Zinc usage in the brass rod and related industry sectors MARCO CALAMIA

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1 Zinc usage in the brass rod and related industry sectors Metal Bulletin Zinc conference May 4-7, 2015 Helsinki, Finland MARCO CALAMIA Marco KME Calamia Group Head of Metal, KME Group, Italy 0

2 Who is KME Marco KME Calamia Group Head of Metal, KME Group, Italy 1

3 Kme European leader and innovator copper in copper products products Founded in 1886 and listed on the Milan Stock Exchange since 1897 A major European Group and the world largest fabricator of copper and copper alloy semi-finished products plus a wide range of high technological special products On average, KME posted a yearly turnover of 2.5 billion and produced approx between ktons of copper and copper alloy products Worldwide and European market leader of copper and copper alloy semi-finished products 12 plants in Europe and 1 in China ~10,000 shareholders ~20,000 commercial partners ~6,000 employees Headquarters in Florence Recycle SpA 100% Group S.p.A. 100% Germany A.G. Marco KME Calamia Group Head of Metal, KME Group, Italy 2 Italy Italy SpA Brass Italy Srl France France SAS Brass France SAS Germany Brass Germany Gmbh 100% Germany A.G. Spain S.A. & Co. KG Architectural Ibertubos S.A. Metals Gmbh & Co.KG Spain UK China Locsa S.A. Yorkshire Ltd Dalian Dashan Chrystallizer Co. Ltd Dalian Surface Machinery Co. Ltd. Dalian Heavy Industry Machinery Co. Ltd.

4 Where is KME in the value chain KME Marco KME Calamia Group Head of Metal, KME Group, Italy 3

5 A world unique portfolio of products Division Product Main end uses Rolled Products Building, drainage, architecture, decoration, electrical engineering, connectors, boilers, coinage, solar collectors, snap fasteners, Tube Products Brass & Copper Rods Air conditioning & refrigeration, fittings, sanitary installations (water, heating, gas), boilers, electrical uses, thermal solar, medical industry Taps, valves and fittings, precision mechanical parts, automotive and transportation, electronic and electrical appliances, lock industry, building and architecture Special Shipbuilding, offshore, chemical Industry, machine building, house energy, steel industry Marco KME Calamia Group Head of Metal, KME Group, Italy 4

6 Brass rods business Marco KME Calamia Group Head of Metal, KME Group, Italy 5

7 Brass characteristics Brass is an alloy of copper and zinc with exceptional chemical and physical characteristics: Good mechanical resistance Very good thermal and electric conductivity Excellent anticorrosion property Excellent aptitude to surface treatments Marco KME Calamia Group Head of Metal, KME Group, Italy 6

8 End use processes End use process Molecular model of brass Free cutting and machining Top performance The highest speed in machining The longest life for tooling equipments Brass swarf vs. steel swarf The highest precision in final tolerance Brass products from free cutting Marco KME Calamia Group Head of Metal, KME Group, Italy 7

9 End use processes (cont.) End use process Press for hot stamping Hot stamping process Top performance Excellent plastic deformation Possibility to create complex forms Relatively (to steel) low process temperature High precision tolerance Industrial flow can combine more processes: Brass products from hot stamping Hot stamping Free cutting Cold bending High precision tolerance Marco KME Calamia Group Head of Metal, KME Group, Italy 8

10 Summary Because of brass: 1. Characteristics Chemical Physical Environmental and 2. Top performance in the industrial process of Free cutting Hot stamping Brass rods are the optimum material to produce components in large series Marco KME Calamia Group Head of Metal, KME Group, Italy 9

11 Final market Brass rods are closely connected with their applications sectors: Building and construction activity Industrial investments White goods Electronic and telecommunications sectors Transportation Marco KME Calamia Group Head of Metal, KME Group, Italy 10

12 Production and Products Marco KME Calamia Group Head of Metal, KME Group, Italy 11

13 Product Overview Product Class Rods Other Products Products Solid rods Hollow rods Profiles Brass wires Description Rods with different shapes for different mechanical treatments (i.e. free cutting, hot stamping and cold forming) and flat bars for decorative use. With a wide variety of shapes, are essential for several applications requiring hollow mechanical parts (i.e. plumbingheating industry). Brass profiles, with a wide range of industrial applications, can meet specific needs of engineers, architects and designers. Wires show several strengths in precision turning applications and are utilized for the making of small precision machined components. Main Applications Taps, valves and fittings Taps, valves and fittings Construction and mechanical components Wires and electronics components Marco KME Calamia Group Head of Metal, KME Group, Italy 12

14 Production Production Process Raw materials processing Melting and Casting Extrusion Drawing Finishing Stocking and packaging Marco KME Calamia Group Head of Metal, KME Group, Italy 13

15 Product Overview Brass has exceptional chemical and physical characteristics making it suitable for many industrial applications. Almost 90% of production is based on two brass alloys (approximately 58-62% of copper and 36-40% of zinc) with a minor content of lead (roughly 1-3%) used to produce standard products and some of tailored semis procurement is based almost 90% on recycled materials and only 10% on virgin metals (exclusively zinc ingots). Brass recyclability is one of the key success factors for semis manufacturers. Marco KME Calamia Group Head of Metal, KME Group, Italy 14

16 Procurement Zinc Ingots Producers Industrial Scraps Finished products manufacturers Semis manufacturer Waste Scraps Door-todoor collectors Single-truck entrepreneurs Big Dealers Turnings/ swarf Material in tolling form customers Marco KME Calamia Group Head of Metal, KME Group, Italy 15

17 Procurement These products are using more or less 100% of scraps. New metal is limited to some GOB quality Zinc ingots and some master alloys for the production of special alloys. Scrap used are : Leaded Brass scraps new scraps: in large part turnings from brass rods machining old scraps: taps, valves, fittings and any other Leaded Brass component when dismissed Second Quality Copper scraps ( S-Cu 5/6/7/8 ) Zinc scraps Since decades, this production represents an example for the recycle and reuse of new and old scraps Marco KME Calamia Group Head of Metal, KME Group, Italy 16

18 Usage of zinc in Brass business Zinc represent an high presence of content in the brass alloy, in the region of 40%. Sourcing is made by: New metal Scrap The switch between the 2 sources is mainly due to the following drivers: Technical aspect Scrap market Availability Discount Marco KME Calamia Group Head of Metal, KME Group, Italy 17

19 Zinc procurement market - new metal Main products are: GOB zinc ingots; very useful because of the lead content, totally fitting with the leaded brass alloy; cheaper than other new metal zinc, but few producers Zinc ingots from secondary fusion; high impurity but acceptable; anyhow the cheapest new metal HG/HG ingots; used just for special alloy, now concentrated on SHG because of the lack of availability of HG Marco KME Calamia Group Head of Metal, KME Group, Italy 18

20 Zinc procurement market - scrap Zinc scrap is an important source for the brass rod production; the usage is strongly influenced by the availability and mainly by the discount, that is priced in percentage (for copper is mainly priced in absolute value) Scrap mainly comes from collection (building demolition ecc ) and less from industrial production Usually it is quite polluted by other material (dust, other metal ecc) Marco KME Calamia Group Head of Metal, KME Group, Italy 19

21 Impact of tolling business in the scrap usage An important source of scrap in some business is the recycling from customer, so called tolling business, in which the customers send back its own recycle to the fabricator, providing in this way the raw material and paying just the transformation value This type of business historically is very important in the brass rods business, in which the customers destroy the metal product in their production cycle producing turnings that are given back to the fabricator; this represents an important part of the business (statistically and technically more than 50% of the total business) Marco KME Calamia Group Head of Metal, KME Group, Italy 20

22 Hedgeability Hedgeability of brass rods business is applicable, but could present some difficulties Pricing is strict link with LME price, but not totally, so between real cost of metal and LME price some difference could occur Different discounts in different time can create deviation in hedging Metal price level content in the scrap can create deviation linked to the metal not all the scrap traders use the paper hedging in their activities and sometimes they have a very speculative approach QP is more difficult to manage. Marco KME Calamia Group Head of Metal, KME Group, Italy 21

23 Brass rods in KME Marco KME Calamia Group Head of Metal, KME Group, Italy 22

24 Kme Brass factories KME Brass facilities KBI KBF KBG Overview Serravalle (1) Boisthorel Berlin KME Brass output kt kt kt ~60 ~65 ~60 % % % KBI KBF KBG 2014 capacity utilization KME Brass HR % 38% 42% KBI KBF KBG Brass Output: kt p.a. Plant Saturation: ~60% Total Area: 242,000 sqm o/w brass-related: 38,000 sqm Personnel : 159 Semi-continuous foundry process Foundry: 2 furnaces Extrusion: 3 heating furnaces; 2 extrusion presses Finishing: 2 annealing furnaces Products Solid rods Leaded wires Brass Output: kt p.a. Plant Saturation: ~60% Total Area: 360,000 sqm o/w covered: 56,000 sqm Personnel: 322 Semi-continuous foundry process Foundry: 3 furnaces Extrusion: 4 heating furnaces; 3 extrusion presses Finishing: 1 annealing furnace Solid rods Hollow rods Profiles Binary wires Leaded wires Brass Output: kt p.a. Plant Saturation: ~65% Total Area: 73,000 sqm o/w covered: 44,000 sqm Personnel: 292 Continuous foundry process (3) Foundry: 3 furnaces Extrusion: 3 heating furnaces; 2 extrusion presses Finishing: 4 annealing furnaces Solid rods Hollow rods Flat bars Profiles Leaded wires Marco KME Calamia Group Head of Metal, KME Group, Italy 23

25 Break down of procurement and sales Procurement Overview Figure 27 - Metals procurement breakdown by category Figure 28 - Scraps procurement breakdown by category % 11% 57% Conversion Scraps Virgin metals 29% 15% 56% Copper Brass Zinc Note: These figures refer to procurement in terms of volumes. Source: Management elaboration Note: These figures refer only to purchases of scraps in terms of volumes. Source: Management elaboration sales (by product Figure 21 - Product classes within the product portfolio Product Class Rods Other Products Products Solid rods Hollow rods Profiles Brass wires (leaded and unleaded) Weight (1) 74% 15% 3% 8% Market Total Legend KME Brass 2014 turnover mn % of total Production plant 94.5% 1.7% 1.2% RoW % Served country Source: Management data % 22.9% % % % 100.0% Sales (by areas) KME Brass has a strong presence in Europe, with a focus on Italy, Germany and France. Europe accounts for approximately 95% of total sales. Marco KME Calamia Group Head of Metal, KME Group, Italy 24

26 Thank you for your attention Zinc usage in the brass rod and related industry sectors Metal Bulletin Zinc conference May 4-7, 2015 Helsinki, Finland MARCO CALAMIA Marco KME Calamia Group Head of Metal, KME Group, Italy 25