Introduction to the silicon stream: Recent developments in the silicon and ferrosilicon markets Kevin Fowkes Managing Consultant Metal Bulletin 31 st International Ferroalloys Conference Prague, 9 th November 2015
The solar sector now seems to be following a more sustainable growth path, with massive growth potential over the coming decades 300 200 100 0 World polysilicon production (kt) +71% +67% +60% +50% -8% +5% +8% +11% The solar sector has returned to growth following the solar depression of 2011-13 Growth in demand now more driven by unsubsidised PV installations, mostly in Asia. As such, growth is therefore likely to be more sustainable and less volatile than in the past Growth of ~10%pa expected over the long term, requiring hundreds of thousands of tonnes of extra silicon (stark contrast with flat demand outlook for steel), Viridis IQ
World silicon metal production is expected to decline slightly to reach 2.54 Mt in 2015, with China now accounting for 65% of global output 3 World silicon metal production (Mt) Other Germany Spain 2 Canada S.Africa Thailand Russia Australia 1 65% France USA 0 29% 46% 56% Brazil Norway China
Unlike most ferroalloys, China s rising silicon metal output has been export-driven in recent years, though exports have fallen slightly in 2015 1,800 Chinese silicon metal production (kt) 1,200 Exports 600 Domestic sales 0
Chinese exports almost doubled from 2012 to 2014. Though exports have fallen slightly in 2015, exports to Japan and Europe have continued to rise 900 800 700 Chinese silicon metal exports (kt) Cancellation of export tax (1 st Jan 2013) Other 600 Middle East 500 Europe 400 Other Asia 300 200 S.Korea 100 Japan 0
Outside of China, the main development in silicon metal production has been reduced Brazilian output, due to electricity shortages 300 Silicon metal production (kt) Brazilian output has halved since 2011, due to electricity shortages 200 Brazil USA Norway Following expiry of long-term power contracts at end-2014, many producers were unable to secure competitively priced power, and idled their production Higher output in Norway, partly due to furnace conversion from FeSi 100 0 29% 46% France New furnace in Australia, on-stream 64% since 2012 56% Overall, non-chinese output has been broadly stable for 15 years New projects proposed in Canada and Iceland
Many Si and FeSi plants in Brazil are in the southern state of Minas Gerais, where the electricity situation has been particularly bad Location of main silicon metal and FeSi plants in Brazil: In Para: CCM (Dow Corning) In Bahia: Ferbasa In Minas Gerais: CBCC (Dow Corning) RIMA Capitao Eneas RIMA Varzea da Palma Minasligas LIASA Nova Era Italmagnesio Bozel
Summary of recent developments in Brazil The impact of the electricity shortages has been very uneven across Brazilian producers in 2015 Northern plants have been able to produce at close to normal levels whilst most capacity in Minas Gerais has been idle; in essence Dow Corning and Ferbasa have been least impacted whilst others further south have been much more severely affected Ferroalloy plants in northern Brazil negotiated favourable power contracts in mid-2015 lasting into the 2030s, average tariff in USD lower than in 2014 due to weak local currency Plants in Minas Gerais reported to be in the midst of negotiating new power agreements. Some production likely to return in Q4-2015, though dependent on the state of the market Brazilian output in 2016 highly likely to increase relative to 2015
Proposed Globe-Ferroatlantica merger: Summary of publicly-released information New company has estimated value of US$3.1bn Transaction expected to close in Q4-2015 New company to be headquartered in London, listed in New York To be led by Alan Kestanbaum (Globe executive chairman); Joint CEOs will be Jeff Bradley (Globe CEO) and Pedro Larrea Paguaga (Ferroatlantica chairman and CEO) Expected cost savings of US$65M per year; debt expected to fall by US$30M over 3 years and cash flow to improve by US$100M (more efficient management of working capital and other efficiency savings) Approved by shareholders of Globe Specialty Metals in Sep 2015; still subject to approval by regulators in relevant jurisdictions
The proposed merged company s silicon metal capacity would be twice that of the second-largest producer World top-10 silicon metal producers by capacity (kt) Ferroatlantica + Globe Ferroatlantica BlueStar / Elkem Dow Corning Hubei Sanxin Gansu Sanxin Xinjiang Hesheng Guizhou Shibing Hengsheng Globe Specialty Metals 0 250 500 Ferroatlantica already world s biggest producer of silicon metal Globe currently world s 8 th biggest producer (3 rd largest non-chinese owned producer) New company will have silicon metal capacity approx. twice the size of the second largest producer Zhejiang Kaihua Yuantong Silicon Maoxian Panda Silicon Source: Roskill
The proposed merged company will be the world s 3 rd largest FeSi producer, behind Erdos and RFA World top-10 FeSi producers by capacity (kt, basis 75% Si content) Erdos Metallurgy Group RFA International Ferroatlantica + Globe Ferroatlantica Privat Group BlueStar / Elkem Ningxia Rongsheng Ferroalloy Globe Specialty Metals Dragon Northwest Ferroalloy Wuhai Junzheng Industry 0 500 1,000 1,500 Ferroatlantica currently world s 3 rd biggest producer of FeSi (2 nd largest non-chinese owned producer) Globe currently world s 7 th biggest producer (4 th largest non-chinese owned producer) New company will be world s 3 rd biggest producer of FeSi (2 nd largest non-chinese owned producer) Ferbasa Source: Roskill
The merged company s biggest impact on silicon metal market share will be in the USA Estimated silicon metal market share by supplier (2014) 100% 75% Others Chinese 50% 15% Ferroatlantica 25% 8% 11% 30% 41% Globe 0% 6% 8% 2% World World exc. China EU USA
The merged company will not have a substantial impact on FeSi market share in any major market Estimated FeSi market share by supplier (2014) 100% 75% Others Chinese 50% Ferroatlantica 25% 5% Globe 0% 3% 7% 14% 1% 4% 0% World World exc. China EU 19% USA
Silicon metal anti-dumping update EU anti-dumping duties against Chinese silicon metal expire in 2015, and the investigation into their potential renewal is at an advanced stage US anti dumping duties against Russian and Chinese silicon metal are not (ordinarily) scheduled for review until 2017/18 AD duties on Chinese silicon metal also in place in Canada and Australia
Silicon metal prices have declined quite sharply in 2015 4,000 Silicon metal spot prices (US$/t) 3,500 3,000 2,500 2,000 1,500 1,000 EU USA China export 500
Silicon metal spot price premiums 120% 100% EU vs China US vs China US vs EU 80% 60% 40% 20% 0% -20%
Silicon metal prices have maintained a very close correlation with FeSi despite a much stronger consumption situation in 2015 180 European bulk ferroalloy prices (Index, Jan 2008=100) 160 140 120 100 80 60 40 Si metal FeSi SiMn HC FeMn HC FeCr 20
Silicon metal production costs are driven by electricity and reductant costs.average cash costs have declined markedly in 2015 100% Ex-plant cash costs by component (2015) 350 Silicon metal cash costs by component (Index, 2000=100) 300 75% 250 50% 200 150 25% 100 0% Si metal (global avg) Si metal (Europe) Si metal (Brazil) Si metal (China) Labour & other Quartz Electrodes Reductants Electricity 50 Electricity Reductants Labour Electrodes Quartz Total cash cost
A major driver of falling production costs for both Si and FeSi has been falling energy coal prices now at their lowest level since 2006 250 Energy coal import prices (US$/t, CIF Europe) 200 150 100 50 0 Source: Eurostat, AlloyConsult
In a highly liberalised power market such as Europe, electricity prices have declined in close alignment with falling coal prices 120 US$/MWh US$/tonne 250 100 Nordpool monthly average spot power price (left axis) 200 80 150 60 40 20 0 Energy coal monthly average EU import price (right axis) High Scandinavian rainfall lowest power price since 2000 100 50 0 Chinese electricity prices have also declined in 2015 Source: Nordpool, Eurostat
The movement of Chinese silicon metal prices in 2015 corresponds closely with the change in average cash production costs 3,000 2,000 US$/t 2007-8 commodities boom Solar boom Average cash cost, China (ex plant) Average cash cost +10% 1,000 Chinese silicon metal price (CIF Japan basis) 0 Export tax rebates
FeSi prices have declined sharply over the past 2 months, especially in Europe $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 FeSi spot prices (US$/t) Europe USA China domestic Points to note: Downturn in steel output Falling production costs New supply from Kazakhstan, Malaysia, Brazil Increased smuggling of Chinese export Inaccurate published prices / move to indexbased sales
Until the significant decline of prices since Aug/Sep 2015, FeSi published prices were at profitable levels for European producers 1,400 EU FeSi production average production costs and prices (Euro/t) 1,300 1,200 1,100 1,000 900 800 700 Average EU spot price Average full production cost (suppliers to EU) Average cash production cost (suppliers to EU) 2007 2008 2009 2010 2011 2012 2013 2014 2015 (YTD)
EU imports of FeSi, 2008-2015 (kt basis 75% Si content) 2008 2009 2010 2011 2012 2013 2014 2015 Year Year Year Year Year Year Year Year (F) Russia Ukraine Kazakhstan Macedonia China Brazil Norway Iceland Egypt South Africa Venezuela India Malaysia Others Total import 60 74 54 29 41 28 4 6 37 30 50 42 26 31 40 43 0 0 0 0 0 0 0 14 35 7 10 23 24 46 67 39 117 7 13 4 2 2 1 1 23 35 88 70 58 49 11 8 202 115 186 217 210 209 236 206 79 98 93 85 99 102 85 92 14 5 2 1 1 7 32 31 9 10 18 20 7 2 6 11 23 21 12 28 15 15 18 20 25 14 30 35 16 10 17 32 0 0 0 0 0 0 0 20 15 29 34 57 25 22 27 25 638 446 589 613 524 524 545 549
More than 70% of Chinese FeSi export is now smuggled 100 90 80 70 60 50 40 30 20 10 0 Estimated total Chinese FeSi exports (monthly, kt) Smuggled Official
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