Observations on the global and Asian ferrosilicon markets Kevin Fowkes Ferroalloy Industry Consultant 28 th March, 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 70% 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
FeSi global revenues were $14bn in 2011, accounting for 23% of revenues in the bulk ferroalloy sector 90 Estimated global bulk ferroalloy revenues by sector (billion US$) 80 70 60 50 40 30 20 Si FeSi Cr Mn 10 0 2004 2005 2006 2007 2008 2009 2010 2011
Global FeSi demand was 8.2Mt in 2011. Asian share has risen from 46% in 2000 to 75% in 2011 10 Global FeSi consumption (million tonnes 75% basis) 8 8.2M 16% Rest of world 6 Other Asia China 4 3.6M 59% CIS N.America 24% Europe 2 22% 0
Consumption of FeSi per tonne of steel in China is 75% higher than in developed countries and rising 9.00 FeSi apparent consumption (kg) per tonne of crude steel output 8.00 7.00 China 6.00 5.00 4.00 Japan Europe S. Korea 3.00
Chinese FeSi demand has three key end use sectors steel, foundry, and magnesium Rest of World FeSi consumption by end-use, 2011* Chinese FeSi consumption by end-use, 2011** Stainless steel Electrical steel Other carbon steel Foundry Magnesium Other *total Rest of World consumption 3.4 million tonnes (steel-related = 72%) **total Chinese consumption 4.8 million tonnes (steel-related = 63%)
China s share of global FeSi output has risen from 37% in 2000 to 72% in 2011 Global FeSi production, 2000 Global FeSi production, 2011 China Russia Norway/Iceland Brazil USA Other total 3.7 million tonnes total 7.8 million tonnes
Chinese FeSi production has grown more slowly than consumption, leaving less available for export 6 Chinese FeSi production (million tonnes 75% basis) Global financial crisis Chinese stimulus Chinese 25% export tax 5.6M 5 10% Exported 4 33% Consumed in China 3 90% 2 1 1.4M 35% 67% 65% 0
Chinese FeSi exports appear to have fallen to a permanently lower level since the end of 2008 1,800 Chinese FeSi exports (thousand tonnes 75% basis) EU antidumping Global financial crisis Chinese stimulus Chinese 25% export tax 1,600 1,400 1,200 Other 1,000 EU 800 600 400 200 0 USA Taiwan S.Korea Japan
High taxation of Chinese exports since 2007-8 is a major cause of lower FeSi exports from China 35% 30% 25% 20% 15% 10% 5% 0% -5% -10% Tax rate on Chinese FeSi EU antidumping duty (general China) Chinese export tax EU antidumping duty (Erdos)
In Japan, lower Chinese imports correspond to lower demand. In Korea, Russians have filled the gap 700 Japan FeSi imports (thousand tonnes 75% basis) 300 South Korea FeSi imports (thousand tonnes 75% basis) 600 500 400 300 200 100 250 200 150 100 50 Other Russia China 0 0
In the USA, lower Chinese imports have been offset by higher Russian imports and by lower demand 500 USA FeSi supply (thousand tonnes 75% basis) 450 400 350 300 Other 250 200 150 100 50 0 Venezuela Russia China Domestic producers
In Europe, Chinese market share has been re-taken by producers from Norway, Iceland and Brazil 1,200 EU FeSi supply (thousand tonnes 75% basis) EU antidumping 1,000 800 600 400 200 0 Other Brazil Russia China Norway/Iceland EU domestic producers
Other FeSi suppliers have taken market share from Chinese exports.expect this trend to continue Russian suppliers have increased their share of Korean and US markets in particular Brazilian suppliers increased supply to Europe 2009-2011, but now softening European suppliers have taken much higher share of European market since 2008 EU anti dumping duties up for review in 2013 if revoked, Chinese might regain some share of EU market Loss of Chinese exports since 2008 partly offset by softer demand in some markets (Japan, Europe, USA). Recovery of demand in these markets will intensify the need to find alternative volumes of FeSi New FeSi suppliers likely to emerge in countries like Indonesia, Malaysia and in the Middle East
Profitability of Chinese FeSi production is poor nevertheless, prices are cost-driven in the longer term 1,300 1,200 1,100 1,000 US$ per tonne Average Chinese domestic FeSi price Average Chinese FeSi production cost 900 800 700 600
Sales to most export markets are also currently unprofitable for the average Chinese FeSi producer 2,500 US$ per tonne 2,000 EU anti-dumping duty Price EU 1,500 Price USA Price Japan Export tax 1,000 Price China domestic Cost to supply domestic customers 500 0 Most competitive Chinese plants Average Chinese plant 17% Less competitive Chinese plants 23%
The cost structure for Chinese FeSi producers is uniquely focused on electricity costs 100% 90% 80% 70% 60% 50% 40% 30% Estimated % of cash production costs Depreciation Labour Raw materials 20% Electricity 10% 0% Chinese FeSi producers European FeSi producers Russian FeSi producers 23%
Coal is the key cost driver for FeSi.with an 83% correlation between coal prices and FeSi prices Chinese domestic FeSi prices (US$/tonne) 1800 1600 1400 1200 1000 800 600 400 200 0 Linear trend line R² = 0.8275 Steam coal is used to produce char, the most common reductant used in FeSi production Most electricity used in global FeSi production is coal-fired (including in China) 0 50 100 150 200 Steam coal prices (US$/tonne)
4 reasons to be (cautiously) optimistic about FeSi prices in the coming months..
(1) Raw material prices appear to have bottomed out, with a recovery likely as 2012 progresses 200 Steam coal spot price (US$ per tonne) Steam coal (left axis) China FeSi domestic spot price (US$ per tonne) 2000 180 1800 160 140 Chinese FeSi domestic (right axis) 1600 1400 120 1200 100 * 1000 80 800 60 1Q-07 1Q-08 1Q-09 1Q-10 1Q-11 1Q-12 600 * Forecast based on steam coal futures prices, GlobalCoal.com, March 2012
(2) In Q1-2012, crude steel output is on a recovering trend in both China and the developed world 160 Index of crude steel output since September 2008 global downturn (Sep 2008 = 100) 140 China 120 100 80 World USA Japan EU-27 60 40 Sep 2008 Feb 2009 Jul 2009 Dec 2009 May 2010 Oct 2010 Mar 2011 Aug 2011 Jan 2012 Source: worldsteel.org
(3) Cost pressures and improved demand have led prices to begin to recover in most markets 3000 US$ per tonne EU US Japan China domestic 2500 2000 1500 1000 500 0
(4) Share prices for ferroalloy companies have begun to recover; a leading indicator for ferroalloy prices 500 Index (2006-Q1=100) Share prices are a leading indicator of turnarounds in market prices 400 300 200 100 0 R-squared correlation of 68% Ferroalloy company share price index Ferroalloy market price index
In conclusion 75% of global FeSi consumption is now in Asia 59% is in China China s percentage of global FeSi consumption will continue to increase China is focusing more FeSi production on domestic consumption, and exporting less Export taxation and anti-dumping duties reinforce this trend Other suppliers have taken market share previously dominated by Chinese exports this trend can be expected to continue FeSi prices bottomed out early in Q1-2012 and have begun to recover Indicators for coming months are cautiously positive