CMF Research Center Xu Hongping/Xu Shiwei Qingdao CMF Aluminium industry analysis under supply-side reform

Part 1 Introduction of aluminium industry chain Aluminium: Chinese market leads global aluminium industry 2

Aluminium industry chain—bauxite 3

4

Output in China and around the world—with growth mostly contributed by China 5

Output growth outside China is minor (annually) 6

Global balance-LME aluminium price (annually) 7

Global and Chinese aluminium consumption 8

Global and Chinese aluminium consumption growth 9

China drags down global aluminium consumption (1,000t %) Global aluminium premium shows Asia is weak in consumption (USD/t) India is unlikely to replace China in aluminium consumption China-Outside China aluminium consumption and growth (%) Global consumption 10

Operating rate of aluminium products in China （ % ） Growth in the fixed investment in Chinese real estate continues to drop （ % ） Chinese major aluminium consumption growth annually (%) Growth in Chinese aluminium exports limited （ USD/t 10,000t ） Aluminium consumption in China 11

Balance outside China—LME aluminum price (quarterly) 12

Balance in China—Price (quarterly) 13

资料来源：招商期货研究所 E2016E2017E Supply and demand Outputkt Consumptionkt Balancekt Stock kt LME+comexkt IAI Stock consumption days kt Price Average spot price $ Global balance

E2016E2017E Supply and demand Outputkt Consumptionkt Net exports Balancekt Stock kt Stock consumption days kt Price Average spot price $ Balance in China 15

Part 2 Introduction of aluminium cost Al: a reverse in dropping cost 16

Chinese private power-backed electrolytic aluminium cash cost and total cost (RMB/t) Chinese electrolytic capacity distribution and cash cost distribution (RMB/t) Aluminium cost—Energy-driven 17

Chinese electrolytic aluminium capacity distribution and electricity charge (RMB/kWh) Aluminium cost—Energy-driven 18

Chinese alumina production cost with Bayer process Chinese coal and electricity cost Aluminium cost—Energy-driven 19

Part 3 Affects of supply-side reform on aluminium industry Aluminium: mismatch of demand and supply 20

Period Q115Q215Q315Q42016Q12016Q216Q316Q417Q1 Running capacity Capacity alteration Electrolytic aluminium capacity and growth 21

Status quo of aluminium industry: mismatch of demand and supply 22

Aluminium supply expectation: mismatch continues 23

CompanyAluminium plantLocation Capacity resumption Running capacity Total capacity Resumptio n date Electricity charge Note Chongqing Energy Qineng Aluminium Chongqing Private power 0.28 Resumed production in December after maintenance Zengshi Huangguoshu Aluminium Guizhou Limited resumption China GuodianHuangge XinyeQinghai Resumed production in March and then carried out maintenance in 40,000t capacity, meaning only 10,000t of capacity was added China Guodian Ningdong Aluminium Ningxia Saw output in June ZhaofengQinghai Saw output in August Nanping Aluminium Guizhou Saw output in July Bosai GroupAba AluminiumSichuan Q 估 Estimates Taiyuan Donglv Aluminium Shanxi100 16Q3 0.3 估 Resuming production in batches China Guodian Ningdong Aluminium Q3 Estimates Yunnan Metallurgical Group Qujing Aluminium Yunnan Q3 No plan Dongxing Aluminium JiayuguanGansu Q3 Estimates Dongxing Aluminium Longxi Aluminium Gansu Q30Estimates Supply growth—resumption: limited improvements on mismatch 24

Company Aluminium plant LocationNewly added Original capacity Operation date Jinjiang GroupJinlian Inner Mongolia Q1 Baise Mining Guangxi2016Q1 Xinfa GroupXinfa HuayuShandong Q1 Chinalco Huaze Aluminium Power Shanxi73516Q2 potential postpone Jiarun GroupJiarunXinjiang154516Q2 West Mining Baihe Aluminium Qinghai potential postpone Baise Mining Guangxi3216Q2 Weiqiao Group Weiqiao Aluminium Power Shandong Q2 Xinfa GroupXinfa HuayuShandong Q3 Weiqiao Group Weiqiao Aluminium Power Shandong Q3 Zengshi Group Tianshan Aluminium Xinjiang Q4 Weiqiao Group Weiqiao Aluminium Power Shandong Q4 Xinfa GroupXinfa HuayuShandong Q4 Baise Mining Kuangkuang Aluminium Guangxi10 16Q4 Heaven Dragon Mining Xinjiang101516Q4 Meixin Industry Investment Meixin Investment Shaanxi33 17Q1 Jiarun GroupJiarunXinjiang306017Q1 Total 214 Supply growth—new operation: limited improvements on mismatch 25

Global electrolytic capacity and movements 26

Raw material bottleneck: alumina supply growth slows down 27

Raw material bottleneck: limited growth in operating rate 28

Aluminium plant LocationNew capacity Original capacity Running capacity Operation date Huaxing Aluminium Shanxi Vietnam mine II Vietnam original plan1601 delayed Weiqiao Indonesia Indonesia Henan Subsidiary Henan Zhongzhou Subsidiary Henan plans to postpone Heungkong Wanji Henan The fourth stage of the project is unsettled Total 535 Raw material bottleneck: limited new alumina capacity 29

CompanyAluminium plantLocation Capacity cut Total capacity Running capacity Date of capacity cut Qixing High- tech Qixing AluminiumShandong down by 22,000tof output in January Chinalco Chinalco Shandong Shandong down by 40,000t of output in January Qiya AluminiumQizheng ChemicalGuizhou reduction carry full maintenance on Feb 4, resumed 700,000 on Feb 15, plans to see output of 20,000t in ChinalcoChinalco ShanxiShanxi Xinfa GroupGuangxi XinfaGuangxi State Power Investment Corporation Shanxi AluminiumShanxi Jinjiang GroupXingan ChemicalShanxi reduction from 230,000t to 200,000t,1601 resume full capacity Weiqiao Group Weiqiao Aluminium Power Shandong Wanji Aluminium Henan Datang EnergyXinliang Recycle Inner Mongolia suspension 1512 resumption Xinfa GroupShiping XinfaShandong down by 1 million ton in early this year ChinalcoChinalco HenanHenan suspension160 new construciton1608 go into operation Jinjiang Group Kaiman Aluminium Henan 中旬减产 40 技术升级 约 3-4 月时间技改后复产 Bosai GroupBosai MiningChongqing 中旬减产 30 Chinalco Chinalco Zhongzhou Henan Total 804 Raw material bottleneck: over half of alumina capacity resumed 30

Total inventory Up/down Supply-demand mismatch: low inventory 31

Supply-demand mismatch: inventory lower than expected 32

Global alumina capacity and movements 33

Status quo of aluminum industry: growing cost 34

E2016Q12016Q AluminaOutput Net imports Apparent consumption Real consumption Demand- supply balance Electrolyt ic aluminiu m Output Net imports Apparent consumption Stock Stock change Consumption Same period last year YOY15.4%2.5%2.0%34.0%15.0%6.8%5.3%-4.0% Balance Supply and demand detailed statement

Part 4 Affects of supply-side reform on price 36 In near term, price rises (from January to March): demand and supply mismatch is unlikely to improve In mid-term, fall back from high levels (from March to June): supply growth encounters consumption fall

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