Challenges of global chrome alloys market & CIS suppliers' position in terms of consolidation

Transcription

1 Challenges of global chrome alloys market & CIS suppliers' position in terms of consolidation Dmitry Pastour, CEO Metal Expert. 3rd CIS Ferroalloys Conference Tbilisi, Georgia September 1

2 Disclaimer This document includes forward-looking statements that reflect the current views of the UNICHROME management with respect to future events. These forward-looking statements include matters that are not historical facts or are statements regarding the UNICHROME s intentions, beliefs or current expectations concerning the industries in which UNICHROME operates. Forward-looking statements are based on current estimates and projections, and therefore too much reliance should not be placed upon them. Such statements are subject to risks and uncertainties, most of which are difficult to predict and generally beyond UNICHROME's control. UNICHROME cautions the readers that forward-looking statements are not guarantees of future performance and that if these or other risks and uncertainties materialise, or if the assumptions underlying any of these statements prove incorrect, the development of the industry in which UNICHROME operates may materially differ from those made in, or suggested by, the forward-looking statements contained in this document. In addition, even if the outcomes and developments of the industry in which UNICHROME operates are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of outcomes or developments in future periods. UNICHROME does not undertake any obligation to update or change any forward-looking statements to reflect events that occur or circumstances that arise after the date of this document. Industry data is sourced from ICDA, Metal Bulletin, FerroalloyNet, OANDA (), Heinz H. Pariser (). 2

3 Charge Chrome Market Share 33% Low Grade High Carbon Market Share 48% High Grade High Carbon, Market Share 19% Charge & HC FeCr classification Cr: 65 72% C: max 10% Si: max 2.5% Production: 2,083,710 Albania Kazakhstan KazChrome Russia Sweden Turkey AlbCHROME Tikhvin, Serov, CHEMK Vargön (since 2008 only HC) Etikrom, Eti Metallurgij Cr: 57 65% C: max 10% Si: up to 4.0% Production: 5,283,946 China India Iran Zimbabwe Vietnam various IMFA, Facor, FAL, Balasore, Rohit, Tata. etc Faryab Mining Zimasco, Zimbabwe Alloys, Maranatha Nam Viet Ferrochrome Cr: 45 57% C: % Si: % Production: 3,731,593 Brazil Finland Sweden South Africa Ferbasa Outokumpu Cr Oy Vargön (until 08 Charge + HC) Xstrata/Merafe, Samancor, Hernic, ASA, IFML, Assmang, Ruukki, Tata Source: Heinz H. Pariser, ICDA Data 3

4 Examples of value in use for different groups of FeCr for a few different applications Requirements Stainless Steelmaker AOD/VOD use Special steelmaking Austenitic stainless steel Cr Fe Si S P Traces Sizing Best value in use FeCr 1. High Grade HCFeCr 2. Low Grade HCFeCr 3. Charge Chrome 1. High Grade HCFeCr 2. Low Grade HCFeCr 3. Charge Chrome 1. Charge Chrome 2. Low Grade HCFeCr 3. High Grade HCFeCr 4

5 Currencies of Chrome producing countries 110% 90% 70% 50% 30% Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q Q1 Q2 Q3 Q4 Q1 Q2 Q3 Source: OANDA ZAR/USD KZT/USD CNY/USD RUB/USD INR/USD 5

6 Price dynamics: base and spot prices in Europe, USA and spot prices in China Source: Metal Bulletin EU Benchmark (LHS) EU HC Spot (LHS) RN HC Spot (LHS) FeCr China spot 6-8% C (RHS) 6

7 Source: ICDA, September 7

8 China tender prices vs. imports of HC Ferrochrome (10,000 tons) vs. CIF Shanghai Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep 0.00 Imports Baosteel TISCO Tsingshan CIF Shanghai Source: Ferroalloys.net, Metal Bulletin, September 8

9 Chrome market overview The price fall in China in May June was overdone, looked artificial and should rebound by Q4 latest. The actual demand in China was not actually down starting May, import volumes of ore to China were on the high level. Chrome ore demand continues to keep the high level and Ore prices have moved up from the bottom reached in June. FeCr prices in China have equally started moving up in July and again accelerated in August. Other FeCr consuming regions including EU and Japan continue to show growth numbers. On the other hand, there is no sign that the Cr industry is going to expand to the extend which may be required in order to support consumption growth. 9

10 Stianless Steel Production, in Mill t Charge / HC FeCr Production, in Mill t Stianless Steel Production, in Mill t Charge / HC FeCr Production, in Mill t Crude Stainless Output, in Mill t Ferrochrome Output, in kt Crude Stainless Output, in Mill t Ferrochrome Output, in kt Global ferrochrome industries: past, present and future Crude Stainless Output Domestic FeCr Supply USA FeCr industry 1974: 306 kt 1981: Macalloy temporarily suspends : producing for DLA stockpile (~ 50kty) 2015: 2.5 Mill t 1998: Exit Domestic FeCr Production 0.0 production Crude Stainless Output Domestic FeCr Supply Japan FeCr industry 1972: Start-up SDK Plant 1974: 540 kt Strategic Investments and Partnerships in SA 2004: 4.2 Mill t 2002: Exit Domestic HC FeCr Production (LC continues) Stainless Steel Production Source: Heinz H. Pariser China FeCr industry 1 Charge/HC FeCr Production ? China FeCr industry Stainless Steel Charge/HC FeCr Production Production

11 China forecasted scrap to virgin Cr ratio 120.0% 100.0% 80.0% 45.0% 60.0% 73.2% 68.9% 60.0%? 40.0% 55.0% 20.0% 26.8% 31.1% 40.0% 0.0% Scrap CR Virgin CR 11

12 Europe HC FeCr Consumption USA HC FeCr Consumption China HC FeCr Consumption Finland Kazakhstan South Africa Turkey Sweden RoW Zimbabwe 0 Finland Kazakhstan South Africa Turkey Arab Emirates RoW 0 India Kazakhstan South Africa China Ch Cr China HC FeCr Zimbabwe RoW 12

13 Chrome Market Challenges There were a lot of restructuring and acquisitions in the Cr industry around the world from RSA to CIS during last few years, in the background of the weak market. This has strengthened the suppliers position in the FeCr industry. On the other hand, there is a growing indirect competition to integrated FeCr producers by the independent Cr ore producers who supply the material to the China s HC FeCr industry and who have no exposure to the FeCr market. The best, but not unique, example is UG2. Huge FeCr production industry was built in China based on imported ore and still to be a subject to certain concerns to its long-term raw material supply sustainability. Extremely unstable, non-transparent, and non-hedgeable price in Cr market threatens investment and new development potential and, consequently, long-term supply sustainability. 13

14 HC & LC FeCr, Nickel price and UG2 Chrome ore A Few Thoughts on Refined FeCr Indicators of HCFeCr and chrome ore increased by % during the year. However, the price indicators for LCFeCr were very stable in comparison with the fact that historically the difference was approx.100usc / lb, and now it has decreased to about 50USc / lb, which can hardly be justified. Source: Metal Bulletin, FerroalloyNet, ICDA 14

15 Global prices of refined FeCr with price difference between China and RoW in % % 2.2 5% 2 0% -5% % % % % 1 1Q 2Q 3Q 4Q 1Q 2Q 3Q Europe USA Japan China USD per pound Delta between China and RoW in % -30% 15

16 Global refined FeCr production in tonnes Annualized China CIS RoW 16

17 Export of refined FeCr from China vs Imports of refined FeCr from China Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 China Export (UN Trade Data) Import from China (ICDA Data) 17

18 Summary: Refined FeCr In and before China domestic LC/MC FeCr prices were much lower than in the other markets, such as Europe, USA and Japan. This was in line with general commodity trends where China, being the biggest market, has much lower domestic price. That led to a huge spike in imports of Chinese LC/MC FeCr around the globe, because even with a 15% export tax, export of Chinese LCFeCr was economically justified. The export of LCFeCr from China was growing and taking market share from other traditional suppliers and has reached the peak in, covering almost 20% of the markets outside China. By the second half of the, the destocking process led to a surge in domestic prices for Chinese ferrochrome, this coupled with cuts in production, caused a decrease of imports from China. In the first half of, the volumes of Chinese LC/MC ferrochrome did not pick up, due to the increase in local demand and global production cuts which started already in Recently, domestic prices reached and now even surpassed the levels of the markets in Europe, USA and Japan. Unless the price in these markets will increase by at least 15-20%, the export from China will have negative profitability and, consequently will not happen. On the background of low stock and potential re-stocking, due to healthy demand in all above regions and eventually very little free LC/MC production capacities, there is a big upside potential for LC/MC FeCr. The deficit in LC/MC FeCr might even be stronger due to additional factors like shortage of graphite electrodes, which are necessary to produce LCFeCr, or recent tightening measures in China s ecological control. 18

19 Conclusion Currently China is the largest producer and consumer of FeCr globally, but this pace cannot continue forever. This will be accompanied by the accumulation of stainless scrap in China. In years this scrap will partially replace Charge chrome and low-grade ferrochrome as a source of chromium units for the steel industry. At the same time, high grade FeCr consumption will continue to grow in both relative and absolute terms. Producers of high-grade FeCr, the main of which are located in the CIS (Kazakhstan, Russia), have the opportunity to expand their market share due to the to the quality of their products. In the market of refined FeCr, China is currently the largest producer and the third largest exporter to the international market after Russia and Kazakhstan. A significant increase in the costs and domestic market prices in China creates a significant additional demand for refined FeCr produced by traditional suppliers from Russia and Kazakhstan. 19

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