Copy of Johnston ISRI 20060404

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Aluminum Market Overview ISRI, Las Vegas April 4, 2006 Stephen Johnston Senior Industry Analyst – Alcan Inc. © 2 0 05 A L C A N I N C. Slide 1 © 2 0 06 A L C A N I N C.

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HISTORICAL BACKGROUND

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Military Build-up Building Applications Global Primary Production Since 1900 and Key Drivers Beverage Cans Oil Crises Automobiles China

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Total Western World Shipment Growth (Semis/Castings from Primary + Secondary/Recycled) 2001 was the only decline in the past 23 years

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ECONOMIC SITUATION

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GERMANY FRANCE ITALY UNITED KINGDOM Industrial Production Europe Big 4 2006 Forecasts: Global Insight 4.2%/year Consensus F/Cs 3.4%/year 2006 Forecasts: G.I. 1.5% C.F. 1.5% 2006 Forecasts: G.I. 1.7% C.F. 1.1% 2006 Forecast: G.I. 1.0% C.F. 0.6%

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TAIWAN – MANUFACTURING MOVING TO MAINLAND JAPAN – A LOST DECADE MALAYSIA – REBOUNDING EXPORT-LED GROWTH KOREA – REBOUNDING EXPORT-LED GROWTH THAILAND – SLOWER GROWTH Industrial Production East & Southeast Asia CHINA – 16%+ GROWTH

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Industrial Production Canada & U.S.A. 2006 Forecasts: Global Insight 3.9%/year Consensus Forecasts 3.9%/year 2006 Forecasts: Global Insight 2.5%/year Consensus Forecasts 2.7%/year Canada USA

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Housing Starts Rose almost 6% in 2004 and again in 2005 U.S. Auto Production & Housing Light Vehicle Production Decline of < 1% in 2005 after almost 2% drop in 2004

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US Trade and Current Account Deficits each over 6% of GDP and forecast to remain high for many years US government fiscal deficit around 2½% of GDP and expected to decline only slowly over the next decade US consumer savings rate has been negative for seven straight months (-0.7% in December) longest since Great Depression in early 1930s versus average of about +9% from 1960-90 These sorts of imbalances can exist for moderate periods of time but are not sustainable in the longer term For now, the trade deficits are being largely financed by China and other Asian governments buying up T-Bills in order to maintain the trade imbalance US $ needs to fall significantly more unless US taxes rise (most logical would be higher fuel taxes) and spending cut Major Risks to US Economic Growth

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THE ALUMINUM SITUATION

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Global Primary Aluminum Production CAGR 1995-2005: N. Am. -0.3%/year Canada +3.7%/year USA -3.6%/year Source: IAI, Alcan estimates

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N.A. DOMESTIC MILL SHIPMENTS JAPAN DOMESTIC MILL SHIPMENTS EUROPEAN MILL PRODUCT ORDERS Mill Shipments & Orders Key Western World Markets NORTH AMERICAN MILL PRODUCT ORDERS

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U.S. Total Aluminum Consumption By Form CAGRs: Aluminum 2.9%/year Castings 6.6%/year Source: Aluminum Association, Alcan estimates

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U.S. Aluminum Casting Consumption By End-Use CAGRs: Castings 6.6%/year Transport 7.8%/year Source: Aluminum Association, Alcan estimates

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Global Primary Balance: 2001 - 2006

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Inventories (IAI + LME + Comex)

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Unwrought Inventories Weeks of Western World Shipments

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Spot Alumina Prices

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Completed & Potential Smelter Closures (excluding China) A

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Smelter Expansions & Restarts Western World to End 2007 A

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China The Driver of Aluminum Growth A PRIMARY PRODUCTION NET UNWROUGHT IMPORTS (EXPORTS) NET SCRAP IMPORTS NET SEMIS IMPORTS (EXPORTS)

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LME 3-mos Daily Price 2000-2005

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Aluminum Price in Various Currencies Monthly Averages

Primary/Secondary/Scrap Spreads: 

Primary/Secondary/Scrap Spreads Source: Platt’s, Alcan estimates

Relative Prices of Competing Materials: 

Relative Prices of Competing Materials

Primary Aluminum Smelter Costs(Liquid Metal): 

Primary Aluminum Smelter Costs (Liquid Metal)

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Short-term: Inventories in weeks of shipments reached record lows. Spot alumina prices at ~$600/t are at highest in almost 17 years. Smelters with expiring power contracts in the US and Europe are faced with huge rate increases leading to some closures. Only a very small amount of smelter expansions will come on stream in the Western World over the next few months. High prices for competing materials. The US Dollar weakened considerably in the past three years. Longer-term: Unlike in the past, the majority of recent smelter projects are high-operating-cost capacity (in China) that should close if prices drop. There are relatively few locations left in the world (e.g. Russia) with stranded, low-cost power for new smelter projects. Smelter technology improvements, which drive down operating costs, are advancing much more slowly than in the past. Kyoto costs of emissions from smelter and power plants. Reasons for High Aluminum Prices

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Alumina prices are likely to decline over the next few years due to refinery expansions but probably not to under $200/t as in the past. Oil, natural gas and coal prices are also likely to fall somewhat over the next few years helping to moderate power prices. There are more expansions planned from late 2006 through 2008 than the first half of 2006. Prices of competing materials like steel, copper and plastics should drop, though also probably not back to late-2001 levels. The US Dollar could unexpectedly strengthen. Demand could fall off, particularly if the US imbalances lead to a sharp decline in the Dollar, much higher US interest rates and a collapse in the US housing and stock markets. The political/legal situation in Russia could dramatically improve, leading to major power and smelter projects with Western capital. Inert anode, wettable cathode or other technologies could become financially attractive, driving down operating costs for new smelters. What Could Lead to Lower Aluminum Prices

Local Market Premiums: 

Local Market Premiums

LME Aluminum Open Interest: 

LME Aluminum Open Interest

LME Aluminum Trading Volumes: 

LME Aluminum Trading Volumes