MBR's outlook on steel & ferro-silicon by Amy Bennett November 2013

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similar damage, Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access
2

Global Steel Production (m tonnes)
1,800

Rest of World (LHS)

China (LHS)

China % of total (RHS)

60%

1,600
55%
1,400
1,200

50%

1,000
45%
800

600

40%

400
35%
200
0

30%
2008





2009

2010

2011

2012

2013f

2014f

China has been and will continue to be the major contributor to global steel production growth
Global crude steel output is poised to rise about 2.5% in 2013
China’s share of total crude steel output is forecast to rise to 49% this year


3

Global Steel Production (m tonnes)
Asia & Oceania

1,600

North America

Eastern Europe & CIS

1,800

Africa & Middle East

South America

2,000

Western Europe

1,400
1,200
1,000
800
600
400
200
0
2008





2009

2010

2011

2012

2013f

2014f

Asia dominates global steel output
China accounts for about 70%of the Asia/Oceania total
Chinese crude steel production growth rates expected to slow to around 4-5% per annum

4

Global Steel Output Growth (% change year-on-year)
50%
40%
30%
20%
10%

0%
-10%
Western Europe

Africa & Middle East

Asia & Oceania

-30%

Eastern Europe & CIS

North America

-20%

Total

-40%
2009





2010

2011

2012

2013f

2014f

Asian steel output growth has remained positive over the period, supporting global growth
Growth in Europe and North America has been volatile in recent years
After declining in 2013, steel output in Europe and North America is poised to rise in 2014

5

Quarterly Crude Steel Production (% Change Y-o-Y)
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
-25%

Latin America

China

CIS

Total World

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
10 10 11 11 11 11 12 12 12 12 13 13 13





30%
25%
20%
15%
10%
5%
0%
-5%
-10%
-15%
-20%

USA

Europe

Japan

Total World

Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3
10 10 11 11 11 11 12 12 12 12 13 13 13

Growth in emerging markets (left chart) has far outpaced growth in mature markets (right chart) this year
Emerging markets (excluding the CIS) have posted impressive growth thus far in 2013
Mature markets showed year-on-year growth in Q3 2013 and we expect this trend to continue into 2014


6

Chinese Output vs. Capacity Utilisation
70

100

65

90

60

80

55

70

50

60

45

m tonnes (LHS)

% (RHS)

50

40

40

35

30

30

20
Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug
09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13



Crude steel production and utilisation moving together suggest that capacity has been on the rise in China

despite attempts to close inefficient capacity




Small inefficient capacity has been replaced by larger furnaces
Mills are running near full capacity contributing to over-supply and pressure on domestic steel prices

7

US capacity utilisation vs. domestic FeSi prices
100

1.20

90

1.10

1.00

80

0.90

%

0.80

60

Utilisation [LHS]

50

0.70

FeSi [RHS]

0.60

40

0.50
Oct
10






$/lb

70

Feb
11

Jun
11

Oct
11

Feb
12

Jun
12

Oct
12

Feb
13

Jun
13

Oct
13

Average US steel mill capacity utilisation rates have stagnated at around 73-78% of capacity

Data masks differences in operating rates by product, with flat product operating rates closer to 90%
US ferro-silicon prices normally track utilisation rates, but prices now reflecting US ferro-silicon trade action


8

US FeSi vs. SiMn Prices
1.20

0.80
0.70

1.00

0.60
0.50

0.60

0.40

0.40

0.30

FeSi (LHS)

0.20

SiMn (RHS)

0.20

$/lb

$/lb

0.80

0.10

0.00

0.00
Oct
10

Feb
11

Jun
11

Oct
11

Feb
12

Jun
12

Oct
12

Feb
13

Jun
13

Oct
13



US ferro-silicon prices have increased in recent months, while silico-manganese prices trend stable to lower



Consumers who are able to adjust their raw materials intake may opt to source more silicon via SiMn in lieu of FeSi

9

Crude Steel Production by Process
1800
1600

EAF

BOF

1400
m tonnes

1200
1000
800
600
400
200

0






Ferro-silicon predominantly consumed in integrated, blast furnace steelmaking operations

BOF share of steel output is rising as China increases output, while EAF output in USA and EU declines
EAF share down to 25% in 2013 versus 30% last year, but likely to rise again in the coming years


10

Steel consumption by end-use sector
Transportation
275, 19%

2011
ConstructionEnergy, 95, 7%

2025

ConstructionEnergy, 123,
5%

Transportation
398, 17%

Other, 59, 4%

Other, 88, 4%

Mechanical
Engineering,
235, 17%
ConstructionNon Energy,
750, 53%



Mechanical
Engineering,
355, 15%
ConstructionNon Energy,
1383, 59%

The numbers in the legend state estimated tonnage first (in million tonnes) and share of the total

consumption after the comma




Most of the growth in steel demand will come from emerging countries large infrastructure projects
Therefore, and despite a progressive growth of disposable income in these countries, an even greater share

of demand will come from construction in the coming years

11

Quarterly Stainless Steel Production
10.0

m tonnes

9.0
8.0

7.0
6.0
5.0
4.0
Q4
08






Q2
09

Q4
09

Q2
10

Q4
10

Q2
11

Q4
11

Q2
12

Q4
12

Q2
13

Q4
13f

Global stainless steel production reached a new record high in the first half of 2013

Over-supply and over-capacity are significant obstacles in the stainless steel industry
Unit consumption of ferro-silicon in stainless steel production is around 15-20 kg/tonne


12

Global Ferro-silicon Production Distribution - 2012
Other
4%

North
America
4%

Latin
America
5%

Europe
11%
CIS
11%

China
65%



China dominates global ferro-silicon production and will continue to dominate for the foreseeable future


13

Chinese Ferro-silicon Production
700
600

'000 tonnes

500
400
300
200

100
0
Aug Oct Dec
11 11 11

Feb
12

Apr
12

Jun
12

Aug Oct Dec
12 12 12

Feb
13

Apr
13

Jun
13

Aug
13



Chinese ferro-silicon production fell back to 4.8m tonnes in 2012, down from 5.5m tonnes in 2011



Official statistics indicate output in the first eight months of 2013 is running 28% above 2012 levels


14

Chinese Ferro-silicon Exports vs. Prices
120

Exports (LHS)

2,000

Prices (RHS)

80

1,600

60

1,400

40

1,200

20

'000 tonnes

1,800

1,000

0

$/tonne

100

800
Sep
09

Mar
10

Sep
10

Mar
11

Sep
11

Mar
12

Sep
12



Official Chinese export statistics indicate a 25% decline in exports in the first nine months of 2013



We agree that Chinese exports are lower than last year, but not to that extent due to the rise of illegal exports


15

Chinese Reported Exports vs. Actual Imports
600000
500000

EU
Taiwan
Japan

201
2

600000

USA
S.Korea

500000

S.Korea

400000

tonnes

tonnes

Taiwan

USA

Japan

400000
300000

300000

200000

200000

100000

100000

0

0

Reported



EU

201
3e

Actual

Reported

Actual

MBR estimates actual Chinese ferro-silicon exports in 2012

exceeded official exports by over 200,000 tonnes



We estimate actual Chinese ferro-silicon exports will exceed

official exports by over 250,000 tonnes in 2013

16

Trade Discrepancies – China vs. Japan
China exports to Japan
Japan imports from China

30000
25000

tonnes

20000
15000
10000
5000
0
Jan
12




Mar
12

May
12

Jul
12

Sep
12

Nov
12

Jan
13

Mar
13

May
13

Jul
13

Sep
13

Significant discrepancy exists between official Japanese import statistics and Chinese export statistics
Japanese imports of Chinese ferro-silicon were over 48,000

tonnes higher than official Chinese exports in 2012



Japanese imports of Chinese ferro-silicon running over 63,000

Market than official exports so far in 2013
tonnes higherAnalysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online Access

17

Trade Discrepancies – China vs. S.Korea
China exports to S.Korea
S.Korea imports from China

18000
16000
14000

tonnes

12000
10000
8000

6000
4000
2000

0
Jan
12



Mar
12

May
12

Jul
12

Sep
12

Nov
12

Jan
13

Mar
13

May
13

Jul
13

S.Korean imports of Chinese ferro-silicon were over 85,000




S.Korean imports of Chinese ferro-silicon running over 53,000

tonnes higher than official exports so far in 2013

18

Trade Discrepancies – China vs. Taiwan
9000

China exports to Taiwan

8000

Taiwan imports from China

7000

tonnes

6000

5000
4000
3000
2000
1000
0
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun
12 12 12 12 12 12 12 12 12 12 12 12 13 13 13 13 13 13



Taiwanese imports of Chinese ferro-silicon were over 51,000




Taiwanese imports of Chinese ferro-silicon running over

32,000 tonnes higher than official exports so far in 2013

19

Trade Discrepancies – China vs. USA
16000

14000

US Imports from China
China exports to USA

12000
tonnes

10000
8000

6000
4000
2000
0

Jan Mar May Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul
11 11 11 11 11 11 12 12 12 12 12 12 13 13 13 13



US imports of Chinese ferro-silicon were over 17,000 tonnes

higher than official Chinese exports in 2012



US imports of Chinese ferro-silicon running only 1,100 tonnes

higher than official exports so far in 2013



Market Analysis | Forecasting | Price Movements | Archive | Breaking Views | 24/7 Online we
With recent anti-dumping investigations in the USA, Access expect

20

EU FeSi Prices vs. EU steel flat products output
10,000

Flats Production (LHS)
FeSi Price (RHS)

2,500

6,000

1,500

4,000

1,000

2,000

('000 tonnes)

2,000

500

($/tonne)

8,000

Jul Sep Nov Jan Mar May Jul Sep Nov Jan Mar May Jul
11 11 11 12 12 12 12 12 12 13 13 13 13




European ferro-silicon prices followed steel production lower during the third quarter
EU flat products output down 4.1% year-on-year in first seven months of 2013


21

EU Imports of 75% Ferro-silicon
250

'000 tonnes

200

2012

2013

150

100

50

0
Germany



Italy

France

UK

EU27 apparent ferro-silicon consumption fell about 10% in

2012, indicating stock depletion last year




EU27 imports of ferro-silicon are running approximately 7% above last year’s levels in 2013
EU27 apparent ferro-silicon consumption is on target to rise

around 5-6% in 2013, indicating stock rebuilding

22

US Imports of 75% Ferro-silicon
80

Total

China

Russia

Venezuela

70

'000 tonnes

60
50

40
30
20
10

0
Q3
10





Q4
10

Q1
11

Q2
11

Q3
11

Q4
11

Q1
12

Q2
12

Q3
12

Q4
12

Q1
13

Q2 Q3
13 13e

US imports down 12% year-on-year in the first eight months of 2013 reflecting lower prices earlier this year
US ferro-silicon producers filed an anti-dumping case in mid-2013 against ferro-silicon from Russia and Venezuela
Total share of US imports from Russia and Venezula rose to 71% thus far in 2013, up from 64% in 2012

23

Ferro-silicon Quarterly Price Comparison
2,750
USA

Europe

China

2,500
2,250

$/tonne

2,000
1,750
1,500
1,250

1,000
750
500
Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 11 11 12 12 12 12 13 13 13 13
Source: Metal Bulletin Research


Ferro-silicon prices have trended downward through most of 2013



Average annual prices in 2013 will be below 2010-2012 averages, but will remain above 2009’s low


24

European Ferro-silicon 75% Spot Market Prices – Annual Comparison
1700

1600

$/tonne

1500

1400
1300
1200
2012

1100

2013

2014

1000
Jan

Feb Mar Apr May Jun

Jul

Aug Sep

Oct Nov Dec



Ferro-silicon prices declined through most of 2012



In 2013, prices have been fairly flat, showing some improvement in the latter half of the year



We expect pricing trends in 2014 to be similar to 2013, but at a higher pricing level

25

Ferro-silicon Quarterly Price Forecast
2,750
USA

Europe

2,500
2,250

Forecast

$/tonne

2,000
1,750
1,500
1,250
1,000
750
500
Q4 Q2 Q4 Q2 Q4
06
07
07
08
08
Source: Metal Bulletin Research

Q2
09

Q4
09

Q2
10

Q4
10

Q2
11

Q4
11

Q2
12

Q4
12

Q2
13

Q4
13

Q2
14



Economic improvement and stronger demand from steelmakers will buoy ferro-silicon prices next year



Q4
14

Average annual prices in 2014 will rise above 2012-2013 levels but remain below 2010-2011 averages

26


27

For information regarding this presentation contact
Amy Bennett
Principal Consultant at Metal Bulletin Research
abennett@metalbulletinresearch.com


28

MBR's outlook on steel & ferro-silicon by Amy Bennett November 2013

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