Silicon Carbide & More What s going on in silicon carbide, fused alumina & other minerals #43 December/January 2012

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1 Silicon Carbide & More What s going on in silicon carbide, fused alumina & other minerals #43 December/January 2012 New Furnace Update By Kormac Kennedy SiC & More #42 announced the development of a SiC furnace plant along with microgrit production by Silicon Carbide Technologies of Saint Petersburg, Russia. The plan is for a 50,000 tpy crude plant to be built in Siberia. Eastern Siberia has enough raw materials, necessary energy sources and good transportation. Special technical solutions should be found to run the big furnaces in low temperature conditions, the developers commented. The Russian SiC furnace and microgrit projects carried out by Silicon Carbide Technologies keeps progressing. In December 2011 the projects were supported by the Russian Ministry of Economic Development and Silicon Carbide Technologies became a resident of a Special Economic Zone in Lipetsk. This gives the company cheaper infrastructure and several tax exemptions. An area of 10 hectares has been assigned for the construction of a SiC microgrit plant. The plant project is now being developed together with Russian project engineering companies and world class manufacturers of microgrit production equipment, SiC & More was informed by the project initiators. Feedback about the impending project from traders is quite interesting. Global powders supply already outpaces demand by a long shot so the last thing we need is another large powders plant, one trader said. On the other hand, if China has nearly 1,000,000 tons of powders capacity and only operates at 40% utilization, certainly the Russian solar landscape can support a 10,000-20,000 ton microgrit plant, another commented. SiC & More agrees with the second trader. There is no question that the global solar industry is currently in a funk, however, solar energy demand is not going away and energy pricing from nuclear and fossil fuel sources will continue to increase, narrowing the pricing gap between alternative power sources. It has still not been possible to confirm the status of a proposed SiC furnace plant in Vietnam, but some sources believe the project is moving forward. Whilst is it believed that ground-breaking for the new facility has yet to occur, contracts have been negotiated and one source believes construction will begin during 2Q12. To be a world class plant, the facility will need world class energy pricing. SiC & More queried global experts about energy pricing and was told that the Vietnam plant could have energy pricing in the range of 5-6 per kwh; world class by today s standards. The other potential project mentioned in issue #42 was a proposed furnace plant in Paraguay. The project is on the drawing board but a time frame and/or status report could not be obtained or confirmed. Inquiries to sources that have worked NEWS ASIA SiC Processing continues China expansion SiC Processing announced that it has signed a loan agreement with DEG-Deutsche Investments, a subsidiary of the KfW banking group, to continue production expansion in China. The 15M loan has a six year term, and will finance the construction of production lines 5 and 6 in Baoding as well as one line at a new site in China, to be determined, with annual processing capacity of 15,000 tpy each. After completion of the two new lines in Baoding currently under construction - the Baoding plant will reach 90,000 tpy of processing capacity by 2Q12. Navarro at capacity Spanish SiC producer Navarro continues to defy adverse economic conditions at home and operate its Vadillos and Mulas plants at full capacity. Navarro remains a highlight in an otherwise dismal economy as Spain continues to experience one of the highest unemployment rates in the European Union (EU) and with virtually no growth expected for 2012, says company official Antonio Fernandez. The key to Navarro s success was management s decision to emphasize exports of SiC to other EU countries, Latin America and Asia as well as initiating strict cost reduction measures. Navarro s energy prices recently increased about 10% but the company has benefited from a slight reduction in global pet coke prices. The company expects a fall in SiC prices in 1Q12 and probably 2Q12, says Fernandez. Navarro s SiC powders business remains healthy even though the Page 1 1

2 on SiC furnace business plans stated that energy pricing in Paraguay should be considered world class and probably in the 4 per kwh range. One of the principals of the defunct Canadian SiC furnace plant plan said that Paraguay, as well as Colombia, had been on its radar due to potential energy pricing advantages. Although energy pricing is integral to a successful SiC furnace plant, a cooperative government (environmental issues) and a high quality source of sand and coke are also very important. In the case of Mexico and South Africa, these two markets had arguably the least expensive energy pricing in the world just ten years ago, but that is no longer the case. Regarding the proposed Canadian plant, inexpensive energy pricing was available from Hydro Quebec, however, environmental compliance and a global recession finally brought that project to a halt. global micro business has fallen off since mid-2011 due to sluggish silicon wafer demand for the solar industry, and reduced diesel particulate filter demand. Traditional micro product markets such as bonded abrasives and refractories have also slowed. Nevertheless, Fernandez remains optimistic and expects a prosperous 2012 particularly in the second half year. SiC Powders Update The quest to determine a realistic matrix of global SiC powders producers continues. Although SiC & More suspected that capacity estimates for China were low, we didn t realize just 2012 World SiC microgrit capacity estimate (mt) Company Country Capacity Estimates in net tons Alcoa Brazil 500 China Henan 220,000 Jiangsu 63,000 North East 37,000 Shandong 20,000 Ningxia 40,000 Xinjiang 110,000 CUMI India 6,000 Electro Abrasives USA 1,200 ESK-SIC Germany 36,000 Fujimi Japan 8,000 Micro Abrasivos Mexico 1,200 Nanko Japan 5,000 Navarro Spain 1,200 St. Gobain Brazil 2,000 St. Gobain India / China 1,000 St. Gobain Norway 44,000 Washington Mills Norway 30,000 Shimano Electric Refining Japan 7,000 Showa Denko Japan 1,200 TGA Czech Rep 800 Volzhsky Russia 500 Washington Mills UK 300 Zaporozhabrasive Ukraine 600 Pacific Rundum, Yakushima Japan 2,000 Total 638,500 Source: SiC & More estimates, company information how soft our estimates were until late last year. The last matrix was published in August and we have since complied a powders capacity estimate for China by province. The results are astounding. China produced about 75,000t of SiC in By 1990 its capacity had grown to 150,000t and it began to trade SiC. While the Western Hemisphere shutdown furnace plants in the 1980s and 1990s, China built large facilities, particularly in its northwest provinces. By 2000, China had furnace capacity of about 690,000t that ballooned to 1,020,000t in Most of that production was dedicated to traditional black SiC markets and China s tremendous domestic demand growth. The 2012 SiC furnace capacity estimate for China is an astounding 1,900,000t, with a large capacity growth in recent years coming in the shape of green SiC for the solar energy market. The growth in powders capacity has greatly outpaced demand to the point that capacity utilization is quite low. On the other hand, some SiC experts believe China s powders capacity is nearing 1,000,000t! BFA Pricing remains stable A year ago, power restrictions in the largest Chinese brown fused aluminum oxide (BFA) producing provinces caused prices to increase by US$100 nt over a four-week period. Since then, prices have remained surprisingly stable especially considering the general 2011 run-up in commodities pricing. At the end of 2010, Chinese agencies enacted policies to mandate energy saving and pollution reduction that greatly affected BFA production, most notably in Henan province. At that time, Henan had furnace capacity of 400,000 mtpy. The power restrictions shutdown the majority of these. When the Henan furnaces came back on line in February and March 2011 the majority of the US$100 nt price increase stuck. BFA prices have not moved by more than US$50/t since the end of 1Q11, as forecast in SiC & More #42. Despite recent efforts by BFA producers in Henan and Guizhou provinces to increase prices by US$20-30/t, they have not moved. Henan producers in particular claim they are hit by higher energy pricing in the winter months and must increase prices or shut their furnaces. Page 2 2

3 REMs: hard to refine By George O Malley A rare earth oxides refining operation can refine either light Rare Earth Metals (REMs) or heavy REMs but not both. Virtually all ore refining, with the exception of a small plant in Albania, is performed in China. This will change when the Molycorp s Mountain Pass refinery in California comes on-line in 2012 to produce light REMs (Ce, La). Phase I production of the Molycorp operation should reach 19,000 tpy of rare earth mineral and the company has allocated 78% of the planned output of the Mountain Pass facility. Customers have negotiated for 58% of the total off -take with 20% dedicated to Molycorp s water-treatment products. The bad news for Molycorp is that REM prices have fallen due to lower demand, although the bottom may have been reached. La and Ce mischmetal demand remains weak with prices down almost 20% in December 2011 to US$9.60/lb. Neodymium for neo magnets has fallen about 30% since September. In addition, there is currently little REMs market activity. Regarding alloy prices, standard manganese is heading toward US$1,100/FT as demand weakens. Silicomanganese has fallen to US$0.49/ FREIGHT RATES Origin Lot size Rate/metric ton Brazil 10,000 mt $45-55 China (North) Any bulk cargo $32-34 China (South) Any bulk cargo $42-56 India 5,000-10,000 mt $42-48 Russia Small bulk 3,000 mt $70-90 Russia Large bulk 20,000 mt $42-50 lb or lower for large quantities, which is about the cost of production. Regular grade FeSi 75% lump is quoted in the US$ /lb range whilst foundry grade 75% lump is slightly higher. Nickel is quoted at US$8.40/lb and molybdenum is below US$16/lb. Steel scrap increased price in December and should do so again in January. Some of this is due to a price overcorrection in November and some say this is just the usual price increase in anticipation of winter weather. Copper prices have started to rise as China is buying again. China restricted purchasing in 2011 to fight inflation. The US dollar is higher against the euro while the Australian dollar has fallen in value. The yuan has devalued slightly and the yen is falling. This makes alloy pricing difficult as chrome oxide is mined in Australia, refined in China and sold worldwide. Several currencies are involved in price calculation and there are fuel and, sometimes, energy surcharges. A currency surcharge may also added. Most North American foundries that supply the auto industry are in a sold out position. The steel industry remains sluggish at 74.7% capacity utilization but this is better than Page 3 the 70.4% in US auto sales in increased 10% to 12.8M in 2011, up 22% over 2009, and 2012 is expected to be better, though a far cry from the 16M units the US became used to. Although a price increase is probably justified due to higher electricity costs and difficulty procuring bauxite, sluggish enduse market demand is supporting the resistance to any price increase, a trader said. There was a concerted effort to increase lump (crude) pricing by US$25/t and sized material by up to US$40/t, however, the market is currently not going to accept these increases, another trader said. SiC & More expects Chinese producers and traders to continue to try and increase prices through February. Many furnace plants have been shutdown in Henan as many as 50-60% according to one source and with the Chinese New Year at the end of January an artificial shortage is ìn the cards. Despite electricity price increases and a short-term bauxite shortage, SiC & More expects prices to remain stable with BFA with slightly higher SiO2 ( %) in the US$ /t range CIF NOLA while lower SiO2 (1.1% and under) is US$ /t CIF NOLA. White FAO prices flat White fused aluminum oxide (WAO) prices remain flat. There is some small movement across different regions and markets, however, the consensus amongst traders and processors is that prices will remain flat throughout 1Q12. A Chinese trader said prices for WAO grain are in the US$775- $825/mt range FOB China factory. Although there appeared to be both crude and grain at port, the Chinese New Year holiday will return supply and demand to balance. In December 2011, Frenchbased mineral group Imerys 3

4 Where to with SiC Prices? said it will establish a joint venture with Al Zayani Investments to build a plant in Bahrain. Imerys is one of the world s leading producers of fused aluminum oxide products, active in 47 countries and with sales of 3.3Bn in By Kormac Kennedy The softening of world SiC prices was caused by a drop in the price of Chinese export licenses. The price of licenses, which had inflated up to US$550/t in June 2011, dropped significantly in November and December 2011 as SiC demand fell off resulting in excess export licenses being available. As SiC & More #42 was published, prices had fallen by about 10% and in late November and early December they fell another 10-20%, depending on SiC grade and end-use market. In December, China announced that the export license allocation for 2012 would be the same as for 2011, and that 70% of the 2012 SiC allocation would be made available during the first six months of the year. As a result, 151,200 m/t of SiC will be available for export during the first half of Some think this will cause prices to slide further. With prices on specific metallurgical and refractory products having already dropped by about 25%, the additional availability of licenses will only exacerbate an already tenuous price situation and prices will continue to drop, a trader told SiC & More. A more likely scenario would be that if licenses did not sell as expected during the first half of 2012, the 151,200 m/t could be the only allocation for the entire year, a second trader commented, meaning that the final 63,800 m/t would not be allocated. Such a possibility seems to have created enough apprehension in the supply chain that it is creating price increase pressure. However, other variables have also helped firm prices. The cost of export licenses has increased since December 2011 and energy pricing across China has increased for the winter months. The majority of green furnaces have been shutdown while black furnace production has been scaled back. Across all markets, demand for SiC in China has softened and as the Chinese New Year begins at the end of January virtually no SiC will be produced, processed or shipped for at least two weeks, and there is also very little material at port compared to 90 days ago. As a result, the early January price quotes out of China have firmed 10-12% from the lowest quotes of mid- December. It is still to be determined if those prices will stick. Since SiC & More did not publish in November or December, the pricing information in this issue will be a bit misleading as prices dropped significantly from October through December 2011 but increased 10% in early January. MAGNESIA Prices soften Prices continue to soften on all grades of fused and dead burned MgO. Fused MgO prices dropped another US$50/mt after falling by over US$100/mt in September/October In addition, prices for dead burned fell another US$25/mt. Steel production has fallen in China and is flat in most regions. MgO is the single largest raw material for producing steel refractories, and demand has suffered accordingly. Even before this oversupply was beginning to plague the industry and when MgO prices spiked, processors and users found alternative sources and substitutes. SiC & More #42 forecasted a 5% fall in prices in late 2011 and that prediction seems to be holding true. Contact with traders leads us to think that prices will fall a few percentage points at the start of the year then be flat into 2Q12. In December 2011 China announced that 1.8M mt of MgO export licenses would be available in 2012, the same as in Refractory grade bauxite tonnage, on the other hand, was reduced from 830,000 mt in 2011 to 700,000 mt. Silicon Carbide & More Publisher: Kormack Kennedy Editor: Paul Harris. Copyright information: Copyright 2012 by Silicon Carbide & More Inc. All rights reserved. Information contained in Silicon Carbide & More may not be redistributed, reproduced or put into an information retrieval system without prior written permission. Silicon Carbide & More is published five-eight times per year. Subscriptions: $350 per year for a single user; $450 per year for a multiple-user company subscription. For more information call or kormackennedy@aol.com. Silicon Carbide & More, PO Box 503, Glen Ellyn, IL Information contained in Silicon Carbide & More has been obtained from sources believed to be reliable but due to the possibility of error by Silicon Carbide & More, or others, Silicon Carbide & More does not guarantee the accuracy, adequacy or results obtained from the use of such information. SiC Feedback & News line Our staff is dedicated to seeking out the information you need to stay on the leading edge of silicon carbide and related businesses. Please industry news, press releases or details of other events of note to us at the address below. If there are specific supply issues or topics that you would like to see discussed in future issues of Silicon Carbide & More, please your ideas to us at: kormackennedy@aol.com Page 4 4

5 Fused mineral pricing Western Europe SiC - Metric Tons 88-92% Metallurgical (EU Producers) 980-1, % Metallurgical (Russia) 960-1,090 90% Refractory; Typical Sizes 1,090-1, % Refractory; Typical Sizes 1,150-1,240 97% Refractory; Typical Sizes 1,280-1, % Refractory: Typical Sizes 1,300-1,370 98% FEPA F12-F90 1,390-1,460 98% FEPA F100-F220 1,420-1,490 98% FEPA Black F600 3,500 98% FEPA Black F800 3,490 98% FEPA Black F1000 3,950 98% FEPA Black F1200 4,200 98% FEPA Green F8-F220 1,900-2,175 98% FEPA Green F600 4,550 98% FEPA Green F800 5,075 98% FEPA Green F1000 5,400 Middle Europe SiC - Metric Tons 88-92% Metallurgical (Russia) 940-1, % Metallurgical (Romania) 950-1,000 98% FEPA F12-F90 1,275-1,320 98% FEPA F100-F220 1,290-1,360 97% Refractory, Typical Splits (Czech) 1,200-1,330 98% Black 320 (Czech) 1,700 98% Black 500 & 600 (Czech) 2,100-2,350 97% Black 800, 1,000 & 1,200 (Czech) 2,350-2,500 USA Other SiC - Net Tons 97% Refractory, Hi Fe (China) $1,700-1,740 97% Refractory, Low Fe (China) $1,750-1,795 97% ANSI Grit (PNAM) (FOB SP) $1,800-1,900 97% ANSI Grit (PNAM) (FOB SP) $1,900-2,050 98% Black F500 & F600 $3,800-4,000 97% (Russia) $1,650-1,690 97% 90 & 220 (Russia) $1,730-1,795 Magnesite Metric Tons 97.5% Fused FOB China port $ % Fused FOB China port $ % Fused FOB China port $ % Fused FOB China port $ % Fused FOB China port $ % Dead burned briquette $ % Dead burned briquette $ Middle Europe Alox - Metric Tons 8-46 Grit Bonded Abrasive (Ukraine) Grit Bonded Abrasive (Ukraine) 890 WAO F12-F150 Bonded (Czech & Russia) 950 WAO F12-F150 Bonded (Hungary) 970 WAO Refractory, Typical split (Hungary & Russia) USA SiC & Al2O3 FOB New Orleans - Net Tons 90% Metallurgical SiC (China) $1,075-1,150 97% Crude SiC Refractory (Russia) $1,475 97% Crude SiC (China - Pet Coke) N/A 97% Crude SiC (China - Anthracite) $1,450-1,520 Al2O3 Crude (China) bulk (1.5 silica) $ Al2O3 Crude (China) bulk (1.1 silica) $ US Brown Al2O3 (PNAM) FOB SP - Net Tons ANSI $980-1,000 ANSI 80 $1,030-1,150 ANSI $1,000-1,150 ANSI 120, 150, 180 $1,080-1,160 ANSI 220 $1,100-1,300 China SiC & Brown Al2O3: FOB Regions Metric Tons 98% Black F $1,600-1,690 98% Green F $2,450-2,500 98% Green F280 & F320 $3,250 98% Green JIS 1,000 $4,050-4,135 98% Green JIS 1,200 $4,800-4,950 98% Green JIS 1,500 $4,750-4,840 98% Green JIS 2,000 $4,465 98% Brown AO 36 Grit $ Miscellaneous Ref Bauxite (China) (3.15) FOB China (m/t) $ % FeSi (USA) (Contained Si) FOB Ware (/lb) $ WFA FEPA grtis FOB China port (m/t) $950-1,000 Pig Iron, steel quality NOLA (g/t) $ Pig Iron, Nodular (m/t) $ Hi Carbon FeCr (lb Cr) FOB Ware (/lb) $ FeP, FOB Ware (/lb) $ FeMo, FOB Ware (/lb) $ FeTi, FOB Ware (/lb) $ Prices ex-works, dry sieve per metric ton, except USA which are net tons. Chinese SiC 52.6% anti-dumping duty in EU. RoC = Run of Crusher. PNAM = Processed North America, SP = Shipping Point. WAO = White Aluminum Oxide. N/A = Not available. Price information has been obtained through contact with sources engaged in the trade of silicon carbide. Actual transaction prices will be determined by a host of factors, including, but not exclusive to, quantity, grades, contract terms and various other factors. Price information sources are deemed to be reliable but due to the possibility of error by Silicon Carbide & More, or others, Silicon Carbide & More does not guarantee the accuracy, adequacy or results obtained from the use of such information. All price information 2012 by Silicon Carbide & More Inc. Page 5 5