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

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Amy Bennett Principal Consultant

November 2013

MBR’s Outlook on Steel & Ferro-silicon



Disclaimer:

Prices and other information contained in this presentation have been obtained by us from various sources believed to be

reliable. This information has not been independently verified by us. Those prices and price indices that are evaluated

or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been

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publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities,

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Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation

methodologies, and may not conform to prices or information available from third parties. There may be errors or defects

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Global Steel Production (m tonnes)

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60%

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2008 2009 2010 2011 2012 2013f 2014f

Rest of World (LHS) China (LHS) China % of total (RHS)

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



Global Steel Production (m tonnes)

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

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2,000

2008 2009 2010 2011 2012 2013f 2014f

Asia & Oceania Africa & Middle East

South America North America

Eastern Europe & CIS Western Europe



Global Steel Output Growth (% change year-on-year)

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

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50%

2009 2010 2011 2012 2013f 2014f

Western Europe Eastern Europe & CIS

North America Africa & Middle East

Asia & Oceania Total



Quarterly Crude Steel Production (% Change Y-o-Y)

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

-25%-20%-15%-10%

-5%0%5%

10%15%20%25%

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

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Q4 12

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Q2 13

Q3 13

Latin America China

CIS Total World-20%-15%-10%

-5%0%5%

10%15%20%25%30%

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

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Q4 12

Q1 13

Q2 13

Q3 13

USA Europe

Japan Total World



Chinese Output vs. Capacity Utilisation

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

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m tonnes (LHS) % (RHS)



US capacity utilisation vs. domestic FeSi prices

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

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$/lb%

Utilisation [LHS] FeSi [RHS]



US FeSi vs. SiMn Prices

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$/lb

$/lb

FeSi (LHS)

SiMn (RHS)

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



Crude Steel Production by Process

0

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800

1000

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1600

1800m

tonn

es

EAF BOF

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



Steel consumption by end-use sector

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

Construction-Non Energy,

750, 53%

Construction-Energy, 95, 7%

Transportation275, 19%

Other, 59, 4%

Mechanical Engineering,

235, 17%

2011

Construction-Non Energy, 1383, 59%

Construction-Energy, 123,

5%

Transportation 398, 17%

Other, 88, 4%

Mechanical Engineering,

355, 15%

2025



Quarterly Stainless Steel Production

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Q4 08

Q2 09

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Q4 13f

m to

nnes

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



Global Ferro-silicon Production Distribution - 2012

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

North America

4%

Latin America

5%

Europe11%

CIS11%

China65%

Other4%



Chinese Ferro-silicon Production

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

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Chinese Ferro-silicon Exports vs. Prices

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

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Exports (LHS) Prices (RHS)



Chinese Reported Exports vs. Actual Imports

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

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Reported Actual

tonn

es

EU USATaiwan S.KoreaJapan

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600000

Reported Actualto

nnes

EU USA

Taiwan S.Korea

Japan

2012 2013e



Trade Discrepancies – China vs. Japan

0

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30000

Jan 12

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tonn

esChina exports to JapanJapan imports from China

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 tonnes higher than official exports

so far in 2013



Trade Discrepancies – China vs. S.Korea

S.Korean imports of Chinese ferro-silicon were over 85,000 tonnes higher than official Chinese

exports in 2012

S.Korean imports of Chinese ferro-silicon running over 53,000 tonnes higher than official exports

so far in 2013

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Jan 12

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May 12

Jul 12

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Nov 12

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Jul 13

tonn

esChina exports to S.Korea

S.Korea imports from China



Trade Discrepancies – China vs. Taiwan

Taiwanese imports of Chinese ferro-silicon were over 51,000 tonnes higher than official Chinese

exports in 2012

Taiwanese imports of Chinese ferro-silicon running over 32,000 tonnes higher than official

exports so far in 2013

0

1000

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9000

Jan 12

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Apr 12

May 12

Jun 12

Jul 12

Aug 12

Sep 12

Oct 12

Nov 12

Dec 12

Jan 13

Feb 13

Mar 13

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May 13

Jun 13

tonn

esChina exports to Taiwan

Taiwan imports from China



Trade Discrepancies – China vs. USA

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

With recent anti-dumping investigations in the USA, we expect to see rising official and illegal

exports to the USA

0

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16000

Jan 11

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Sep 11

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Nov 12

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May 13

Jul 13

tonn

es

US Imports from China

China exports to USA



EU FeSi Prices vs. EU steel flat products output

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

500

1,000

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2,000

4,000

6,000

8,000

10,000

Jul 11

Sep 11

Nov 11

Jan 12

Mar 12

May 12

Jul 12

Sep 12

Nov 12

Jan 13

Mar 13

May 13

Jul 13

($/tonne)('0

00 to

nnes

)Flats Production (LHS)FeSi Price (RHS)



EU Imports of 75% Ferro-silicon

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

0

50

100

150

200

250

Germany Italy France UK

'000

tonn

es

2012 2013



US Imports of 75% Ferro-silicon

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

0

10

20

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50

60

70

80

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13e

'000

tonn

esTotal China Russia Venezuela



Ferro-silicon Quarterly Price Comparison

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

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

Q4 06

Q1 07

Q2 07

Q3 07

Q4 07

Q1 08

Q2 08

Q3 08

Q4 08

Q1 09

Q2 09

Q3 09

Q4 09

Q1 10

Q2 10

Q3 10

Q4 10

Q1 11

Q2 11

Q3 11

Q4 11

Q1 12

Q2 12

Q3 12

Q4 12

Q1 13

Q2 13

Q3 13

Q4 13

$/to

nne

Source: Metal Bulletin Research

USA Europe China



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

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

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1100

1200

1300

1400

1500

1600

1700

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

$/to

nne

2012 2013 2014



Ferro-silicon Quarterly Price Forecast

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

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

500

750

1,000

1,250

1,500

1,750

2,000

2,250

2,500

2,750

Q4 06

Q2 07

Q4 07

Q2 08

Q4 08

Q2 09

Q4 09

Q2 10

Q4 10

Q2 11

Q4 11

Q2 12

Q4 12

Q2 13

Q4 13

Q2 14

Q4 14

$/to

nn

e

Source: Metal Bulletin Research

USA Europe

Forecast





For information regarding this presentation contact

Amy Bennett

Principal Consultant at Metal Bulletin Research

[email protected]

mailto:[email protected]

Business

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