China and its impact on the global ferrosilicon market Kevin Fowkes Managing Consultant Metal Bulletin 28 th International Ferroalloys Conference Berlin, 13 th November 2012
What is ferrosilicon? A ferroalloy of iron and silicon (FeSi), normally ~75% Si Used extensively in molten crude steel as a de-oxidising agent Also used to add electrical conductivity and corrosion-resistance properties to steel Average Si content of steel is 0.3%. Many individual grades are much higher in Si stainless steel (up to 1% Si), electrical steels (up to 7% Si) Around 65% of global FeSi output is used in steel Other important applications are for de-carburising molten grey iron for the production of foundry castings and for producing magnesium metal in China
Global FeSi demand has doubled over the past decade. China s share has risen from 21% in 2000 to 63% in 2012 10 Global FeSi consumption (million tonnes 75% basis) 8 7.9M 6 Rest of world Other Asia China 4 3.7M 63% CIS N.America 2 21% Europe 0 24% 11%
Consumption of FeSi per tonne of steel in China is 75% higher than in most other countries 9 FeSi apparent consumption (kg) per tonne of crude steel output 8 7 China 6 5 4 World average Japan Europe USA 3
Hence Chinese share of global FeSi consumption is far higher than its share of global steel production 100% Share of global total, 2012 80% 60% Rest of world 40% 63% 20% 46% 44% China 0% FeSi consumption Crude steel production Stainless steel production
FeSi consumption by end-use sector, 2012 Around 65% consumed in steel 100% Other Magnesium Foundry Steel - other carbon Steel - electrical Steel - stainless 0% Europe China World
Chinese FeSi consumption by end-use sector Further growth potential limited overall if carbon steel growth stays low 60% Chinese FeSi consumption by end use (%) Other carbon steel Foundry Magnesium Electrical & alloy steel 0% Stainless
Demand level for FeSi over the next decade depends most on steel growth rate in China, which has fallen sharply in 2012 25% Growth of Chinese crude steel production 5 Extra annual FeSi demand by 2020 under various China steel growth rates* 21.2% 20% 4 15% 10% 5% 0% 9.4% 85% Industry long-term 67% expectation 36% 50% 1.5%? million tonnes, 75% basis 3 2 61% 1 0 Industry long-term expectation 2012 growth rate 1% 2% 3% 5% 8% Annual Chinese steel production growth rate, 2013-20 * assumes Chinese FeSi consumption per tonne of steel at 2012 level
Assumptions on Chinese steel consumption/production growth make a huge difference to FeSi demand forecast for 2020 12 Global consumption of FeSi (million tonnes, 75% basis) 11% 12.2 (8%pa) 10 8 7.9 16% 10.3 9.2 8.8 8.3 (5%pa) (3%pa) (2%pa) (1%pa) 6 52% 4 3.7 2 0 8% 11% Forecasts assume Chinese FeSi consumption per tonne of steel at 2012 level
World FeSi consumption and production Both completely dominated by China Global FeSi consumption, 2012 Global FeSi production, 2012 China Rest of Asia Europe 63% 72% N.America China Russia Norway/ Iceland Brazil CIS USA total 7.9 million tonnes Other total 7.8 million tonnes Other (total FeSi production capacity in China is ~10 million tonnes)
Of all the main steel-related ferroalloys, FeSi output is by far the most dominated by Chinese producers 100% Global production, 2012 80% 60% Rest of world 40% 72% 20% 53% 42% 46% 31% China 0% FeSi SiMn HC FeMn MLC FeMn HC/Ch FeCr
Chinese FeSi producers are mostly quite low on the cost curve, before export taxes or anti-dumping duties are added 1800 FeSi ex plant cash production cost (US$ per tonne, 2012) 1600 1400 1200 1000 800 600 400 China low cost China average cost China high cost 200 0 0 1 2 3 4 5 6 7 8 Million tonnes
This contrasts with Mn alloys and FeCr, where Chinese are the high-cost marginal producers even before export taxes 1,800 1,600 1,400 SiMn ex plant cash production cost (US$ per tonne, 2012) 110 100 HC/Ch FeCr ex plant cash production cost (US$ per tonne, 2012) 1,200 90 1,000 800 600 400 200 China average cost 80 70 60 0 0 2 4 6 8 10 12 Million tonnes 50 0 2 4 6 8 10 Million tonnes
The key difference in FeSi is the composition of the cost structure in China, with ore (quartz) being of little importance 100% Ex-plant cash production costs by component, 2012 Labour & other Reductants Ore / Quartz Electricity 0% FeSi SiMn HC FeMn (EAF) HC FeMn (BF) HC/Ch FeCr
In the long term, Chinese FeSi prices track production costs closely.but plants making a loss in 2012 1,300 1,200 1,100 1,000 900 US$ per tonne Average Chinese FeSi production cost (ex-plant) Average Chinese domestic FeSi price 800 700 600
Sales to most export markets are also currently unprofitable for the average Chinese FeSi producer, if exported legally 2,500 US$ per tonne (average for 2012) EU anti-dumping duty Export tax Cost to supply domestic customers 2,000 1,500 1,000 Price USA Price EU Price Japan Price China domestic 500 0 Most competitive Chinese plants Average Chinese plant Less competitive Chinese plants
This has provoked an epidemic of smuggling. Smuggled material via Vietnam accounts for almost 50% of total Chinese FeSi exports 1,800 Chinese FeSi exports (thousand tonnes 75% basis) 1,600 1,400 1,200 1,000 800 600 400 200 via Vietnam Official 0
For 2012, around 350,000mt of Chinese FeSi is being smuggled through Vietnam to avoid export tax 400 Estimated Chinese FeSi export via Vietnam (thousand tonnes 75% basis) 350 300 250 200 150 100 50 to USA India Thailand Turkey S.Korea Japan Taiwan Indonesia 0 2010 2011 2012e
Chinese FeSi exports by destination, including smuggled material 1,800 (thousand tonnes 75% basis) 1,600 1,400 1,200 1,000 800 600 400 200 to Other EU USA S.Korea Japan 0 2007 2008 2009 2010 2011 2012e
Poor demand and oversupply have resulted in falling FeSi prices globally through 2012 3000 US$ per tonne EU US Japan China domestic 2500 2000 1500 1000 500 0
Points to watch Extent of recovery in Chinese domestic consumption Potential lowering / removal of export taxes due to weak domestic market and WTO pressure Epidemic smuggling through Vietnam Anti-dumping duty expiry in EU Potentialfor increase in Chinese exports if domestic demand remains weak and export taxes / duties are lowered