes head to head with Al in many applications.

The Mg/Al price ratio is influential to material selection.

Ratio is low in China due to the lower Mg price (no VAT paid and no export tax paid).

Likely to lead to greater uptake in China.

Ratio of Mg and Al Prices

Source Metal Pages, LME

Magnesium uptake in China and EU is supported by a competitive price ratio to Al. Not so in the USA, due to the higher Mg price

Source Metal Pages, CM

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Supply Demand Outlook

Supply demand balanced due to ‘infinite’ flexibility of Chinese production.

Current supply of primary Mg outside China - USA, Israel, Brazil, Russia and Malaysia.

Potential new non-Chinese primary production in Korea, Australia, Canada and the Middle East.

Forecast Primary Mg Supply Demand Balance to 2020 (kt/yr)

Source NBS, GTIS, CM

We forecast the emergence of some new capacity outside China to provide the market with additional security of supply.

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Summary

Source CM


•  2011 demand of 693 kt up 10% yoy •  2011 supply of 733 kt up 15% yoy •  Previous 5 yr demand growth of 4.9% pa and 6.1% over

past 10yrs •  Chinese production estimated at 607 kt or (83%) of total

primary supply in 2011. •  Production from Shaanxi up from 35% to 46% of

Chinese total. •  Utilisation of 43% of Chinese active capacity (1.4 million

tonnes) to produce 0.6 million tonnes in 2011. •  190kt of new capacity now under construction in China. •  Mg uptake in China and EU enhanced by a competitive

price ratio to Al. Not so in the USA, due to a relatively high Mg price.

•  Forecast demand growth of 6.6% pa to 950 kt over the next 5 and to 1,370 kt over 10 years (7.1% pa).

•  The emergence of new capacity outside China to provide security-of-supply.

The views expressed herein contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward-looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect. This presentation must not be relied upon as a recommendation or forecast by C&M.

End of Presentation Thanks to

IMA Conference sponsors

CM Team

Jim Marron Liping Li John Grandfield Ken Ke

KGP & Associates


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