New Generation of Manganese Producers. Dmitriy Nadtochiy, General Manager Commerce Asia Minerals Limited

Transcription

1 New Generation of Manganese Producers Dmitriy Nadtochiy, General Manager Commerce Asia Minerals Limited 11 November 2013

2 Target: To review manganese market evolution since 2000, changes of market environment. Then try to define main improvement areas for Manganese smelters to remain healthy & profitable in current market of high competition. 2

3 Agenda: - Manganese market evolution since Major strategies for Mn-Alloy producers - Introduction of AML 3

4 PRODUCTION OF CRUDE STEEL & MN ORE SINCE ,000,000 1,500,000 1,000, ,000 Crude Steel production, '000 mt Rest of World China World s steel production has been up since 2001 by 84% that resulted high demand on Mn. Such growth spread is uneven in the world markets: -8% in Europe -3% in USA & Canada +107% in MENA +400% in China +46% in other Asia 0 25, , , Mn Ore production, 000 mt Kazakhstan Ukraine Mexico Brazil Mn Ore basically followed crude steel production trend with major contribution coming from: +233% from China +250% from Australia +137% from S.Africa +112% from Gabon +119% from Mexico 10, , Source: IMNI, AML Gabon Ghana South Africa China India Australia Chinese Mn Ore : - Low Grade, Mn % is below 20% and keeps going down. - Deposits capacity is uknown but estimated to be relatively low. - Demand on imported Mn Ore keeps growing. - International Mn Ore miners increase production to meet such demand 4

5 NEW MN ORE PRODUCERS S.Africa Before 2004 there were only few big Mn Ore mining companies who exporting their Ore: BHP Assmang Vale Eramet Ghana Manganese ENRC CML BHP ASSMANG To support Mn Ore mining industry development S.African government invited new investors to explore the world s largest deposit in Kalahari and expanded its railway infrastructure. Thus, new Mn Ore mining companies are joining the Premier League of largest Mn Ore mining companies: United Manganese of Kalahari Kudumane Manganese Resources / AML Tshipi Kalagadi (still under exploration) ENRC (still under exploration) UMK BHP 5

6 NEW MN ORE PRODUCERS New origins In past decade we have seen new Mn Ore origins (Malaysia, Turkey, Indonesia, Myanmar, Namibia, Ivory Coast, Zambia + many others) which are under active development. Two major factors provoked new Mn Ore origins to come into picture: 1. Rapid growth of world economy in created high demand on Mn Ore and encouraged many people to look for Manganese in all parts of the world. 2. More variety of Mn Ore are found useful for Mn-alloy production: =>Low grade Carbonated Mn Ore for EMM production. =>High Si, Fe, P ores are also can be used now. =>Low Mn contents ores can be used: more variety of beneficiating plants are available now (jigging, gravity separation, magnetic separation). =>Captive sintering facilities (simple & advanced) set up by numerous smelters keeps increasing, so Mn Ore fines are widely used almost everywhere. 6

7 PRODUCTION OF MANGANESE ALLOYS SINCE 2001 Mn Alloy production, 000 mt Mn Alloy capacity utilization, % 12, % 90% 10, % 8, % 60% 6, % 40% 4, % 2, % 10% 0.0 0% Source: IMNI, AML HCFeMn SiMn Ref. FeMn HCFeMn SiMn Ref. FeMn Mn Alloy production increased a lot, especially for SiMn and Refined FeMn. Remarkably, HCFeMn increase is very marginal and it is mainly due to shortage of high grade Mn Ore & high price for FeSi (SiMn is cheaper than HCFeMn+FeSi). Competition has increased and keeps increasing further. Some markets have bleeding competition among producers. But Capacity utilization is getting down, major contributors recently are EU, Japan, India, S.Africa. 7

8 COMMODITY TRADERS ARE GOING INTO MN-ALLOY PRODUCTION End-users are looking for the way to cut costs and insist on buying from producer or its authorized sales channel. Trader Due to increased transparency in IT era, traders don t feel secure any longer staying between Buyer and Seller. In view of relatively small investment amount & growing demand on Mn, numerous traders became Mn-alloy producers. Producer Commodity traders and producers happily lived separately for many years. However, increased competition made some traders to go into own production and some producers to develop regional sales branches. Examples: Traders->Producers: AML (acquired Chinese smelters, minority stake in India, greenfield project in Malaysia), Glencore (took over Vale s Mn-alloy plants), numerous Indian traders became producers. Producers->Traders (Producers with regional sales branches): Dongbu, Privat, Rohit. Some producers are not only selling their products, but also distributing other raw materials: India, China, Japan. 8

9 NEW STEEL GRADES REQUIRES MORE VARIETY ALLOYS 250, , , ,000 50,000 Steel production in developed countries Steel production in developed countries is under serious pressure: - Local demand on Carbon Steels is low. - Export markets for Carbon Steels build their own plants or taken over by more competitive producers. - Production cost of steelmakers is high (high wages, expensive electricity and expensive environmentrelated modernization). (Example: Some EU carbon steelmakers were surviving in past few years thanks to regular orders from Algeria where they have preferential import duty. Now Algeria is starting new steel plants, so the future of EU carbon steel mills is getting more uncertain) Steelmakers making more & more steels with added value that require Mn-alloys with added value (Example: Due to bad situation in Europe CMC sold its Carbon Steel plant in Croatia to ABS who converted it into special steel plant.) EU USA Japan Source: IMNI, AML To reduce production cost steelmakers in developed countries became more flexible: - Can use SiMn-70 or SiMn-60 instead of SiMn Can switch to SiMn from HCFeMn+FeSi & vice versa. - Can use EMM instead of LCSiMn & vice versa. Steel grades with high Mn % are very potential and the following steelmaking technologies are currently intensively developed by big steelmaking companies (POSCO, NSSMC, JFE, Thyssen Krupp, ArcelorMittal): ULSAB steels containing 20% of Mn; TWIP steels containing 10-20% of Mn; AHSS steels containing 2% of Mn. 9

10 NEW MN-ALLOY SMELTERS Many Mn-alloy smelting capacities appeared / coming to the market, but the background for all of them is different 1 Close location to Mn Ore mines 2 Competitive electricity prices 3 Location close to steelmakers 4 Expansion to meet growing global demand Indonesia Georgia Vietnam Malaysia Saudi Arabia Bahrain Malaysia China Russia USA India Korea India 10

11 POWER SUPPLY & POWER PRICES IMPACT POSSIBLE SOLUTION FOR SMELTERS: FUTURE POWER SUPPLY & POWER PRICE CONCERNS: There is a question on the future of producers in the following countries, who are very active nowadays in Mnalloy production and export: South Africa India Korea China Japan as the government of these countries has either plan to increase power tariff or reduce power supply due to the necessity to supply power to more important industries. Producers in mentioned countries have basically 3 options: 1. Renegotiate supply & price issue with power suppliers. 2. Set up captive power plant. 3. Move production facility to another place POSSIBLE SOLUTION FOR STEELMAKERS: Producers from countries with competitive power cost and no power supply shortages may replace countries with power supply & price concerns in international markets. 11

12 HOT TOPICS OF MANGANESE INDUSTRY Will China remove export tax on Mn- Alloys? How will new GSP policy in EU & USA change world s Mn-alloy trade matrix? Will Malaysia become the new world s ferroalloy capital? Will there be enough market for all new Mn Ores from S.Africa? 12

13 4 MAJOR STRATEGIES FOR COMMODITY PRODUCERS Cost Competitiveness (low production cost makes business profitable under any market condition) Superior/Niche Product (offering niche products and/or products with superior quality that competitors cannot make) Customer s Loyalty (gaining customer s loyalty by providing excellent service) Political Lobby (business protection from competitors through special support from government) 13

14 CURRENT RISKS OF MN-ALLOY SMELTERS! Under current highly volatile market the major risk beared by Mn-alloy producer is to keep going without any strategy. In some sense being ordinary Mn-smelter these days is more risky than being trader: - Trader can do back-to-back business with almost no risk. Alternatively, trader can buy Mn-alloys as position and sell it about 2 months later. - Ordinary producer have to buy raw materials (mostly imported ones), then spend 4 months for its delivery, production and sales. Applying previously mentioned strategies is not only essential in today s market reality, it is a MUST for all Mnsmelters who wish to survive. 14

15 4 MAJOR STRATEGIES FOR MN-ALLOYS PRODUCERS Vertical integration (Mn Ore, Power, Carbon) Efficient production Refined Mn-alloys production Low impurities Mnalloy production New products development Cost Competitiveness Superior/Niche Product Customer/Suppli er Loyalty Political Lobby Long term alliance with customers and/or suppliers Additional services Benefits from other r/materials sales Electricity price ADD Import duties Taxation Logistics 15

16 STRATEGY 1: COST-COMPETITIVENESS Successful examples of strategy implementation: 1 POWER is one of major production cost components: Setting own power plant. It is workable in case both power & ferroalloy plant make money. (However, it is not always possible, for instance Sarda s built power & ferroalloy plants in Vizag but run only power plant) Using energy-saving furnace technologies (like BHP in S.Africa) Concentrate on HCFeMn production only due to lower consumption of power. Usage of sintered Mn Ore can reduce power consumption MN ORE is another major product cost component and usually treated as the main influencer on production cost: Own Mn mine is the dream of all non-integrated smelters. Of course, it shall be cost competitive Buying minority stake in good Mn mine can be another pl good alternative. Using poor grade ores by beneficiating them and/or sintering. Using Mn Ores containing necessary elements CaO, SiO2, Fe that may substitute other raw materials. REDUCTANTS is usually 3 rd largest component in Mn-alloy production cost: More and more smelters are substituting expensive coke by coals or various combinations of coke & coal: * blend of Coke & Anthracite; * blend of Coke & Steam Coal; * 100% of Steam Coal. EFFICIENT PRODUCTION PROCESS is also very important: High recovery rate; Fines generation management; Efficient slag management; Maximizing in-spec material. Optimal balance of MN-ALLOY PRODUCT MIX : There should always be a good compromize between sales team (who usually likes to produce numerous grades of Mn-alloys at the same time) and production team (who likes to make simple products & as less grades as possible, to keep production stable and costs low) 16

17 STRATEGY 2: SUPERIOR QUALITY / NICHE MARKET Successful examples of strategy implementation: 1 REFINED MN-ALLOYS production is challenging: Depending on the technology may require patent. Requires additional investment Requires 2 production stages and more sophisticated technically, so cost of mistake is higher. Consistent quality of raw materials is really essential; o Sales quantities are smaller so more logistics cost & time involvedness is required. but also more potential: Consumption is expected to grow further; Competition is less than for regular grade Mn-alloys; Profitability is basically higher than regular Mn-alloys EMM is another important & potential commodity: Its application is going beyond steelmaking industry as it is also used widely in Al-, battery industry, etc. Currently only 2 sources in the world are making it: pl China & S.Africa, the countries where electricity cost is relatively high and going to grow further. New EMM projects are scheduled to start production in Malaysia, Gabon, Ukraine. Bulk Mn-alloys with low impurities can be another solution for smelters to stand out against other producers: Low impurities such as P, S, Ti, Al, N, B, Pb, etc.; High content of main elements (Mn, Si) or additional elements (N for Nitrided FeMn); Low moisture; Special size; Special packing. Continuous running R&D for new Mn-alloys development: ULPC / SLP FeMn (by Korea, Japan, India); pl High Si FeMn (by China). 17

18 STRATEGY 3: POLITICAL LOBBY Successful examples of strategy implementation: 1 Mn-alloy production is a heavy consumer of electricity so lobbying low POWER PRICES is always the biggest issue in relationships between producer and local authorities who are usually the ones setting up prices: BHP has recently successfully improved power prices in Australia; Privat has one of the world s lowest power prices in Georgia and also recently improved it in Ukraine; AML signed 22-year competitive power price agreement for its plant in Malaysia. 2 Anti-dumping duty (ADD) is widely used in the industry to protect local producers from cheap foreign material: USA has ADD against Indian SiMn; Till recently EU had ADD against SiMn of Chinese, Kazakhstan origins. Pl 3 IMPORT DUTY is another way for market protection. Since its % is usually much less than ADD, it is more popular: USA has standard import duty for Mn-alloys of all origins except for countries with FTA; EU has standard import duties for Mn-alloys of all origins except for countries with FTA or GSP program; CIS countries has 3-5% import duties for Mn-alloy of all origins except for CIS. 4 OPTIMIZED TAXATION or TAX INCENTIVE is another important issue here: Most of greenfield projects are usually getting Tax Incentives (India, China, etc); Tax incentive for Tolling Operations (take place in CIS). 5 LOGISTICS ALLOCATION and INFRASTRUCTURE DEVELOPMENT is another big thing in some countries which is not possible without strong support from authorities: Railway allocation in S.Africa; Port infrostructure development in Malaysia. 18

19 STRATEGY 4: RELATIONSHIP WITH CUSTOMERS & SUPPLIERS Successful examples of strategy implementation: Excellent RELATIONSHIP WITH CUSTOMER has always been the important item: Good price formula under long-term contract (long-term contract is necessary otherwise just good price won t be WIN-WIN for both parties); JIT delivery (for customers who has (a) not enough space to store the Goods, (b) tight cash flow, (c) unstable sales of steel products.) Technical support (pre-sales & after-sales service) DAP/DDP delivery service to simplify customer s life by taking care of custom clearance, logistics, etc. PROCUREMENT SYSTEM and SUPPLIER RELATIONSHIP can be even more important than customer relationship: Major task for PROCUREMENT DEPARTMENT is to find compromise between below 2 approaches: - the more suppliers the lower price is going to be, Pl - consistent raw material supply is very important for production of in-spec & high quality Mn-alloys; Special alliance with raw material suppliers (long-term contracts with discounts, off-take/conversion deals) can contribute a lot to business.. Correct choice of partners for M&A can bring Synergy Effect so it is very important these days: Having customer as a shareholder is very important (NDK & CDK has NSSCM as their shareholder, SABAYEK had SABIC/Hadeed as a shareholder, Sakura has China Steel among shareholders in new Malaysia project) and can be treated as one of the best alliance for Mn-alloys smelters; Having Mn-Ore miner as a shareholder is also important as it guarantees stable & competitive Mn Ore supply; Selling part of its stakes to trading company can help Mn-alloy producer improve sales to certain markets; Taking over logistics / warehouse / fleet company can grant Mn-alloy producer saving on logistics. ADDING NEW PRODUCTS (produced by themselves or traded) to the product basket can strengthen Mn-alloy producer s relationship with customers and help to stand out against other suppliers: Starting production of other raw materials in addition to Mn-alloys (AML will produce FeSi in Malaysia); Buying raw materials like Mn Ore & Reductants in larger quantities, part of it to be consumed and other part to re-sold (India, China is doing that); Having strong relationship in certain markets, Mn-alloy producer can also be a distributor/agent/trader for other items in the same market.

20 4 MAJOR STRATEGIES FOR MN-ALLOYS PRODUCERS Vertical integration (Mn Ore, Power, Carbon) Efficient production Refined Mn-alloys production Low impurities Mnalloy production New products development Cost Competitiveness Superior/Niche Product Customer/Suppli er Loyalty Political Lobby Long term alliance with customers and/or suppliers Additional services Benefits from other r/materials sales Electricity price ADD Import duties Taxation Logistics 20

21 AML GROUP INTRODUCTION Asia Minerals Limited (HK) Marketing/Distribution Unit Ore: 2.4mil MT Alloy: 500k MT (2014) Ferroalloy Production Unit 350k MT (2014) Mining Unit 2.0mil MT (2014) 100% 100% 100% 100% AML Japan (Japan) 100% AML Korea (Korea) 100% AML North America (USA) 100% IMA Resources (China) 5% 75% Kudumane Investment (HK/South Africa) AML India (India) AML Europe (France) AML China (China) SARDA (India) 100% 60% 21 AML Ukraine (Ukraine) Pertama Ferroalloys (Malaysia) 21

22 AML GROUP: Kudumane Manganese Resources Ownership: of KMR: 49% KIH + 51% BEE of KIH: 75% AML + 25% NDK KIH is exclusive distributor and exclusive technical partner of KMR. KIH assigned its right to AML. Farm of York -The project is a greenfield manganese mine in Kalahari region, 98 mln.mt of proven Mn Ore resources. -Open pit mine and 1 st blasting was done on May 8,2012 -Commercial production commenced in 4Q Produce 1.5mtpa 37.5% Mn and increase gradually. Farm of Telele -Drilling result indicates average Mn 37.27% and Fe 4.01% with thickness of Mn layer 7.9m. Continue to drill to prove reserve Farm of Hotazel -indication of 2-3mil tons of average Mn 43.25% and Fe 5.30% with thickness of 12.85m. Continue drilling Sintering plant -Planned capacity is 1.0mil mt p.a., to be installed in Grade to be Mn 44-45% 22

23 AML GROUP: Pertama Ferroalloy Plant Project Location Project Highlights Location Samalaju Industrial Park, 60 km northeast of Bintulu, Sarawak Sponsors Asia Minerals Limited ( AML ; 60%), Nippon Denko Company Limited ( NDK ; 20%)- NSSMC Group Shinsho Corporation (7%) Kobe Steel Group Chuo Denki Kogyo Co., Ltd. ( CDK ; 5%) NSSMC Group Carbon Capital Corporation Sdn. Bhd. ( CCC ; 8%) - Malaysia Local Pertama Ferroalloy Capacity Product 1 st Phase 2 nd Phase (under EIA and Tender) Silicomanganese 120,000 mt Samalaju Industrial Park Bakun Dam Medium & Low Carbon Ferromanganese 54,000 mt Ferrosilicon 60,000 mt 40,000 mt Manganese Ore sinter 200,000 mt Bintulu Port Samalaju Port Electrolytic Manganese Metal 50,000 mt Construction Commenced since May 2012 International & Local contractors were appointed and executing construction on schedule. 23 Power Supply 22-years Power Purchase Agreement with Syarikat Sesco Berhad (SESCO), which provides low cost and stable electricity to the Project 23

24 AML VISION IS TO BE THE PREFERRED GLOBAL INTEGRATED-SUPPLIER OF MANGANESE AML will produce and supply Mn and Si alloys our customers need AML will keep developing further its global customers network AML will widen its product line to provide more and better quality products. AML will continue offtaking Mnalloys from smelters AML will strive for continuous improvement of production cost 24

25 NEW GENERATION OF MN-ALLOY PRODUCERS Competition in current Mn-alloy market is extremely high.. that significantly lifts up standards for healthy Mnalloy production business.... and that s what New Generation means No matter how new or old your Mn-alloy production facilities. If you have Mn-smelter and you want good results, you should continuously implement one/all of afore-mentioned strategies into your business. And probably go beyond that and create something new.. 25

26 THANK YOU 26