The Manganese and Chrome Macquarie Connections China Day in South Africa 2012 Cape Town 3 February 2012 Alastair D. Stalker Managing Director Ore & Metal Company Limited Director-Assmang Ltd Past Chairman International Manganese Institute Markets The S. Africa/China Connection
Disclaimer Disclaimer: This presentation has been prepared by the speaker in his personal capacity and does not reflect the views of Assore Ltd, Assmang Ltd, The International Manganese Institute or The International Chrome Development Association. It shall not be reproduced in whole or in part without permission. The information contained herein has been obtained from sources which and from persons whom I believe to be reliable, but is not guaranteed for accuracy, completeness or otherwise. The author will not be liable in any manner whatsoever for any representation or other statement herein contained.
Crude Steel Production Met Forecasts World crude steel output, million metric tonnes, and growth rate, % (RHS) '000 0mt 1600 1400 1200 1000 800 600 400 200 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 16 14 12 10 8 6 4 2 0-2 -4-6 -8-10 -12-14 -16-18 -20-22 -24-26 % Rest of the world China YoY World % YoY World excl. China Data: MacQuarie Commodities Research
World Crude Steel Production Forecasts are still optimistic 1900 1849 1800 1778 Mill metr ric ton 1700 1600 1500 CRU Macquarie 1419 1531 1520 1600 1575 1697 1652 1710 1769 1400 1357 1334 1300 1253 1228 1200 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
However Monthly Crude Steel Production Has Been Reducing Millio on 140 130 120 110 100 90 80 70 60 50 40 30 20 10 0 World ex China China
And Most of the Predicted Growth is in China Mill metric tons 900 800 700 600 500 400 355 421 495 500 568 627 683 734 785 828 868 300 200 100 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Africa / Middle East Latin America North America Japan Western Europe China
Regional Crude Steel Forecasts - Some of These Look Very Optimistic 250 147 190 202 206 200 181 189 195 205 211 216 200 150 Mill metric tons 34 62 110 113 36 62 114 116 37 66 114 120 36 65 106 119 35 53 68 88 39 61 94 110 39 68 99 106 42 73 103 110 46 77 107 114 49 80 110 117 52 84 112 119 100 50 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Africa / Middle East Latin America North America Japan Western Europe
Manganese Ore
Manganese Ore Demand Tracks Crude Steel Production Mill mt Cru ude Steel 1,400 1,200 1,000 800 600 400 200 0 Crude steel CAGR 1949-2011: 3.4 %pa Mn ore CAGR 1949-2011: 3.7%pa 1950 1953 1956 1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004 2007 2010 50 45 40 35 30 25 20 15 10 5 0 Mill mt Ore Crude steel Mn ore Source: Worldsteel. IMnI
But Manganese Ore Prices have been Declining for 20 months 9 8.5 8 7.5 7 6.5 6 5.5 5 4.5 4 USD / mt Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May- Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May- Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Lets Look at the Manganese Ore price History Steel Produ uction (Mmt) 1600 1500 1400 1300 1200 1100 1000 900 800 700 600 1972 1974 1976 Crude Steel Japanese/Chinese Price $/mtu 1978 1980 1982 1984 1986 1988 1990 1992 This caused the Problem 1994 1996 1998 2000 2002 2004 2006 2008 2010 14.40 12.40 10.40 8.40 6.40 4.40 2.40 0.40 Mn Ore Pr rice ($/mtu) Source: WSA, Tex Report
And Also at Mn Ore Seaborne Trade USA France Russia 2008-17.4mill t 2009-15.2mill t 2010-20.23mill t 2011 - Ann Norway South India Ukraine Japan China 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 Mill Tons
Chinese Mn Ore Imports Significant Growth of Others 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2006 2007 2008 2009 2010 YTD 2011 Others Ghana Gabon Brazil Australia South Africa
China trade partners 2010 Significant Tonnages from Non Traditional Origins Rank Partner Country YEAR 2010 1 Australia 3160436 2 South Africa 3115683 3 Gabon 1296774 4 Brazil 1245629 5 Myanmar 749632 6 Malaysia 661695 7 Indonesia 198186 8 India 174133 9 Ghana 130 728 10 Kazakhstan 105328 11 Namibia 104296 12 Bulgaria 100121 13 Vietnam 81986 14 Morocco 71379 15 Mexico 62067 16 Zambia 62031 17 Thailand 56859 18 Cote d Ivoire 56134 Others 164437 Total 11597534 Namibia 1% Kazakhstan 1% Malaysia 6% Myanmar 6% Gabon 11% Ghana 1% India Indonesia 2% 2% Brazil 11% Morocco 1% Bulgaria 1% Vietnam 1% Zambia 1% Mexico 1% Others 1% Australia 27% Origin of China imports in 2010: Imports from over 20 countries: various grades and qualities of Mn ore The big 4 majors >75% of total imports: mostly high grade ores (8.8 mln mt) Therefore, other imports > 2.7 mln mt (varying quality) South Africa 27% Source: GTIS
But Major Players also to Blame 4,500,000 4,000,000 3,500,000 Jan - Nov 2010 Jan - Nov 2011 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Others Brazil Gabon South Africa Ghana Australia
Chinese Mn Ore Stocks Finally Reducing 4,000,000 3,500,000 Mn Ore Imports 3,000,000 Port Inventories 2,500,000 2,000,000 1,500,000 1,000,000 500,000 - Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May-10 Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May-11 Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
Changing landscape of the Mn Ore Market The Effects of Capacity Expansions and New Projects: Mln mt 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 High-grade (>43% Mn) Mid-grade (>30% and <44% Mn) Low-grade (<31% Mn) The Changing Mn Ore Supply 1. Moved from a handful of major suppliers to many players 2. More price volatility: annual to quarterly to monthly contracts 3. More mid-grade and low-grade ores on market 0.0 2006 2008 2010 2014 ('e) Possible Game Changers: Assumptions 2014: 3newprojectsinRSAwillbesuccessfulinbringingplannedoutputtomarket Chinatolose3mlnmtof18%Mnoreoutputthroughdepletionandsubstitution Major producers will produce according to their announced capacity expansions Exclusion of projects which have no definitive start date or annual capacity projections 1. RSA logistics do not accommodate additional ore 2. Too much new ore if demand forecasts do not materialize 3. Can the world absorb so much S.A carbonate ore Source: CRU, Metal Bulletin, Metal Expert and IMnI
SA Manganese Ore Logistics Cost Effective Port Elizabeth 5.5 million tpa Commitment to vacate by 2016. Allocation process for 2013 to 2016 should take place shortly Saldanha +/ - 13 Million tpa Transnet is no longer considering Mn ore in the next Sishen Saldanha expansion Durban Rail and Truck Trucking expensive but BMA 3 Million tpa terminal efficient and cost effective plus containers Richards Bay Truck 1 Million tpa? Trucking more expensive than Durban. Competition with chrome ore/ magnetite in the port. Expensive Coega 10 16 Million tpa Requires upgraded heavy haul rail track plus new terminal. Feasibility study underway. Transnet s preferred option
Incremental Ore Logistics in SA are Very Expensive 38 % Mn Ore through Richards Bay Port US$ / mt Trucking plus Port Loading Costs 90 Current Freight to China 30 +/- $120/mt $3.15/dmtu Mining, marketing, finance costs, etc still have to be added Current Price +/- $4.00/dmtu CIF; Only leaves +/- R260/mt to cover these costs
No Shortage of Mn ore Expansions and New Mines South Africa; Assmang : 3 Mill tpa to 4 Mill tpa BHP-Billiton Wessels: 1Mill tpa to 1.5 Milltpa BHP-Billiton Mamatwan: Increase of 1 Milltpa UMK: Increase from 2 to 2.7 Milltpa by mid 2012 Kgalagadi: 2.4 Mill tpa of sinter from mid 2012 Tshipi e Ntle: 2.4 Mill tpa by mid/end 2012 Several other projects at or close to bankable feasibility stage
No Shortage of Mn ore Expansions and New Mines Rest of the World; BHP-Billiton Australia- Gemco: 4.2Mill tpa to 4.8 Milltpa by 2013 Comilog Eramet- Gabon: Increase from 3.5 4 Mill tpa in 2012 Citic Dameng Gabon: Increase from 0.3 to 1.15 Milltpa by mid 2012 Minera Autlan Mexico Tajo Naopa: 0.3 Mill tpa in 2012 Zambia: Multitude of small projects 0.5 Mill tpa?
Manganese Alloys
2600 2400 2200 2000 1800 1600 1400 1200 1000 800 Manganese Alloy Prices Continue to Decline HCFeMn MCFEMn SiMn USD / mt Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 Dec-09 Jan-10 Feb-10 Mar-10 Apr-10 May- Jun-10 Jul-10 Aug-10 Sep-10 Oct-10 Nov-10 Dec-10 Jan-11 Feb-11 Mar-11 Apr-11 May- Jun-11 Jul-11 Aug-11 Sep-11 Oct-11 Nov-11 Dec-11
But World Real Consumption of Manganese Alloys at Record Levels 10000 000 me etric tons 9000 8000 7000 6000 5000 4000 3435 5798 3712 6332 414 47 6769 412 22 7764 407 73 8092 3721 7765 42 205 8578 3000 2000 1000 948 1058 1146 1429 1449 1314 1502 0 2004 2005 2006 2007 2008 2009 2010 Ref FeMn HCFeMn SiMn
Manganese Alloy Predicted Consumption 13500 12000 thousand me etric ton 10500 9000 7500 6000 4500 3000 SiMn HCFeMn Refined FeMn 1500 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
But Where Will That Additional Demand Be China ; China is virtually self sufficient in Mn alloys with limited imports, has underutilised smelting capacity and is the major Mn ore import market India ; India is virtually self sufficient in Mn alloys with only limited imports of high spec alloys. Becoming an important Mn ore market and a major alloy exporter Developing World; largely being supplied at present from domestic and/or other developing nations.
Key Factor :Chinese Manganese Alloy Exports have Virtually Disappeared 800 700 687 640 600 573 000 me etric tons 500 400 300 200 100 0 410 441 205 121 146 61 55 79 135 112 148 181 106 79 73 21 34 9 2004 2005 2006 2007 2008 2009 2010 SiMn HCFeMn Ref FeMn
Key Factor: South Korean Exports are Taking their Place 18000 16000 14000 12000 10000 8000 6000 4000 2000 0 HCFeMn SiMn Refined FeMn
Key Factor :As Are India SiMn Alloy Exports 600000 500000 400000 300000 200000 100000 0 2005 2006 2007 2008 2009 2010 HCFeMn SiMn
Mn Alloys Are in Oversupply 80000 60000 40000 20000 0-20000 -40000-60000 Q1 11 Q2 11 Q3 11 SiMn HCFeMn Refined FeMn -80000
Manganese Conclusions Mn ore and alloys are currently in oversupply Mn ore demand is very dependent on Chinese steel recovery Major Mn ore players need to show some production restraint Too much Mn ore capacity was incentivised by the high prices More Mn ore capacity coming on stream Probability that Mn ore will be in oversupply for several years Mn alloys demand in developed world likely to remain depressed for a number of years Mn alloy production costs generally increasing but particularly in S.A. Production of Mn alloys will continue to move eastwards (India, Malaysia, S. Korea)
Chrome Market 32.
World Stainless Steel Production Total 28.69-million tons Total estimated 32.63-million tons Source: CRU
Source: CRU SS Production
World FeCr Production Total 6.4-million tons Total estimated 9-million tons 19% 13% 2006 44% 16% 2% 2011 6% 37% 0% 10% South Africa India 14% China Russia & Kazakhstan Others Eastern Europe 11% South Africa India 28% Russia & Kazakhstan Others China Eastern Europe Source: ICDA
China FeCrImports Trend for China to produce ferrochrome rather than import 3000 3000 2500 Production 2500 000mt Imp ports 2000 1500 1000 2000 1500 1000 000mt Produ uction 500 500 0 2006 2007 2008 2009 2010 2011e Kazakhstan South Africa Turkey Russia India Others Production 0 Source: ICDA Statistics & CRU
South Africa FeCrcapacity Underutilised 5 4.5 4 3.5 3 Million tons 2.5 2 1.5 1 0.5 0 2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f 2014f Production Capacity Source: ICDA Statistics & estimated Forecast
South Africa has become the swing ferrochrome producer- falling market share 10000 1200 SA Quarterly Production 9000 8000 7000 1000 800 600 400 200 0 1st Q 08 2nd Q08 3rd Q08 4th Q08 1st Q 09 2nd Q09 3rd Q09 4th Q09 1st Q 10 2nd Q10 3rd Q10 4th Q10 1st Q 11 2nd Q11 3rd Q11 '000 mt 6000 5000 '000 mt 4000 3000 2000 1000 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f Other S.Africa 1600 1400 1200 1000 800 600 400 200 0 World excl SA Quarterly Production 1st Q 08 2nd Q 08 3rd Q 08 4th Q 08 1st Q 09 2nd Q 09 3rd Q 09 4th Q 09 1st Q 10 2nd Q 10 3rd Q 10 4th Q 10 1st Q 11 2nd Q 11 3rd Q 11 '000 mt Source: ICDA Statistics & CRU forecast
Charge Chrome Prices 160 140 120 Prices quoted exclude discounts European prices exclude discounts, which have increased USc/lb Cr delivered 100 80 60 When prices increase China and India increase production rates, i.eless demand for imported materials from China. 40 20 0 Jan-09 Mar-09 May-09 Jul-09 Sep-09 Nov-09 Jan-10 Mar-10 May-10 Jul-10 Sep-10 Nov-10 Jan-11 Mar-11 May-11 Jul-11 Sep-11 Nov-11 Jan-12 Q3 2010: 130c/lb Cr Del Q4 2010: 130c/lb Cr Del Q1 2011: 125c/lb Cr Del Q2 2011: 135c/lb Cr Del Q3 2011: 120c/lb Cr Del Q4 2011: 120c/lb Cr Del Q1 2012: 115c/lb Cr Del European Contract China Spot Source: CRU Dec 2011
Chrome Ore Reserves and Production 2011 World Chromite Reserves 7.6 billion tons (estimate) World Chromite Production 23.14mill tons (forecast) Source: Metal Bulletin Research
Chrome Ore Imports into China 2006 4.3 Mill Tons 2011 estimated 9.7 Mill Tons Source: ICDA and TEX Report
China Chrome Ore Stocks at Main Ports 4000 3500 3000 2500 Estimated Stocks 2000 1500 1000 Imports 500 0 2009 2010 2011
Cr Ore Pricing (SA 44% Conc) High demand for all ore, but particularly for Lumpy and metallurgical concentrates (min 44%) Current spot prices estimated US$ 200 CIF for metallurgical concentrates (min 44%) Source: CRU Dec 2011
S.A Ferrochrome industry under Threat Since 2007, FeCr production costs increased by +/- 11% p.a. Electricity prices have doubled Labour increases between 8-10% p.a. Scarce expensive technical skills Met Coke increased by 15% p.asince 2005 Local transport costs increased-more road transport has to be used because Transnet does not have the capacity Chinese production costs using imported ore very similar to S.A. costs S.A. has become the marginal producer More profitable to sell Cr ore than produce FeCr
Future Threats Eskom continues to escalate prices by 15-25% p.a. Cr ore oversupply into export market ( UG 2) S.A. Carbon Tax ( proposed level increases cost of production by +/-7 US c/lb) Chinese smelters adopt more advanced technology (pelletising, pre-reduction, bigger furnaces)
Power Comparison between Ferrochrome Producing Countries 160 140 120 100 80 60 40 20 0 2013 2014 2015 2012 2008 2009 2010 2011
Forecast of SA exports of Cr Ore to China Source: CRU
MckinseyReport on the Chrome Value Chain R42 Bncontribution to GDP in 2010 This is under threat Recommendations; S.A should implement an export tariff of US $ 100/t on chrome ore Set up a S.A chrome marketing arm Agree with Government a justifiable electricity power price path Align S.A CO2 tax implementation with main competition Optimise resource management incl review of mining licence issue and UG2 production.
Conclusions Future of S.A Chrome industry very uncertain With increasing platinum production, the increased availability of UG2 suggests continuing Cr ore oversupply Higher cost Cr ore producers may be squeezed out of the market as prices fall S.A FeCrproducers continue to move up the cost curve due mainly to administered price increases and inefficiencies inherent in S. Africa Probability that some FeCrproducers will merge or close in the short term