Boliden Commercial AB/Mikael Lesser Outlook for the Zinc Market May09 Annual Meeting Nordic Galvanizers Vaasa Finland 7th of May 2009 Boliden Commercial AB/Mikael Lesser KEY FACTORS ZN METAL MARKET I.Global Zn market in oversupply by 550 Kmt in 2008 and 385 Kmt and 2009 II.Zinc price and cost of production are moving in opposite direction III.Premiums have reached levels in Europe where imports have become unattractive IV.Chinese SRB buying large quantities of zinc in Q1 2009 Boliden Commercial AB/Mikael Lesser CONTENTS I.Global Zinc market II.European Zinc market III.Galvanised Sheet market IV.Summary Boliden Commercial AB/Mikael Lesser I.Global Zinc market II.European Zinc market III.Galvanised Sheet market IV.Summary Boliden Commercial AB/Mikael Lesser CONCLUSION GLOBAL ZINC MARKET I.Oversupply of concentrates resulted in oversupply of metal by 524 Kmt in II.LME stocks increased steadily to 332 Kmt, mainly in Asian and Middle East warehouses. III.Zinc price came down, while cost are going up. Many mines and smelters operate below cost price. This triggers closures high cost smelters. > 800 Kmt capacity reduction last months IV.China large importer of concentrates. SRB has bought big quantities of Zn in Q1 2009, resulting in 235 Kmt imports in Q V.Weak sulphuric acid market might lead to further production cuts Boliden Commercial AB/Mikael Lesser 6 World Zn in concentrates will be in oversupply the coming years. This triggers oversupply of Zn metal. GLOBAL ZN MARKET - CONCENTRATES Data: CRU Zinc Quarterly, Jan Boliden Commercial AB/Mikael Lesser China Zinc in concentrate Market: During 2008 China has imported tons of zinc in concentrate. The main exporter of Zn in concentrate to China is Australia, followed by Peru and Canada / Data: WorldTradeStats, CRU Lead and Zinc concetrateApril Boliden Commercial AB/Mikael Lesser The oversupply of Zn metals was 524 Kmt in 2008 and is expected to be 385 Kmt in GLOBAL ZN MARKET - METAL Data: CRU Zinc Quarterly, Jan Boliden Commercial AB/Mikael Lesser 9 Crisis hits the zinc industry hard Major reduction in global zinc consumption Customer industries for zinc among the hardest hit (i.e. automotive, construction, white goods) Zinc demand fluctuations even more amplified due to supply chain effects Boliden 2/10/2016 Boliden Commercial AB/Mikael Lesser Boliden 10 2/10/2016 Customer industries for zinc among the hardest hit in earlier recessions HARD HIT*HEAVY ZINC USER Airlines Automobile manufacturers Consumer electronics Steel IT consulting Homebuilding Human Resource Semiconductors SOFT HIT*HEAVY ZINC USER Industrial conglomerates Communication equipment Department stores Publishing Health care equipment Pharmaceuticals Restaurants Tobacco Soft drinks MEDIUM HIT*HEAVY ZINC USER Building products Auto parts Electronic equipment Technology distributors Home furnishings Application software Leisure products Textiles Movie & entertainment Cable & Satellite Electronic components *in terms of EBITA drop, peak to trough Boliden Commercial AB/Mikael Lesser Construction and automotive account for about 70 per cent of global zinc consumption SOURCE: ILZSG, Brook Hunt Boliden 2/10/ Galvanizing has been the fastest growing segment, used in automotive and construction Galvanizing is expected to increase to 54% of global zinc use by 2020 Boliden Commercial AB/Mikael Lesser Lower construction activity in mature economies Lower growth in China vs first half 2008 Segment of global demand: 49% in zinc* Source: Brook Hunt, CRU Construction activity lower Boliden 12 2/10/2016 Boliden Commercial AB/Mikael Lesser Western world car sales weak Global car production in sharp decline Segment of global demand (transport): 11% in copper, 23% in zinc* Source: Brook Hunt, CRU Automotive production sharply down Boliden 13 2/10/2016 Boliden Commercial AB/Mikael Lesser Global Zinc demand growth Q107Q207Q307Q407Q108Q208Q308Q408Q109 Per cent Zinc demand Source: CRU Boliden 14 2/10/2016 More than 15 % lower demand for zinc Boliden Commercial AB/Mikael Lesser Zinc industry cuts production by ~10% Source: Company data, CRU, Brook Hunt, ILZSG Latest prognosis on global zinc consumption for full year 2009 is minus 5-10 %. 15 2/10/2016 Boliden Boliden Commercial AB/Mikael Lesser Zinc price (LME average) USD/t Q1-09 vs. period Q , % Q , % Q , % Q , % Q ,174 - s Quarterly average 16 LME stocks Average zinc price flat from Q4 08 Boliden Commercial AB/Mikael Lesser 17 World Zn Metal Stocks : Overall LME stock level has reached 332,275 Mt today, European stocks are at 55,600 Mt and Shanghai stocks are at 75,434 Mt. Data: Reuters, Boliden Commercial AB/Mikael Lesser Profitability under pressure Boliden Commercial AB/Mikael Lesser Availability of raw materials Availability of metal high metal prices low TC/RC high metal prices high TC/RC low metal prices high TC/RC low metal prices low TC/RC Business cycle of metals Boliden Commercial AB/Mikael Lesser China: Net trade of Zn in Concentrate and Zn metal (incl zinc alloys): Zinc concentrate imports in March were lower than in January and February this year, though were broadly in line with imports in March However, the net trade in Zinc Metal is already close to 2008 year end figures. Data: CHR Metals March 2009: World Zinc/China Zinc Positive figures indicate net exports; negative figures indicate net imports Export figures are for all refined zinc, not just >99.995% SRB buying large quantities Boliden Commercial AB/Mikael Lesser Data: WorldTradeStats CHR March Zinc metal exports from China: Chinas exports of refined zinc have effectively dried up, with the LME prices falling further behind the Shanghai prices during the course of February, March and into April. The metals exported were mainly shipped to other Asian countries. Boliden Commercial AB/Mikael Lesser Zinc metal imports into China: The strong Shanghai/LME arbitrage, over $170/t for imported zinc, has been hugely influential in pulling surplus zinc stocks out of the rest of the world to accumulate instead in China. Data: WorldTradeStats CHR March * : Data for March/July 2008 used from CHR as worldTrade Stats not available Boliden Commercial AB/Mikael Lesser Cash LME Zn price vs Shanghai Zn price Imports into China for financial reasons! Boliden Commercial AB/Mikael Lesser I.Global Zinc market II.European Zinc market III.Galvanised Sheet market IV.Summary Boliden Commercial AB/Mikael Lesser CONCLUSIONS ZINC MARKET EUROPE I.Closures and production reduction: Closure RuhrZink: 140 Kmt Nyrstar Balen closed to Sep 2009: 180 Kmt Nyrstar Budel reduces output 28%: 70 Kmt Boliden reduces output: 30 Kmt Xstrata Nordenham reduces output: 20 kmt Copsa Mica closed for 2009: 60 Kmt II.LME stocks in Europe remain at low level (55 Kmt). However, unknown level of unwarranted stock III.Zinc consumption expected to decrease in 2009 by 8% IV.SHG spot slab premiums have come down during 2008 V.Imports into Europe unattractive at low premium levels Boliden Commercial AB/Mikael Lesser Zn Metal Balance in Europe: The zinc demand has been significantly undermined by the deterioration in Europes main end-use sector. CRU now calculates a reduction in demand by mt Total forecasted capacity reduction in Europe is 540 Kmt. Based on this CRU consumption forecast, the market is in deficit by 534 Kmt in Boliden however believes consumption will be lower than CRU anticipates. Data: CRU Zinc Quarterly, Jan 09; comparison of forecasted Zn metal production capacity and Zn metal consumption; Bulgarian and Romanian figures are taken out of the equation as they mainly export to non-EU countries; as soon as the EU stats show that they start to export more to the EU we will include the those countries again in this chart The historical data is in dark blue and the capacity in light blue. The balances in the history are based on the actual production and the balances for 2008 and forward are based on the capacity. Cutbacks European smelters not included Boliden Commercial AB/Mikael Lesser XS NY XS NB European Zinc Producers yr 2009 GL KU BO MY EZ CH 000 mtW-Europe Production2100 Consumption2130 Balance-30 CM RU -15 Kmt -180 Kmt -70 Kmt -140 Kmt -60 Kmt -20 Kmt Total -540 Kmt (-25%) -15 Kmt -25 Kmt Boliden Commercial AB/Mikael Lesser Zn Metal Imports into the EU15 in 2008: Mexico was the major exporter into Europe in Data: WorldTradeStats, 95 % of the total volume is shown in the picture Boliden Commercial AB/Mikael Lesser Zn Metal Imports into the EU15 Jan-Feb 2009: India has risen to be the second largest exporter into Europe with its exports for Jan-Feb (7 414Mt) already close to full year 2008 figures (12 390Mt). Data: WorldTradeStats , 80 % of the total volume is shown in the picture Boliden Commercial AB/Mikael Lesser Zn Metal Trade of the EU15: The imports into Europe have reached a record level in The bars represent the volume for the Jan-Feb period of 2009, to be compared to FULL year figures Data: WorldTradeStats Boliden Commercial AB/Mikael Lesser Zn Metal imports into the EU15 excl. Norway: During ,000 Mt have been imported into EU15. Data: WorldTradeStats Where did the materials go? Boliden Commercial AB/Mikael Lesser I.Global Zinc market II.European Zinc market III.Galvanised Sheet market IV.Summary Boliden Commercial AB/Mikael Lesser Galvanised Sheet: EU 15 trade with Non-EU countries: Trade Volume The comparable figures for Feb 2008 to Feb 2009 have dropped by 49%. However, the trend continues; The imports are higher than the exports bars are Jan-Feb period, to be compared to FULL year figures Data: WorldTradeStats, imports mean customs cleared metal, not necessarily physical shipments; the shipments can have taken place much earlier; data includes galvanized sheet with > 600 mm width Boliden Commercial AB/Mikael Lesser Galvanised Sheet: Import from Non-Eu countries into EU15 Total ,292,475 Mt Data: WorldTradeStats, imports mean customs cleared metal, not necessarily physical shipments; the shipments can have taken place much earlier; data includes galvanized sheet with > 600 mm width. updated Boliden Commercial AB/Mikael Lesser Galvanised Sheet: Imports into the EU15, YE 2008 China was the main export country to EU15 in Asia, all together, is exporting 75% of the imported galvanized sheets to EU15 until Jan-Nov Data: WorldTradeStats, displayed are those countries making up 80% of the imports; data includes galvanized sheet with > 600 mm width Updated Boliden Commercial AB/Mikael Lesser Data: WolrdtradestatMarch 2009 BrookHunt jan Updated Galvanised Sheet: The export duty (from 5% to 15%) has now started to show in the trade statistics, with reservation for the economic recession in EU15. The European car sales plunged the final months of 2008 in Europe and new car registrations are down 17.2% in Q Boliden Commercial AB/Mikael Lesser I.Global Zinc market II.European Zinc market III.Galvanised Sheet market IV.Summary Boliden Commercial AB/Mikael Lesser 38 I.Zn concentrates in oversupply, resulting in oversupply of Zn by 524 Kmt in 2008 and 385 Kmt 2009 II.Rationalisation zinc smelters, due to closures of high cost smelters. Bad sulphuric acid market might trigger further production cuts. III.LME stocks increased to 332 Kmt. European stocks remain low at 55 Kmt IV.Premiums have reached levels in Europe where imports have become unattractive V.Premium development in Europe depends on supply/demand balance, which is difficult to forecast VI.Chinese SRB has bought large quantities of zinc in Q SUMMARY