November, 2015 Madrid, Spain

Automotive aluminum
castings and market trends

Norberto F. Vidaña
Market Intelligence
Aluminum
Contents

• Nemak´s overview

• Automotive Industry overview

• Aluminum Market overview

• Price trends

Disclaimer:
This report is presented for informational purposes only. It is not intended to be a comprehensive or detailed statement or report on any subject
and no representations or warranties, express or implied, are made as to its accuracy, timeliness or completeness. Nothing in this report is
intended to provide financial, legal, accounting or tax advice nor should it be relied upon. Neither NEMAK nor the author is liable whatsoever for
any loss or damage caused by, or resulting from, any use of or any inaccuracies, errors or omissions in the information provided.

2
Nemak’s overview

3
Nemak is one of the core divisions of Alfa
% of Sales
Petrochemicals
38%

Food
31%

Auto-parts
27%
2014 US$ B
Revenues $17.2
Telecomm.
2%

Exploration & Production

1%

4
Nemak’s growth journey through robust organic growth
Supplmented by strategic acquisitions

$4.6
$4.4

2013 2014

5
Nemak at a glance

Highlights 2014 Key Metrics

• Leading supplier of complex, high-tech Revenue: 4,622 M USD

automotive aluminum components Plants: 35*
Capacity: 56 Mill. equivalent units
• Global footprint across 15* countries Employees: ~20,000

• Diversified product portfolio and customer

base
 More than 50 customers worldwide 2014 Revenues
 Supplying 650+ vehicle platforms
Other
Transmissions 3%
• Experienced management team 13%

Cylinder Heads Engine Blocks

Cylinder
Engine Head
Block 51%
33%
Transmission Structural
Components Components

*Considering the recently approved plant in Russia, which will be fully operational in 2015
6
Focused on complex high-tech aluminum components for
the automotive industry, reducing vehicle weight
Powertrain Structural Components
Cylinder Head Longitudinal Members, Cross Members,
Main Trends - Increased mechanical properties, Shock Towers, Pillars
Complex designs, integrated manifold Main Trends – Shift from steel (stamping) to
Engine Blocks aluminum (integrated castings)
Main Trends – OEMs starting to switch diesel
blocks to aluminum and accelerating replacement
of remaining cast iron blocks in gasoline engines
Transmissions
Main Trends – Shift to complex automatic
transmissions and increasing number of gears

7
Long-term relationships with key automotive customers

8
 Global footprint serving all major markets

• 35 manufacturing facilities strategically located close to its customers sites

 North America (17), Europe (12), South America (3), Asia (3)

Poland
Slovakia
Canada Spain
Russia

United States
China
Mexico Germany

Austria
Brazil India

Argentina
Czech Republic
Hungary

9
Nemak Global Aluminum consumption
• 800 kton Aluminum usage for casting production
• Vertically integrated with self alloy production at Monterrey MEX, Wisconsin
US, Kentucky US and Bilbao Spain.

NEMAK GLOBAL ´14 : 794 KMT

USA/CANADA
TOTAL ALLOY SITE
EUROPE
ALLOY SITE
NORTH AMERICA 380 WIS* 319 DIL
380 ALA HPDC 380-319 POL
200 319 TEN
224 355-319 WER
380 KTY* 319-356 GYR
319 CAN HF 380 SPA* ASIA
319 ALA LF 356P-319 LNZ ALLOY SITE

505 MEXICO
356-356P SVK
319 CZR
31 319-386
319-380
319-380
NAN
CHE
CHQ

305 ALLOY SITE

319-356 MTY*
319 SAL
319-356 MVA

ALLOY SITE
SOUTH AMERICA 34 319-380 BRA
319-380 ARG

* Melting Center
10
Automotive Industry Overview

11
Aluminum trends in automotive
Growing car production in the coming years leaded by emerging
economies
 México will become the 6th world´s car producer, just below Germany
and overpassing Korea and Brazil

Source: Nemak research 12

Global light vehicle sales

US reached pre crisis levels, long term production growth due to capacity localization
China continues with significant growth
Europe recovering at a modest pace
´15-´20 Vehicle
(M units) CAGR Contribution
+3% (M units)
99.9
+2%
86.4 17.9 +1.5
85.7
79.1 81.4 +1.3
16.4 4.5
16.7 5.6 +1.0
15.8 15.8
3.0 3.2
3.0 5.3 4.6
3.4 5.9
5.9 30.3 +6.3
23.3 24.0
18.6 20.6

20.5 +2.0
17.7 18.0 18.5
18.2

17.2 18.4 19.4 19.7 21.1 +1.4

2012 2013 2014 2015 e 2020 e

North America Europe China South America India RoW

Source: Nemak research, IHS Automotive (September 2014) 13

Light vehicle sales per capita

Emerging countries with growing potential

50.4 50.2

40.4 40.5

16.2
9.4

3.5

Source: AMDA with information from OICA and the Population Reference Bureau 14
World, vehicle production

Growing production in emerging countries

Forecast 2021: + 100 mill Units

Source: IHS 15
México, Vehicle production

16
NAFTA, Vehicle production
Regional production increased 16% (1994 -2013)
 México by three times
Nafta countries contributed 19% to world production (2013)
New plants has been installed south US and Mexico

Source: AMIA with data of Ward´s Automotive Yearbook 2013 and OICA 17
Mexico Assembly plants
Over 5.0m cars to be produced in Mexico by 2020
 Premium brands installing plants at central Mexico
 KIA will be located northeast Mexico (Monterrey)
México will become one of the tops world´s car producer, just below Germany
and overpassing Korea and Brazil

Source: : INA with information from HIS Source: WSJ with information from IHS 18
Market trend

19
Aluminum trends in automotive
Growing car production in the coming years leaded by emerging
economies
 México will become the 6th world´s car producer, just below Germany and
overpassing Korea and Brazil
Stringent emissions regulation driving aluminum substitution
 Vehicle weight is a key lever to meet such regulations
Next wave of aluminum substitution to come from body-in-white,
including Structural Components
 Trend has already begun with European premium OEMs

Source: Nemak research 20

Light-weighting trend

OEMs implementing actions to reach aggressive fuel economy targets

 Powertrain, weight, transmissions, electrification
Light weighting trend will continue pushing aluminum usage
 Aluminum usage for vehicles will increase by US$30 B

Fuel Economy – Normalized to US Standards Pounds Per Vehicle

(MPG)
65
Targets in MPG:
60  US 2025: 56.2 +74%
 EU 2021: 60.6 426
55
 Japan 2020: 55.1

50  China 2020: 50.1

+31%
326

45
245
40

35

30

25
2000 2005 2010 2015 2020 2025 2002 2012 2020

Source: International Council of Clean Transportation, Ducker Worldwide 21

 Five different avenues to accomplished fuel emissions
regulations

Power
Engine technology Weight Transmissions Aerodynamics management
Aluminum castings

Engine Lightweight Dual clutch Optimized design Switch from

Levers Downsizing material (drag coefficient mechanical to
Increase
Energy loss New numbers of gears and frontal area) electric
reduction manufacturing Optimized tires accessories
Continuous
Turbo housing technologies variable Optimization of
Content transmissions accessories'
Vaporization &
optimization electric
combustion
consumption
optimization
Start-stop system

2020 max
potential
~40% ~8 – 12% ~5 – 10% ~5% ~3 – 5%
% CO2
reduced

Nemak Opportunities
Source: European Aluminum Association, BCG analysis, Nemak research 22
 Structural components with the highest projected growth
• Total aluminum usage expected by 2020: 20 million tons (100m cars x ~200kg/car)
• Structural components 20% share

NA and EU LV Aluminum Content

(pounds per vehicle)
475

426
109
380
85
350
57
324 43 64
301 33 58
Structural Components 24 54
50 39
46 37
Others 43 35
34
33 71
Heat Transfers 31 67
61 64
Wheels & Brakes 55 58
57
51 53
47 49
Transmissions 45
65 71 79
Engine Blocks 51 55 60

Cylinder Heads 52 53 54 55 55 57

2009 2012 2015 2018 2021 2025

Source: Ducker Worldwide, Nemak research 23

Premium OEMs expected to drive aluminum growth

Top 20 vehicle models with highest Aluminum content (2012)

(Aluminum kg / vehicle)

Al weight Units produced

percentage (K)
Range Rover 561 21% 27
Al complete
Jaguar XJ 546 30% 15
(body &
Audi A8 538 28% 36 suspension)
Jaguar XK 453 27% 4
Mercedes S-Class 388 19% 61
BMW 7 353 18% 57 Al Intensive
Audi A7 322 18% 29 (doors or
BMW 5 307 19% 370 partially
Porsche Panamera 306 17% 27 body &
Porsche Cayenne 279 13% 83 suspension)
Audi TT 270 18% 22
Audi Q5 228 13% 210
VW Touareg 219 10% 88
Volvo XC60 203 11% 113
Mercedes C-Class 202 13% 394 Above avg.
Audi Q3 200 12% 107 Al content
BMW 3 198 13% 415 (hoods &
Land Rover Evoque 194 11% 112 suspension)
Volvo S60 184 12% 68
Audi A3 169 13% 165
0 50 100 150 200 250 300 350 400 450 500 550 600

Source: Ducker Worldwide, Nemak research, IHS Automotive 24

 Secondary Foundry Alloy (SFA)
Higher content of hardeners (Si+Cu) and wider ranges for non desired elements
(Fe+Zn), allowing the usage of scrap material:
380 - AlSi9Cu3 – 226 – ADC12 319 - AlSi7Cu3 356.1 - 233 – AC2A

Primary Foundry Alloy (PFA)

High aluminum content and lower tolerances to impurities
Main alloy for the upcoming structural components
Only able to be produced with primary metal: 356.2 - AlSi10MgCu
Chemical Composition Aluminum Alloys*
Al Fe Zn Si Cu Mn Mg Other Industry served
P1020
1100
2010 P Packaging
r
3003 i
m
5154 a Naval
r Construction
6063 y
7021 Aerospace
356.2 PFA
Nemak 356.1 S SFA
e Automotive
Alloys 319.1 c SFA
o
n SFA
380.0 d

50% 60% 70% 80% 90% 100%

*Avg. content (Aluminum Association) 25
Production of Secondary Foundry Alloys

Scrap coming from different alloys and industries

Raw Material
• Twitch (Shredded automotive scrap) • Taint Tabor (Old Sheet)
• Turnings (Chips) • Extrusions, MLCC
• UBC (Aluminum cans) • Alloy elements
- Copper
- Silicon (3303 and 553)
- Others (Mg, Mn, Sr, Ti, B, etc)
Aluminum Market

27
Aluminum trends in automotive
Growing car production in the coming years leaded by emerging
economies
 México will become the 6th world´s car producer, just below
Germany and overpassing Korea and Brazil
Stringent emissions regulation driving aluminum substitution
 Vehicle weight is a key lever to meet such regulations
Next wave of aluminum substitution to come from body-in-white,
including Structural Components
 Trend has already begun with European premium OEMs
Aluminum pricing is volatile and under uncertainty (Financial
deals, Queues, Scrap exports, Energy pricing, Forex, China´s
exports of semis…)

Source: Nemak research 28

Primary Aluminum trend
By 2014, prices remained attractive for producers due to huge demand from
financial players for aluminium to finance and make a risk free return higher than
for other risk-free assets
Smelters covered costs with record premia, pushed by queues and financial
deals, reaching on Jan´15, 28% of LME price
After step out of financial investors, new warehousing rules and extra offer of
semis from China, pricing and premium are dropping.

Source: LME, Platt´s, Nemak Global Metal Report

Aluminum Scrap demand
Countries under development the main importers of foreign scrap
Slowdown in China´s economy and limitation in lower scrap grades (green fence
strategy) are decreasing the scrap´s appetite
The US scrap exports remains above 1.7 mtons/year (decrease of 300 kton vs ´11)

US Exports of Aluminum Scrap (ktons)

1,999

1,715
1,515

631

Source; Compiled by Nemak with data from U.S. Commerce Department and AMM 30
Primary vs Secondary aluminum
Increased alloy demand and scrap shortages supported secondary alloy price
(2013 – 2014)
Drop in primary prices is pushing down alloy pricing, but with lower slope

Source: LME, Platt´s, Nemak Global Metal Report

Primary Aluminum, Price forecast
Bullish sentiment across analysts, but complex year derived in low assertiveness
 Low energy pricing, strong dollar, financial deals, queues, China´s exports of semis….

@ 30 Oct

Source: Bloomberg 32
Primary Aluminum, Price forecast 2016
Reuters´ poll (October) has forecasting aluminum surplus up to 1.3 mtons
Forecast price of $1650/ton (high/low of $1900/$1490)

2016 market Balnce (tons) 2016 Price Forecast

Source: Reuters 33
Secondary Aluminum
Lower availability and higher cost derived into tight margins
 Decrease in China´s appetite for scrap
but
 Depressed ferrous pricing are limiting shredding of cars, reducing raw
material availability to heavy media plants (Twitch)
 Lower metals prices and cold weather, demotivates post consumer scrap
collection (Old cast, Old Sheet, UBC)
 Improved closed loops between producers and consumers are limiting scrap
availability to the dealers (MLCC, new extrusions, Chips)
 Freight is becoming an important share of the cost

Industry requires a right strategy to improve efficiency and to promote

social and environmental conscience.

Source: Reuters 34
Aluminum trends in automotive
Growing car production in the coming years leaded by emerging economies
 México will become one of the top world car producer, just below
Germany and overpassing Korea and Brazil
Stringent emissions regulation driving aluminum substitution
 Vehicle weight is a key lever to meet such regulations
Next wave of aluminum substitution to come from body-in-white, including
Structural Components
 Trend has already begun with European premium OEMs
Aluminum pricing is volatile and under uncertainty (Financial deals,
Queues, Scrap exports, Energy pricing, Forex,…)
Opportunities in the aluminum supply chain
 Direct relationship with producers
 Long term formula contracts
 Closed loops among producers and consumers
 Material Swap, reducing logistics and process cost
 Improve recycling rate and keep it within the region
 Hedge to reduce exposure to market volatility
 Build loyal relationship

Source: Nemak research 35

Thank you

Norberto F. Vidaña
Aluminum, Market Intelligence
norberto.vidana@nemak.com