Has Investment in Automotive Sheet gone into Overdrive?

Has Investment in Automotive Sheet gone into Overdrive? Werner A. Stelzer Industry Consultant werner.stelzer@bluewin.ch 1

Presentation Topics Who is investing into auto sheet/heat treat lines? Is Europe following NA lead in introducing ABS to mid-range vehicles? Are there thechnical issues relating to stamping, joining, recycling that need to addressed? Will the new generation rolling mills really deliver on time, to spec and at lower cost? 2

Additional Presentation Topics Why Aluminium? Drivers and Regulations Recycling ABS 3

Additional Presentation Topics Why Aluminium? 4

World Production Light Vehicles Units 000s 2015 2020 Change (%) TOTAL 91,100 105,000 15.3 Europe 20,500 23,100 12.7 North America 17,400 18,800 8.0 South America 4,300 5,400 25.6 China 25,000 30,900 23.6 Asia (except China) 21,800 24,100 10.6 Source: HIS Automotive 5

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Aluminium Applications in Today s Cars Substitution: -Steel (new alloys) -Plastics -Magnesium -Composits 7

Automotive: Shape and Weight mostly Aluminium what else! 8

The Weight Spiral Main Drivers << Mass >>Complexity & Quality Economics Environment The Value of Aluminium >> Stiffness & Comfort and Leightweighting Who is willing to pay for what? 100% Recycling >> Crash & Safety 9

Future of Aluminium OEM s View Importance of Lightweight Design Potential of Al and other materials Components of high Al Potential Source: EAA, own sources Expected Al Applications in Future Cars 10

Additional Presentation Topics Drivers and Regulations 11

Passenger car CO 2 emissions and fuel consumpt ion, normalized t o NEDC Updated Sept ember 20 15 Details at w ww.theicct.org/ info-tools/ global-passenger-vehicle-standards 12

Economic and Environmental Pressures Increasing regulation on end-of-life recycling Higher raw material prices Environmental Concern Oil Prices European Regulation 95g of CO 2 /km in 2021 75g of CO 2 /km in 2025 Heavy Fines on OEMs based on CO 2 emission in excess of limits Fuel Prices could reach 3.00 /ltr or more Need to reduce CO 2 emissions Need to reduce fuel consumption 13

Additional Presentation Topics Recycling ABS 14

Alloying elements + primary Al Sec. Al (5754) Primary Al (5754) Max 25% Min 25% Secondary Al (5754) 50% 0% (Current assumption) 100% Process offal (5754) 50% Source: Innoval End of Life Vehicles (5754) 15

Selected new aluminium recycling capacities American Speciality Alloys, Louisiana, USA Hydro Aluminium, Neuss, Germany Novelis, Nachterstedt, Germany Befesa (Triton, Jersey) Bernburg, Germany Hulamin, Pietermaritzburg, South Africa Latasa, Sāo Paulo, Brazil Recycling plant, 600,000 mt, USD 1.2 bn investment Extension. In 2014 Hydro recycled 1.1 million tones worldwide Recycling plant, 400,000 mt, EUR 200 mill investment Recycling plant, 90,000 mt Investment of R 300 mill for new Recycling plant New recycling plant, 35,000 mt Note: 20 mill tonnes p.a. produced by refiners and remelters (40 mill tonnes p.a. primary aluminium) Source: IKB 16

When does the Aluminium come back? RECYCLING ISSUES??? Automotive Source EAA, OEA 17

Back to the Main Topics 18

Presentation Topics Who is investing into auto sheet/heat treat lines? Is Europe following NA lead in introducing ABS to mid-range vehicles? Are there thechnical issues relating to stamping, joining, recycling that need to addressed? Will the new generation rolling mills really deliver on time, to spec and at lower cost? 19

Presentation Topics Who is investing into auto sheet/heat treat lines? 20

World Growth in Aluminium Automotive Sheet Continuous Heat Treatment Capacity and Sales Volume to 2025 (kt) Source: Innoval 21

EU Growth in Aluminium Automotive Sheet Continuous Heat Treatment Capacity and Sales Volume to 2025 (kt) Source: Innoval 22

NA Growth in Aluminium Automotive Sheet Continuous Heat Treatment Capacity and Sales Volume to 2025 (kt) Alcoa 390 kt Novelis 360 kt Constellium 320 kt Aleris 200 kt Kobe 100 kt Source: CRU, Innoval 23

Asian Growth in Aluminium Automotive Sheet Continuous Heat Treatment Capacity and Sales Volume to 2025 (kt) Source: Innoval 24

Typical Automotive Conversion Line (CASH Line) Alkaline Degrease Rinse Acid Degrease Rinse Conversion Dryer Furnace Quench Cooling Oiler Capacity: 100 120 kt Total Investment: EUR 80 100 Millions includes CASH Line plus buildings, foundations, infrastructure, trafos, etc. Realisation time: 2 3 years 25

Presentation Topics Is Europe following NA lead in introducing ABS to mid-range vehicles? 26

Is Europe following NA lead in introducing ABS to mid-range vehicles? Euro Car Segments Some Examples A Fiat 500, Smart Fortwo, Mini, Opel Adam B Ford Fiesta, Opel Corsa, Renault Clio, VW Polo, Peugeot 208 C Ford Focus, VW Golf, Citroën C4, Renault Megane, Toyota Corolla, Peugeot 308, Toyota Camry D VW Passat, Audi A4, BMW 3-series, Mercedes C-Class, Honda Acura TLX E Jaguar XF, Volvo S80, Chrysler 300 Mercedes E-Class F BMW 7-series, Lexus LS, Mercedes S-Class, Porsche Panamera, Tesla Model S, Audi A8 S Aston Martin DB9, Ferrari FF, Maserati GT, Bentley Continental M Peugeot 807, Renault Espace, VW Transporter, Ford C-Max, VW Touran J Peugeot 2008, Audi Q5, Jeep Cherokee, VW Touareg, RangeRover, Volvo CX90 27

Presentation Topics Are there thechnical issues relating to stamping, joining, recycling that need to addressed? 28

Technical Issues Pretreatment of ABS High-speed coil application Compatibility with press forming lubricant Withstand forming strains during stamping Storage stability Adhesive compatible Spot weldable (becoming more important again) Compatible with down stream process (phosphating/painting) Long term bond durability (must pass Ford APGE test or similar) Source: Innoval 29

Presentation Topics Will new generation rolling mills really deliver on time, to spec and at lower cost? 30

A very good question warranting a separate paper! 31

Just some thoughts on that subject: - Terminology: Micro-Mill: Alcoa propriatory Mini-Mill: open - Differences: Micro-Mill: Twin belt caster Mini-Mill: Hazelett or Block Caster

Some final thoughts 32

The fight of competing materials (Cat = Aluminium) 33

ENVIRONMENTAL SUSTAINABILITY * Market Demand Growth and continuous Substitution of Steel * Profitability to finance Capital Expenditures - continuation of mergers and acquisitions - high capital expenditure and additional working capital needed before 2020 (mainly in Asia) * Balancing Demand and Supply - high growth in certain sectors (e.g. Automotive) - potential shortages of Primary and Rolled Products in certain Geographic Areas Innovations: Aluminium Industry lacks Technology Innovations * Sustainable Costs - LME: Premiums and Price Stability - Physical Inventory of Primary - New Players: China, Iran, etc. 34

ENVIRONMENTAL SUSTAINABILITY * Energy Saving and Emission Reduction * Preserving Scarce Natural Resources * Recyclability: Energy Bank with Low Re-melting Costs and Excellent CO2 Balance * Reputation: Aluminium Growth will depend upon its Reputation * Better communicate the Aluminium Value Proposition 35

Challenges for the Global Aluminium Industry Globalization increased need for global footprints Investment Requirements CASH lines for ABS, Cold Mills R&D Acceleration alloy complexity will increase Industry Consolidation will continue due to globalization and increased demand for investments Technological Leadership - hybrid material solutions will eat into aluminium growth potential - Europe needs to retain leadership with increased innovations Substitution composits, magnesium, new steel alloys (steel will remain the dominant ABS especially high strength steel alloys) Margin Pressure - International competition (China, Middle East) Madrid Nov. 16-18, -2015 OEMs will put pressure A MetalBulletin on prices Event 36

Will we all be friends in the future? To be continued 38

Thank you for your smile Werner Stelzer Industry Consultant SPECIALTY werner.stelzer@bluewin.ch SHEET Cell Phone: + 41 79 2210880 3