Commodity Update – What’s hot and what’s not Junior Indaba, South Africa Clare Hanna CRU Group [email protected] June 2021 Junior Indaba, June 2021 Legal notice This presentation is private and confidential. It must not be disclosed in whole or in part, directly or indirectly or in any other format without the prior written permission of CRU International Limited. CRU International Limited’s responsibility is solely to its clients and its liability is limited to the amount of the fees actually paid for professional services. Although reasonable care and diligence has been used in the preparation of this presentation, we do not guarantee the accuracy of any data, assumptions, forecasts or other forward-looking statements. We accept no liability to third parties, howsoever arising. CRU takes information security seriously and currently holds the UK Government approved Cyber Essentials certification. This certifies that we have the appropriate security controls across our organisation and third party suppliers to protect our information assets. CRU also has a privacy policy in place which explains how we handle personal data on our customers. Copyright CRU International Limited 2021. All rights reserved. 2 Junior Indaba, June 2021 About CRU – Global footprint, multi-commodities, customer focussed • Price Assessment, Market Analysis, Consulting & London Conferences Pittsburgh Beijing & Shanghai • Primary research and robust, transparent, & New York Tokyo Mumbai methodologies • Global team of 300 analysts, consultants, Singapore São Paulo experts. Key to gaining a real understanding of Sydney critical markets Santiago • We strive to provide customers with the best service and the closest contact: flexible, personal and responsive 3 Junior Indaba, June 2021 What is hot ? Almost everything… CRU basket of 38 mining, metals and fertilizer price forecasts | 2021 over 2020* Sulphuric Acid | Sulphur | Steel HRC US | Aluminium MW | Ammonia | Phosphate DAP | Steel Scrap | Pet Coke | Mild Hot Copper | Brent Crude | Thermal Coal | Urea | Silicon | Cobalt | Phosphate Rock | Steel HRC China | Aluminium | >15% Silico-Manganese | Met Coke | Molybdenum | Silver | Ferrochrome | Potash KCl | Iron Ore | Platinum | Zinc | Nickel | Chrome Ore Warm Palladium | Lead | Manganese Ore | Coal Tar 5% to 15% Mild Alumina | Gold | Met Coal 0% to 5% CRU Price Expectations 2021 / 2020 Cool Bauxite -5% to 0% CRU Basket 36.3% Cold Lithium Raw Materials 21.4% -15% to -5% Metals 37.3% Precious Metals 15.5% Freezing Fertilizers 73.8% <-15% Source: CRU Market Outlooks *2021 annual average price forecast over 2020 (28 May 2021). 4 Junior Indaba, June 2021 …with steel and iron ore in the lead CRU’s commodity price basket indexed to 100 on 3 January 2020 US HRC 260 62% Fe 220 180 Cu 140 Al Zn Ni Au Brent 100 HCC 60 20 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Source: CRU, LME, LBMA * Prices are end-week Ask, Prices through to 21 May 2021 5 Junior Indaba, June 2021 …for some the link with costs has broken in 2021, but this will not last Copper, $/t FerroChrome, $/t Aluminium, $/t 12,500 Price Price 140 2400 Price 7,500 70 1800 th 90 percentile cost th 90 percentile cost th 2,500 90th percentile90th costpercentile cost 0 90th percentile cost 9090thpercentilepercentile cost cost 2018 2019 2020 2021 2018 2019 2020 2021 1200 2018 2019 2020 2021 Lithium, $/t Gold, $/t Steel, $/t 20000 2300 Price 1300 Price 15000 1800 Price 10000 1300 800 800 5000 th 75th percentile cost 90 90thpercentile percentile cost cost 300 th 0 90th percentile cost 90th percentile cost 90 percentile cost 2018 2019 2020 2021 300 2018 2019 2020 2021 2017 2018 2019 2020 2021 DATA: CRU Cost Models for Copper, Nickel, Lead, Zinc, Aluminium, Steel 6 Junior Indaba, June 2021 The steel consumption picture illustrates the nature of the recovery Total finished steel apparent consumption, 2018 Q1=100 150 1 China Longs China Flats Other Longs Other Flats The Chinese re-bound was quick and sustained in both construction and industrial production… 120 2 90 …and as China recovered, the rest of the world slowed, but a a strong recovery is underway 60 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 2018 2019 2020 2021 DATA: CRU, World Steel Association, IHS Markit, AISI © 2020 by the American Iron and Steel Institute. Reproduction or retransmission of information contained in 7 Crude Steel Market Outlook is prohibited without the permission of AISI and CRU Group Junior Indaba, June 2021 Strong demand for goods and construction are driving the recovery Industrial production , y/y change, % 30 20 Real GDP, y/y change, % 20 10 15 0 -10 10 -20 5 World United States of America India China Eurozone Construction output, y/y change, % 0 50 40 30 -5 20 10 0 -10 -10 -20 -30 Real GDP USD - World Real GDP USD - United States of America Real GDP USD - India World United States of America India China Eurozone Real GDP USD - China Real GDP USD - Eurozone 8 Junior Indaba, June 2021 Demand through to 2025 is forecast be good… Actual and forecast consumption, 2019 = 100 Cu Ni Zn Li Al HR Steel Fe Cr 200 175 150 125 100 75 Source: CRU most recent product Market Outlooks as at May 2021 9 Junior Indaba, June 2021 …but the picture for prices is more mixed. y-axis: % difference in 2025 supply and demand (% 2020 demand) Prices fall 12% Prices rise Market well supplied Market well supplied 8% Iron Ore 4% FerroChrome Nickel Zinc Copper 0% 50% 70% 90% 110% 130% 150% 170% 190% HRC axis: 2025 price forecast/ average 2020 price price 2020 average forecast/ price 2025 axis: - x -4% Aluminium Lithium Prices fall Prices rise Tight market Tight market -8% DATA: CRU 10 Junior Indaba, June 2021 China’s latest 5-year plan aims to pivot the economy The Chinese government’s ‘two-sessions’ meeting in March set out the priorities for 2021, endorsed the ‘dual circulation’ policy and approved the next 5-year plan and long-term objectives up to 2035 1. Internal circulation • Rebalance growth towards higher consumption, away from investment. • Investment focus switches to technological advancement and away from steel intensive heavy infrastructure projects reducing steel demand. 2. External circulation • Increase imports of ‘essential’ low tech, low value-added products. • Move up the value chain, replacing “labour intensive” exports with higher value, high technology products. 3. Focus on carbon reduction and the environment • ‘Greener’ growth defined as lower energy intensity per unit of GDP. • Renewed focus on emissions from carbon and energy intensive industry (steel, ferroalloys), greener energy DATA: CRU 11 Junior Indaba, June 2021 There are upsides still to be built into some regional forecasts… Red: most commodity intensive Blue: least commodity intensive Metals Consumption Estimates: (assumes over five years) Copper = 140,000 t/y Steel = 5 Mt/y Aluminium = 157,000 t/y DATA: White House 12 Junior Indaba, June 2021 …and the growth in EV production will drive changes… LHS: Global LDV sales by powertrain, million units RHS: NEV market share, % 120 14% 12.5% 100 12% 10% 80 8% 60 5.2% 6% 4.3% 40 4% 20 2% 0 0% 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 ICE PETROL ICE DIESEL PHEV BEV OTHER xEV NEV % NEV Data: CRU. 13 Junior Indaba, June 2021 … with some products gaining more than others… Share of demand growth from 2020-2025 from EVs 80% 80% 65% 60% 54% 45% 43% 40% 28% 20% 9% 2% 0% Lithium Cobalt REE* HPA Nickel Copper Aluminium Manganese Data: CRU. Note: * Rare Earth Elements - NdPr oxide. 14 Junior Indaba, June 2021 …at least in the short-term. EV share of total demand in 2025, ‘+’ relative change vs 2020 70% +19% Market share to grow rapidly in 60% some markets… 50% +18% 40% +13% +16% …but INITIALLY remains low in large, 30% established markets 20% +10% 10% +3% +2% +0.3% 0% Lithium Cobalt REE* HPA Nickel Copper Aluminium Manganese Data: CRU. Note: * Rare Earth Elements - NdPr oxide. 15 Junior Indaba, June 2021 Carbon emissions are a hot topic in the commodities space Materiality of ESG 1st 2nd 3rd Issues Carbon emissions Community and labour Local habitat and rights biodiversity impacts Mining Carbon emissions Electricity and fuel prices Community and labour rights Metal processing Emissions to water Carbon emissions Operational risk and transparency Fertiliser production Carbon emissions Electricity and fuel prices Local habitat and biodiversity impacts Fossil-fuel power SOURCE: CRU & Fitch Ratings Client Survey Results DATA: CRU 16 Junior Indaba, June 2021 CRU provides powerful, consistent data on the aluminium industry GHG emissions in the aluminium industry are driven by power-generation fuel mix Emissions (t CO2e/t Al) Direct process-related emissions (Scope 1) Smelters using coal fired power generation 20 Direct power-related emissions (Scope 1) Indirect (purchased) power-related emissions (Scope 2) 15 Gas or mix of sources (national power grids) 10 Hydropower/Renewables 5 0 5,000 10,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000 50,000 55,000 60,000 65,000 DATA: CRU 2020 Aluminium Cost Model; CRU Global Carbon Emissions Service. Cumulative Industry Production ‘000t 17 Junior Indaba, June 2021 Steel faces a major decarbonisation challenge… • Europe is the first mover worldwide, though Chinese New US administration Little political Russia plans to will in Ukraine transform similar mills have recently pressed is supportive of CO2 China has made reduction policies. and Turkey. to Europe. significant ahead with low-CO2 steelmaking. commitments. • EU policies (e.g. ETS¹) are the driver of Europe’s transformation and are a major Europe is the most South Korea has source for uncertainty.