Charting the Pathway Towards Excellence Charting the Pathway Towards Excellence Press Metal Aluminium Holdings Berhad 24 25 Integrated Annual Report 2023 Impact on Business Operations • Using electricity generated predominantly by hydroelectric dams to power our operations we are positioning ourselves as a producer of low-carbon aluminium, providing us with a competitive advantage as consumers and investors shift their preferences towards climate-friendly solutions. • With the rise of EVs, we stand to benefit from increasing aluminium demand over the coming decades. • As a major aluminium producer in Southeast Asia, we stand to gain from the potential relocation of EV manufacturing facilities to the region, which we are well positioned for the new supply chain ecosystem. • Leveraging our low-carbon aluminium solutions and entrenched efficient cost model, we will be able to strengthen our market position, broaden our geographical reach and optimise large-scale production. Outlook for 2024 According to Goldman Sachs Research, EV adoption will reach approximately 73 million units by 2040, up from only 2 million in 2020. This shift presents opportunities for the aluminium industry, as outlined above, as aluminium is an excellent option for EV due to its lightweight properties. At the same time, we recognise that our shift to greener industries can only bear fruit if we make progress in decarbonising our business. Therefore, we will continue to make strides on our journey to carbon neutrality by 2050 by giving consideration to cleaner technologies and driving energy efficiency across our operations. The Market We Operate In The Market We Operate In Geopolitical Tensions Global Megatrend Aluminium is crucial in numerous key industries and is of growing value in green sectors such as EVs and solar energy. However, recent tensions among major producing nations have disrupted supply chains through tariffs, trade restrictions, export quotas and financing limitations, presenting an uncertain environment for industry players. In February 2023, the USA imposed a 200% tariff on aluminium and aluminium derivates from Russia, leading to an aluminium shortage in western countries11. Meanwhile, China imported a total of 1.54 million tonnes of primary aluminium in 2023, a 130% increase on the previous year12, using these imports to meet rising demand from the solar and automotive sectors. This difference in availability and supply of aluminium is evidence of the increasing market fragmentation along regional lines, and this dynamic is set to continue for as long as existing geopolitical tensions persist. Impact on Business Operations • Geopolitical tensions, trade conflicts or sanctions can disrupt the global aluminium supply chain, leading to price volatility. However, the paradigm shift of the aluminium dynamic also presents new market access opportunities for us. • Shipping disruptions can also affect delivery and insurance costs, impacting our ability to meet our obligations and our profitability. • To mitigate against these risks, we have executed proactive strategies to secure our supply of raw materials, reaching out to different markets and enhance the sustainability of our practices. Outlook for 2024 We expect the aluminium market to remain sensitive to geopolitical shifts, requiring us to closely monitor and adapt to changes in the global environment. By continuing to build supply chain resilience, widening our sales network and pursuing strategic collaborations with upstream and business partners, we may minimise the impact of external events on our operations and our performance. Meanwhile, with the expectation of gradual increase in aluminium prices, driven by growing demand from green sectors, it is essential that we continue to carefully plan our semi-finished and downstream production, effectively managing input costs and execute business strategies in a timely manner to capitalise on these emerging opportunities. Transition to a Low-Carbon Economy Global Megatrend In line with the worldwide push to limit global warming to 1.5°C above pre-industrial levels, national and global policies are increasingly emphasising the need to decarbonise heavy industries and transition from fossil fuels to renewable energy sources. This opens new growth opportunities for the aluminium industry, which plays an important role in the renewable energy sector, and it is expected that global demand for aluminium will increase by 80% (or 80 million tonnes) between 2020 and 2050 in line with the global energy transition5. Specifically, the increase in global EV production, which is expected to drive aluminium demand to 31.7 million tonnes by 20304, as aluminium, due to its lightweight properties, forms a crucial input in EV components such as battery casings, chassis, body structures and heat management systems. Beyond EVs, the aluminium industry also stands to benefit from other environmental developments such as the European Green Deal, which will boost the use of aluminium in the construction sector for heating, ventilation and airconditioning systems within green buildings. In addition, aluminium will be in high demand for components such as solar panels, wind power plants and high-voltage power grids, which play an important role in low-carbon electricity systems. However, as the aluminium industry positions itself to capitalise on these growth opportunities, it will also have to contend with the emissions it generates. Illustrating this, the industry currently emits over 1.1 billion tonnes of CO2 equivalent annually, 5 6 and approximately 60% of global primary aluminium smelting in 2022 relies on nonrenewable energy sources, with China’s supply (which accounts for 60% of global output) primarily powered by coal energy sources. In response to this challenge, China is taking strong steps including: 7 8 9 • Setting caps for total energy consumption, • Reducing emissions from inefficient smelters, • Introducing a new Emissions Trading System, and • Creating certifications for locally produced green aluminium. At the global level, industry players are collaborating with governmental bodies, suppliers and customers to drive collective climate actions. For example, the Aluminium for Climate Initiative is promoting the transition to renewable energy sources and carbon capture, utilisation and storage technologies, decarbonising direct emissions from the processing of aluminium and increasing the collection and recovery of post-consumer scrap10. Sources: 1 The Edge Malaysia (2023). Press Metal’s 3Q Results Miss Market Expectations; Aluminium Prices to Remain Subdued. https://theedgemalaysia.com/node/691894 2 NST Business Times (2023). S&P Global: Supply Chains Almost Back to Normal. https://www.nst.com.my/business/2023/07/926386/sp-global-supply-chains-almost-back-normal%C2%A0%C2%A0 3 The Diplomat (2023). Why Indonesia Plans to Ban Bauxite Exports in 2023. https://thediplomat.com/2023/01/why-indonesia-plans-to-ban-bauxite-exports-in-2023/ 4 International Aluminium (2022). Report Reveals Global Aluminium Demand to Reach New Highs After Covid. https://international-aluminium.org/report-reveals-global-aluminium-demand-to-reach-new-highs-after-covid/ 5 World Economic Forum (2022). The Net-Zero Industry Tracker. https://www.weforum.org/publications/the-net-zero-industry-tracker/in-full/aluminium-industry/ 6 International Energy Agency (2023). Aluminium. https://www.iea.org/energy-system/industry/aluminium 7 Reuters (2021). China to Cut Energy Intensity, but No Consumption Cap in New 5-year Plan. https://www.reuters.com/business/sustainable-business/china-cut-energy-intensity-by-around-3-2021-work-report-2021-03-05/ 8 IEA (2023). Tracking Aluminium. https://www.iea.org/energy-system/industry/aluminium 9 Reuters (2023). China Boosts Green Aluminium Certification as Demand Grows. https://www.reuters.com/sustainability/china-boosts-green-aluminium-certification-demand-grows-2023-11-07/ 10 World Economic Forum (2020). Aluminium for Climate: Exploring Pathways to Decarbonize the Aluminium Industry. https://www3.weforum.org/docs/WEF_Aluminium_for_Climate_2020.pdf 11 Reuters (2023). US tariffs on Russian Aluminium Risk More Market Fracture. https://www.reuters.com/markets/commodities/us-tariffs-russian-aluminium-riskmore-market-fracture-2023-02-09/ 12 Shanghai Metals Market (2023). Import and Export Data in Aluminium Industry Chain in 2023. https://news.metal.com/newscontent/102602560/Import-and-export-data-in-aluminium-industry-chain-in-2023 Aluminium is an infinitely recyclable material and requires up to 95% less energy to recycle than primary aluminium production. These developments provide optimism that the aluminium industry can emerge as a leader in green manufacturing and play a vital role in the world’s transition to a low-carbon economy.
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