Alumina incentive price rises on regional shift Report

Insight 23 March 2016

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Report summary

We now estimate that the incentive price at which investors would be willing to build new alumina capacity is US$400/t, US$40/t higher than our previous estimate, while the equivalent price for aluminium remains at US$ 2300/t.

Executive summary
Southeast Asia: new entrant to future alumina supply growth
Operating costs are stickier than prices
- Smelter capital intensity outside of China, 1980-2015 (US$/t installed capacity)
Ample future refinery capacity and temporary tightness in smelter supply
Rationale, risks and IRR methodology
- Assumptions used to construct incentive prices
- We employ the following core assumptions:

Tables and charts

This report includes 8 images and tables including:

New refinery capacity in Indonesia, India and Guinea to increase the incentive price
China, India and to a lesser extent, Indonesia, will contribute a large portion of new smelter capacity
Alumina costs - caustic soda, and bauxite outpace the alumina price, 2000-2016, Index 2000=100

Aluminium costs - embedded costs have eaten into smelters' margins over the past 16 years
Refinery capital intensity outside of China, 1980-2015 (US$/t installed capacity)
Refinery incentive price 20% above the alumina average of the past ten years
Aluminium price is well below the level needed to stimulate new smelter capacity
Alumina incentive price rises on regional shift: Table 2