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INDUSTRY NOTE
USA | Industrials
Materials (Steel) October 17, 2017
Materials (Steel)China’s Silicon Price Inflects; Western US/EUContinue Gains
EQU
ITY R
ESEARC
H A
MERIC
AS
Si Meta l & A lloys P r ice Summar y
Product Date
Si Metal (98.5%) 10/13/17 1-week
US $/lb 1.278 0.017EU $/lb 1.160 0.034EU /lb 0.981 0.021China $/lb 0.850 0.011
FeSi (75%) 10/13/17 1-week
US $/lb 0.731 (0.006)EU $/lb 0.732 0.007EU /lb 0.619 0.001China $/lb 0.576 (0.024)
SiMn (65%) 10/13/17 1-week
US $/lb 0.633 (0.002)EU $/lb 0.563 0.005EU /lb 0.476 0.000China $/lb 0.604 (0.016)
Input Materials 10/13/17 1-week
Mn Ore (44%) $/dmtu 6.635 0.000Mn Ore (100%) $/lb 0.301 0.000Mill Scale $/lb 0.022 0.000Turnings $/lb 0.069 0.000
Exchange Rates 10/13/17 1-week
USD/EUR 0.85 (0.01)USD/CNH 6.58 (0.07)USD/BRL 3.17 0.02USD/RUB 57.76 (0.40)USD/AUD 1.28 (0.01)USD/ZAR 13.48 (0.25)USD/NOK 7.90 (0.09)
Note: Jefferies derived estimates, Factset
Net Change
Friday, October 13, 2017
Martin Englert *Equity Analyst
(646) 805-5421 [email protected] Rosenfeld, CFA §
Equity Analyst+44 (0) 20 7029 8772 [email protected]
Alan Spence, CFA §Equity Analyst
+44 (0) 20 7029 8311 [email protected]
* Jefferies LLC § Jefferies International Limited
^Prior trading day's closing price unlessotherwise noted.
Key TakeawayChina’s Si metal prices appear to have stabilized and inflected over the pastweek, an encouraging sign potentially supporting incremental gains in theWest. Both US/EU Si metal prices continue to move higher, with the US up +$0.017/lb WoW to $1.278 for the week ending October 13, 2017. We remainoptimistic regarding future Si price gains near-term, positive on the shares ofBuy-rated GSM, and look forward to an update at its analyst day in NYC today.
China’s Silicon Price Stabilizes and Moves Higher: China’s Si metal price inflectedlast week, increasing +$0.011/lb sequentially to $0.850 for the week ending October13, 2017. The inflection breaks five weeks of consecutive declines since the parabolicascent in price peaked at $0.984/lb. Prices reportedly found a floor as buying activitypicked up and resurgent cost pressures ensued via increased electricity costs coupled withrenewed environmental efforts. The Yunnan government required Si producers to upgradeequipment before year-end to reduce pollution, with companies apprehensive to moveforward with CapEx due to the recent price-margin retracement. This has prompted severalproducers to idle capacity with incremental production cuts expected in coming monthsthat will likely buoy Si prices.
Western US & EU Si Prices Recovery Persists: Si metal prices in the US increased +$0.017/lb sequentially to $1.278 for the week ending October 13, 2017. Pricing has gained+44% YoY with incremental upside likely post preliminary US and Canadian dumpingduties (US Levies 4-135% Preliminary Si Metal Antidumping Duties; Reiterate Buy). Channelinventories are reportedly low with increasing hesitancy to sell through those availablepost-duties given the upward trend in price. Aluminum smelters reengaging the marketcontributed to incremental demand improvement with some rebuilding inventories into 4Qanticipating higher prices. Si prices in Europe gained +€0.021/lb sequentially to €0.981/lbfor the week ending October 13, 2017, on a Euro-denominated basis and increased by +$0.034/lb to $1.160 on a USD basis. Pricing was reportedly pushed higher on improveddemand coupled with limited supply and low inventories. Import offers into Europe fromChina remain scant with sentiment regarding pricing remaining positive near-term.
HiTest Moving Forward with Plans for Western US Si Plant: HiTest Sand is reportedlymoving forward with its plans to build a Si facility in WA. It has commenced the permittingprocess, expected to take about a year, with an additional two years targeted for theconstruction timeline. Capacity is earmarked at 60Ktpy with an estimated $325M cost, or$5,417/tonne of capability. While not an imminent threat to GSM, barriers to entry into theNorth American market raised via import duties does raise the risk of new entrants.
Recent Research:US Levies 4-135% Preliminary Si Metal Antidumping Duties; Reiterate BuyPreliminary US Si Dumping Duties Expected Tomorrow; Canada ExecutesChina"s Silicon Retracement Trajectory Moderating with Signs of StabilizationNo Sugarcoating; China Silicon Inflects & Europe Plays Catch-Up
Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 9 to 12 of this report.
Contents Weekly Silicon Metal & Alloy Price Trends .................................................................................. 3 Exchange Rates ............................................................................................................................ 5 Weekly Silicon Metals Price Summary ........................................................................................ 6 US Preliminary Silicon Dumping-Subsidy & Timeline .................................................................. 7 Canada Preliminary Silicon Dumping-Subsidy & Timeline .......................................................... 8
Industrials
Materials (Steel)
October 17, 2017
page 2 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Weekly Silicon Metal & Alloy Price Trends
Exhibit 1: Silicon Metal Weekly Price Trends
Source: Jefferies derived estimates (AMM, CRU, MB, and MP)
Exhibit 2: Ferrosilicon 75% Weekly Price Trends
Source: Jefferies derived estimates (AMM, CRU, MB, and MP)
Exhibit 3: Silicomanganese 65% Weekly Price Trends
Source: Jefferies derived estimates (AMM, CRU, MB, and MP)
$0.40
$0.60
$0.80
$1.00
$1.20
$1.40
$1.60
$/
lb
US $/lb EU $/lb China $/lb
$0.40
$0.45
$0.50
$0.55
$0.60
$0.65
$0.70
$0.75
$0.80
$/
lb
US $/lb EU $/lb China $/lb
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$/
lb
US $/lb EU $/lb China $/lb
Industrials
Materials (Steel)
October 17, 2017
page 3 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Exhibit 4: Manganese Ore (44%) CFR China Weekly Price Trends
Source: Jefferies derived estimates (AMM, CRU, MB, and MP)
Exhibit 5: Iron Unit Inputs for FeSi Weekly Price Trends
Source: Jefferies derived estimates & MB
$0.00
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
$7.00
$8.00
$9.00
$10.00
$/
dm
tu
$0.00
$0.02
$0.04
$0.06
$0.08
$0.10
$0.12
$/
lb
Mill Scale $/lb Turnings $/lb
Industrials
Materials (Steel)
October 17, 2017
page 4 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Exchange Rates
Exhibit 6: USD/EUR
Source: Factset
Exhibit 7: USD/BRL
Source: Factset
Exhibit 8: USD/CHN
Source: Factset
Exhibit 9: USD/RUB
Source: Factset
Exhibit 10: USD/ZAR
Source: Factset
Exhibit 11: USD/NOK
Source: Factset
0.80 €
0.82 €
0.84 €
0.86 €
0.88 €
0.90 €
0.92 €
0.94 €
0.96 €
0.98 €
US
D/
EU
R
R$ 2.0
R$ 2.5
R$ 3.0
R$ 3.5
R$ 4.0
R$ 4.5
US
D/
BR
L
¥6.00
¥6.20
¥6.40
¥6.60
¥6.80
¥7.00
¥7.20
US
D/
CN
H
40 ₽
45 ₽
50 ₽
55 ₽
60 ₽
65 ₽
70 ₽
75 ₽
80 ₽
85 ₽
US
D/
RU
B
R 10
R 11
R 12
R 13
R 14
R 15
R 16
R 17
R 18
US
D/
ZA
R
kr 7.0
kr 7.2
kr 7.4
kr 7.6
kr 7.8
kr 8.0
kr 8.2
kr 8.4
kr 8.6
kr 8.8
kr 9.0
US
D/
NO
K
Industrials
Materials (Steel)
October 17, 2017
page 5 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Weekly Silicon Metals Price Summary
Exhibit 12: Silicon Metals & Alloys Weekly Pricing
Source: Jefferies derived estimates (AMM, MB, and MP)
Si Metal & Alloys Price Summary
Product Date
Si Metal (98.5%) 10/13/17 1-week 4-weeks 8-weeks 52-weeks 1-week 4-weeks 8-weeks 52-weeks
US $/lb 1.278 0.017 0.02 0.05 0.39 1.26 1.26 1.23 0.89
EU $/lb 1.160 0.034 0.00 0.18 0.38 1.13 1.16 0.98 0.78
EU €/lb 0.981 0.021 0.01 0.14 0.27 0.96 0.97 0.84 0.71
China $/lb 0.850 0.011 (0.06) (0.02) 0.20 0.84 0.91 0.87 0.65
FeSi (75%) 10/13/17 1-week 4-weeks 8-weeks 52-weeks 1-week 4-weeks 8-weeks 52-weeks
US $/lb 0.731 (0.006) (0.02) 0.11 0.20 0.74 0.75 0.62 0.53
EU $/lb 0.732 0.007 (0.05) 0.10 0.26 0.73 0.78 0.63 0.48
EU €/lb 0.619 0.001 (0.03) 0.08 0.18 0.62 0.65 0.54 0.43
China $/lb 0.576 (0.024) (0.08) (0.08) 0.09 0.60 0.66 0.66 0.49
SiMn (65%) 10/13/17 1-week 4-weeks 8-weeks 52-weeks 1-week 4-weeks 8-weeks 52-weeks
US $/lb 0.633 (0.002) 0.00 (0.01) 0.19 0.64 0.63 0.64 0.44
EU $/lb 0.563 0.005 (0.02) 0.01 0.18 0.56 0.58 0.55 0.38
EU €/lb 0.476 0.000 (0.01) 0.01 0.13 0.48 0.48 0.47 0.35
China $/lb 0.604 (0.016) (0.03) 0.01 (0.01) 0.62 0.63 0.59 0.62
Input Materials 10/13/17 1-week 4-weeks 8-weeks 52-weeks 1-week 4-weeks 8-weeks 52-weeks
Mn Ore (44%) $/dmtu 6.635 0.000 0.27 0.45 0.38 6.64 6.36 6.19 6.26
Mn Ore (100%) $/lb 0.301 0.000 0.01 0.02 0.02 0.30 0.29 0.28 0.28
Mill Scale $/lb 0.022 0.000 (0.00) (0.00) 0.00 0.02 0.02 0.03 0.02
Turnings $/lb 0.069 0.000 (0.01) (0.02) 0.01 0.07 0.08 0.09 0.06
Exchange Rates 10/13/17 1-week 4-weeks 8-weeks 52-weeks 1-week 4-weeks 8-weeks 52-weeks
USD/EUR 0.85 (0.01) 0.01 (0.00) (0.07) 0.85 0.84 0.85 0.91
USD/CNH 6.58 (0.07) 0.03 (0.10) (0.16) 6.65 6.55 6.68 6.74
USD/BRL 3.17 0.02 0.06 0.02 (0.03) 3.16 3.11 3.15 3.20
USD/RUB 57.76 (0.40) 0.16 (1.31) (5.16) 58.16 57.60 59.07 62.92
USD/AUD 1.28 (0.01) 0.03 0.02 (0.03) 1.29 1.25 1.26 1.31
USD/ZAR 13.48 (0.25) 0.31 0.31 (0.85) 13.72 13.17 13.16 14.32
USD/NOK 7.90 (0.09) 0.05 (0.00) (0.32) 7.99 7.85 7.91 8.22
Net Change
Friday, October 13, 2017
Price Level Weeks Prior
Industrials
Materials (Steel)
October 17, 2017
page 6 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
US Preliminary Silicon Dumping-Subsidy & Timeline
Exhibit 13: US Preliminary Silicon Dumping & Subsidy
Exporter Dumping % Subsidy % Total
Brazil
DC Brazil 56.78% 3.69% 60.47%
LIASA 134.92% 52.07% 186.99%
Rima 56.78% 3.69% 60.47%
Others 56.78% 3.69% 60.47%
Norway
Elkem 3.74% 3.74%
Others 3.74% 3.74%
Australia
Simcoa 20.79% 16.23% 37.02%
Others 20.79% 16.23% 37.02%
Kazakhstan
Tau-Ken Temir LLP 120.00% 120.00%
Others 120.00% 120.00%
Past Events
March 8, 2017 GSM petitions for dumping-subsidy on silicon metal imports
March 29, 2017 US DOC pursues silicon import investigation
April 21, 2017 ITC affirms US industry harmed by silicon imports on preliminary basis
May 16, 2017 DOC postpones preliminary CV to August 7, 2017
July 12, 2017 GSM requests DOC postpone preliminary AD to October 14, 2017
July 27, 2017 DOC grants postponement of preliminary AD to October 4, 2017
August 8, 2017 DOC preliminary CV determination
October 4, 2017 DOC preliminary AD determination
Upcoming Events
December 18, 2017 DOC final CV determination
February 16, 2018 DOC final AD determination
Source: US DOC, Jefferies
Industrials
Materials (Steel)
October 17, 2017
page 7 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Canada Preliminary Silicon Dumping-Subsidy & Timeline
Exhibit 14: Canada Silicon Dumping & Subsidy
Exporter Dumping % Subsidy % Total
Brazil
Ligas de Aluminio S.A. 27.8% 7.2% 35.0%
Polymet Alloys Inc. (USA) 27.8% 2.8% 30.6%
Rima Industrial S.A. 0.0% 2.7% 2.7%
All other exporters in Brazil 27.8% 6.0% 33.8%
Kazakhstan
Tau-Ken Temir 18.2% 40.3% 58.5%
All other exporters in Kazakhstan 86.5% 269.7% 356.2%
Laos
All exporters in Laos 85.2% 85.2%
Malaysia
All exporters in Malaysia 85.2% 10.6% 95.8%
Norway
Elkem AS 1.2% 2.8% 4.0%
Russia 0.0% 0.0% 0.0%
Thailand
Sica New Materials Co., Ltd. 51.0% 0.8% 51.8%
All other exporters in Thailand 85.2% 0.5% 85.7%
Past Events
February 21, 2017 CBSA launches investigations into silicon metal imports
April 21, 2017 CBSA injury affirmed in preliminary determination
May 18, 2017 CBSA extends preliminary duty determination
July 5, 2017 CBSA preliminary dumping & subsidy rates
October 3, 2017 (by) CBSA final dumping + subsidy margin determination
Upcoming Events
November 2, 2017 (by) Canadian International Trade Tribunal injury determination
Note: <2% dumping and <1% subsidy are determined to be insignificant.
Source: Jefferies, CBSA
Industrials
Materials (Steel)
October 17, 2017
page 8 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
Analyst Certification:I, Martin Englert, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Seth Rosenfeld, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Alan Spence, CFA, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.Registration of non-US analysts: Seth Rosenfeld, CFA is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is notregistered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and tradingsecurities held by a research analyst.Registration of non-US analysts: Alan Spence, CFA is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is notregistered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the FINRA Rule 2241 and restrictions on communications with a subject company, public appearances and tradingsecurities held by a research analyst.As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.
Investment Recommendation Record(Article 3(1)e and Article 7 of MAR)
Recommendation Published , 09:07 ET. October 17, 2017Recommendation Distributed , 09:07 ET. October 17, 2017
Company Specific DisclosuresJefferies Group LLC makes a market in the securities or ADRs of Ferroglobe.
Explanation of Jefferies RatingsBuy - Describes securities that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes securities that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes securities that we expect to provide a total return (price appreciation plus yield) of minus 10% or less within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated securities with an average security price consistently below $10 is 20% or morewithin a 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated securities with an averagesecurity price consistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. ForUnderperform rated securities with an average security price consistently below $10, the expected total return (price appreciation plus yield) is minus20% or less within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes securities whose company fundamentals and financials are being monitored, and for which no financial projections or opinionson the investment merits of the company are provided.
Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.
Jefferies Franchise PicksJefferies Franchise Picks include stock selections from among the best stock ideas from our equity analysts over a 12 month period. Stock selectionis based on fundamental analysis and may take into account other factors such as analyst conviction, differentiated analysis, a favorable risk/rewardratio and investment themes that Jefferies analysts are recommending. Jefferies Franchise Picks will include only Buy rated stocks and the number
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October 17, 2017
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can vary depending on analyst recommendations for inclusion. Stocks will be added as new opportunities arise and removed when the reason forinclusion changes, the stock has met its desired return, if it is no longer rated Buy and/or if it triggers a stop loss. Stocks having 120 day volatility inthe bottom quartile of S&P stocks will continue to have a 15% stop loss, and the remainder will have a 20% stop. Franchise Picks are not intendedto represent a recommended portfolio of stocks and is not sector based, but we may note where we believe a Pick falls within an investment stylesuch as growth or value.
Risks which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report• Ferroglobe (GSM: $14.56, BUY)
Notes: Each box in the Rating and Price Target History chart above represents actions over the past three years in which an analyst initiated on acompany, made a change to a rating or price target of a company or discontinued coverage of a company.Legend:
I: Initiating Coverage
D: Dropped Coverage
B: Buy
H: Hold
UP: Underperform
For Important Disclosure information on companies recommended in this report, please visit our website at https://javatar.bluematrix.com/sellside/Disclosures.action or call 212.284.2300.
Distribution of RatingsIB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY 1067 51.05% 333 31.21%HOLD 876 41.91% 173 19.75%UNDERPERFORM 147 7.03% 18 12.24%
Industrials
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October 17, 2017
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Industrials
Materials (Steel)
October 17, 2017
page 11 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
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Industrials
Materials (Steel)
October 17, 2017
page 12 of 12 , Equity Analyst, (646) 805-5421, [email protected] Englert
Please see important disclosure information on pages 9 - 12 of this report.
