Chrome: Recent Market Challenges & Outlook Dmitry Pastour, CEO AMM: North American Ferroalloys Conference Chicago, United States 6-8 September 1
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
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: 4.0 8.0% Si: 2.5 7.0% Production: 3,731,593 Brazil Finland Sweden Romania South Africa Ferbasa Outokumpu Cr Oy Vargön (until 08 Charge + HC) SC Feral Xstrata/Merafe, Samancor, Hernic, ASA, IFML, Assmang, Ruukki, Tata Source: Heinz H. Pariser, ICDA Data 3
HC FeCr imports USA IMPORTS HC FECR Finland Kazakhstan South Africa Turkey Arab Emirates RoW EUROPE IMPORTS HC FECR Finland Kazakhstan South Africa Sweden Turkey Zimbabwe RoW 6% 2% 7% 14% 9% 5% 3% 4% 14% 12% 16% 62% 46% Source: ICDA, based on full data 4
HC FeCr imports CHINA IMPORTS HC FECR India Kazakhstan South Africa Zimbabwe RoW 2%3% 5% 24% 66% Source: ICDA, based on full data 5
Currencies of Chrome producing countries 110% 90% 70% 50% 30% Q1 2011 Q2 2011 Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Source: OANDA ZAR/USD KZT/USD CNY/USD RUB/USD INR/USD 6
Price dynamics: base and spot prices in Europe, USA and spot prices in China 10000 1.7 9000 1.5 8000 1.3 7000 1.1 6000 0.9 5000 0.7 4000 Source: Metal Bulletin EU Benchmark (LHS) EU HC Spot (LHS) RN HC Spot (LHS) FeCr China spot 6-8% C (RHS) 7
Source: ICDA, September 8
Source: ICDA, September 9
China tender prices vs. imports of HC Ferrochrome (10,000 tons) vs. CIF Shanghai 12500 35.00 30.00 10500 25.00 20.00 8500 15.00 6500 10.00 5.00 4500 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 10
FeCr production HC FECR PRODUCTION China South Africa E.Europe/CIS/Mid. East W.Europe/Turkey/Albania Rest of Africa Rest of Asia LC/MC FECR PRODUCTION China E.Europe/CIS/Mid. East Unspecified 13% 5% 2% 11% 36% 22% 52% 26% 33% Source: ICDA, based on Q1 11
LC/MC FeCr imports USA IMPORTS LC/MC FECR Brazil China Germany Kazakhstan Russia South Africa RoW EUROPE IMPORTS LC/MC FECR Brazil China Kazakhstan Russia South Africa Turkey RoW 19% 11% 16% 7% 30% 1% 5% 24% 8% 25% 14% 10% 3% 27% Source: ICDA, based on full data 12
HC & LC FeCr, Nickel price and UG2 Chrome ore Source: Metal Bulletin, FerroalloyNet, ICDA 13
HC-LC FeCr, Nickel and UG2 Chrome ore price change (Volatility) Source: Metal Bulletin, FerroalloyNet, ICDA 14
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. 15
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 3.0 2.5 2.0 1.5 1.0 0.5 Crude Stainless Output Domestic FeCr Supply USA FeCr industry 1974: 306 kt 1981: Macalloy temporarily suspends 1987-1993: producing for DLA stockpile (~ 50kty) 2015: 2.5 Mill t 1998: Exit Domestic FeCr Production 0.0 production 1950 1960 1970 1980 1990 2000 2010 500 450 400 350 300 250 200 150 100 50 0 5.0 4.5 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 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) 0.0 1950 1960 1970 1980 1990 2000 2010 1000 900 800 700 600 500 400 300 200 100 0 35 10 35 10 30 25 20 15 10 5 0 0 1990 2000 2010 2020 Stainless Steel Production Source: Heinz H. Pariser China FeCr industry 1 Charge/HC FeCr Production 9 8 7 6 5 4 3 2 1 30 25? 20 15 10 5 China FeCr industry 2 0 0 1990 2000 2010 2020 16 Stainless Steel Charge/HC FeCr Production Production 9 8 7 6 5 4 3 2 1
Cr ore production vs. import into China 35000000 50% 30000000 46% 45% 25000000 20000000 15000000 10000000 31% 33% 34% 40% 32% 36% 38% 40% 35% 30% 5000000 0 2010 2011 2012 2013 2014 2015 Q1 25% Source: ICDA, FerroalloysNet Chrome ore prodution Chrome ore imports Percentage of imports 17
Recent 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. 18
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