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PELLET MARKET
D I S C L A I M E R
This document is being supplied to you solely for your information and does not
constitute or form part of any offer or invitation or inducement to sell or issue, or any
solicitation of any offer to purchase or subscribe for, any shares in the Company or any
other securities, nor shall any part of it nor the fact of its distribution form part of or be
relied on in connection with any contract or investment decision relating thereto, nor
does it constitute a recommendation regarding the securities of the Company. No
information made available to you in connection with this document may be passed on,
copied, reproduced, in whole or in part, or otherwise disseminated, directly or indirectly,
to any other person.
Some of the information in this document is still in draft form and is subject to
verification, finalisation and change. Neither the Company nor its affiliates nor advisers
are under an obligation to correct, update or keep current the information contained in
this document or to publicly announce the result of any revision to the statements made
herein except where they would be required to do so under applicable law.
No reliance may be placed for any purpose whatsoever on the information contained in
this document. No representation or warranty, expressed or implied, is given by or on
behalf of the Company or any of the Company’s directors, officers or employees or any
other person as to the accuracy or completeness of the information or opinions
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any of the Company’s members, directors, officers or employees nor any other person
for any loss howsoever arising, directly or indirectly, from any use of such information or
opinions otherwise arising in connection therewith.
This presentation and its contents are confidential. By reviewing and / or attending thispresentation you are deemed to accept that you are under a duty of confidentiality inrelation to the contents of this presentation. You agree that you will not at any time have
any discussion, correspondence or contact concerning the information in this documentwith any of the directors or employees of the Company or its subsidiaries nor with any oftheir customers or suppliers, or any governmental or regulatory body without the priorwritten consent of the Company.
Certain statements, beliefs and opinions in this document and any materials distributedin connection with this document are forward-looking. The statements typically containwords such as “anticipate”, “assume”, “believe”, “estimate”, “expect”, “plan”, “intend” andwords of similar substance. By their nature, forward-looking statements involve anumber of risks, uncertainties and assumptions that could mean actual results or eventsdiffer materially from those expressed or implied by the forward-looking statements.These risk, uncertainties and assumptions could adversely affect the outcome andfinancial effects of the plans and events described herein. Statements contained in thedocument regarding past trends or activities should not be taken as a representation orwarranty (express or implied) that such trends or activities will continue in the future. Nostatement in this document is intended to be a profit forecast. You should not placereliance on forward-looking statements, which speak only as of the date of thisdocument.
The information in this document may constitute non-public price sensitive information
('inside information'). You should not base any behaviour in relation to the Company's
securities, financial instruments related to the Company’s securities or any other
securities and investments on information until after it is made publicly available by the
Company. Any dealing or encouraging others to deal on the basis of such information
may amount to insider dealing under the Criminal Justice Act 1993 and/or to market
abuse under the Financial Services and Markets Act 2000.
2
LONG LIFE RESOURCE BASE
INCREASING QUALITY & RELIABLE PRODUCTION
3
ACCESS TO MARKETS VIA ESTABLISHED LOGISTICS ROUTES
BR
OV
AR
IKO
VS
KO
YE
4.0BT
MA
NU
ILO
VS
KO
YE
3.4BT
KH
AR
CH
EN
KO
VS
KO
YE
2.8BT
VA
SIL
IEV
SK
OY
E
1.4BT
ZA
RU
DE
NS
KO
YE
1.5BT
GA
LE
SC
HIN
SK
OY
E
0.2BT
BE
LA
NO
VS
KO
YE
1.7BT
YE
RIS
TO
VS
KO
YE
1.2BT
GP
L 3.5B
T
PRODUCTION
DEVELOPMENT
LICENCE MAINTENANCE
0%
20%
40%
60%
80%
100%
0
2,000
4,000
6,000
8,000
10,000
12,000
07 08 09 10 11 12 13 14 15 16
% o
f 65%
Fe
outp
ut
Kt p
elle
ts
Total pellet production
% of 65% Fe pellet production
13.1FSU SOVIETCLASSIFIED RESOURCES
13.1 6.7JORC CLASSIFIED RESOURCES
F E R R E X P O H A S A S T R O N G B U S I N E S S P R O F I L E
WORLD CLASS ASSET –
+$2BN INVESTED SINCE IPO
LOW POSITION ON COST CURVE
(incl fines & lump)
NICHE PRODUCER
FPM: $1.1BN
FYM: $595M
Logistics: $312M
Source: CRU Jan 2017, CFR China, 62% Fe sinter fines equivalent
0
10
20
30
40
50
60
70
0 250 500 750 1000 1250
Breakeven price of seaborne exporters, CFR China,
62% Fe sinter fines, $/ dry t
FX
PO
2017 REVENUE UNDERPINNED BY PELLET PREMIUM
– Platts Atlantic pellet premium trading above $40 per tonne
4
C A P I TA L I N V E S T M E N T H A S D E L I V E R E R D T O P Q U A L I T Y
C U S T O M E R S
0
1000
2000
3000
4000
5000
6000
Central &EasternEurope
WesternEurope
North EastAsia
China &South East
Asia
Turkey,Middle East
& India
Ukraine/CIS
2009 2016
GROWING MARKET SHARE IN PREMIUM MARKETSSignificant growth in shipments to premium markets since 2009
DIVERSIFIED SALES PORTFOLIO
13%
6%
16%
17%
48%
CENTRAL &EASTERN EUROPE
CHINA & SOUTH
EAST ASIA
NORTH EASTASIA
WESTERN
EUROPE
TURKEY, MIDDLE EAST & INDIA
A N D I M P R O V E D M A R G I N S A S R E A L I S E D P E L L E T P R E M I U M
I N C R E A S E D W H I L E C O S T S R E D U C E D
NICHE PRODUCT, TOP CLASS CUSTOMERS, WELL INVESTED LONG LIFE ASSET BASE & LOW
POSITION ON COST CURVE DELIVERS HIGH MARGINS EVEN AT THE LOW POINT IN THE CYCLE
– Average EBITDA margin since 2007 35.6% (or $44/ tonne)
5
35.2%
43.9%46.2%
20.0%22.4%
40.9%
48.1%46.9%
42.9%
32.9%
23.8%
31.5% 32.5%
42.3%
27.9%
34.4%
30.5%
34.9%
41.1%
0
20
40
60
80
100
120
140
160
180
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
FY
200
7
1H 2
008
2H 2
008
1H 2
009
2H 2
009
1H 2
010
2H 2
010
1H 2
011
2H 2
011
1H 2
012
2H 2
012
1H 2
013
2H 2
013
1H 2
014
2H 2
014
1H 2
015
2H 2
015
1H 2
016
2H 2
016
EBITDA % Iron ore fines price
Iron ore price 9 year low
EBITDA Margin 62% Fe iron ore fines price CFR China $ per tonne
PELLETS (C.10MM SIZE)
Agglomerated iron ore product
forming a uniform high quality
feedstock for the blast furnace
Produced from magnetite ore of
<40% Fe (found in N America, CIS,
Europe, China) c. 26% of global iron
ore production
Highest value form of iron ore -
pellets are the most efficient source
of iron ore for a steel furnace
Sold for a premium based on value
in use
Uniform in size quality and iron
content (c.62-65%)
P E L L E T S A R E M O S T E F F I C I E N T S O U R C E O F I R O N F O R A S T E E L
F U R N A C E
6
RATIO OF PELLET CONSUMPTION VARIES AT STEEL MILL:
– Pellets are a direct charge input and require less processing
– Steel mills balance the benefit of pellets vs. cost.
– Pellets allow steel mills to:
• Improve productivity per cubic meter of blast furnace capacity (65% pellets vs 62% sinter)
• Limit harmful emissions as pellets emit less CO2, fine dust and air pollution compared to sinter
• Lower coking coal per tonne of pig iron (65% pellets vs 62% fines)
• Lower capital intensity at the steel mill: pellets are less capital intensive as no investment in agglomeration required
36%
59% 61%70%
85%15%
18%23%
18%
10%
47%
23% 16% 12% 5%
EU 1 EU 2 NE Asia 1 China 1 China 2
% c
onsu
mpt
ion
Sinter Lump Pellet Scrap
USAGE VARIES BUT TREND IS TOWARDS PELLETS - EXAMPLES OF BURDEN COMPONENTS AT STEEL MILLS
N O T A L L P E L L E T S G O I N T O T H E B F M A R K E T. D R P E L L E T S A R E
A B S O R B I N G C A PA C I T Y
Source: CRU, Government statistics, Bloomberg, Ferrexpo internal analysis
Million tonnes 2016 Total Blast furnace Direct reduction
Vale (Brazil + Oman) 38.0 23.6 14.3
LKAB (Sweden) 18.5 12.0 6.5
Ferrexpo (Ukraine) 11.7 11.7 -
Rio Tinto (IOC, Canada) 9.8 8.2 1.7
Cliffs (Canada) 6.8 6.8 -
ArcelorMittal (QCM Canada) 5.8 5.7 0.2
Severstal (Russia) 4.9 4.9 -
India (Various) 4.8 4.8 -
Metalloinvest (Russia) 4.0 4.0 -
Metinvest (Ukraine) 3.4 3.4 -
Bahrain Steel (Bahrain) 3.0 - 3.0
Grange (Australia) 2.6 2.6 -
CMP (Chile) 2.4 2.4 -
Cliffs (USA) 1.3 1.3 -
Evraz (Russia) 0.4 - 0.4
Other 3.1 3.1 -
Total pellet export market 120.5 94.4 26.1
Ferrexpo’s market share 10%
TOP PELLET EXPORTERS
– Samarco expected to re-enter market in 2018 at c.20MT (previous capacity 30MT)
– Vale intends to restart 7Mtpa Sao Luis pellet plant in 1H 2018 (following license approval, and investment into plant), which last
produced in 2008
7
T H E P E L L E T M A R K E T H A S H I G H B A R R I E R S T O E N T R Y
8
New pellet
capacity Duration Tonnes Cost Cost/tonne Description
Samarco2011-
20148.3MT
R$6.459BN
($3.251BN at
the time)
$391/t
Construction of 9.5MT concentrator
Construction of slurry pipeline with 20MT capacity
Construction of 8.3MT pelletising plant
Increase of capacity at port facilities by 9MT (new stacker, reclaimer, shiploader)
Metalloinvest2012-
20155MT
RUB16BN
($460M at the
time)
$92/t Construction of pellet plant
NMLK2011-
20166MT
RUB41BN
($1.4BN at the
time)
$233/tConstruction of pellet plant – $680M or $113/t
Expanded mining & beneficiation capacity
Exports of iron ore MT 2000 2016 increase
% of total
increase
Pellet feed 18 71 53 5.0%
Pellets 106 111 5 0.5%
Lump 79 247 168 15.8%
Sinter fines 266 1,105 839 78.7%
Total 468 1,534 1,066
Source: CRU, Market Outlook January 2017
Source: Company announcements
COST OF MOST RECENT CAPACITY ADDITIONS AROUND $100/T FOR PELLET PLANT ALONE
Consumption of iron ore MT 2016 2021 increase CAGR
Pellets 416 523 107 4.7%
Lump 310 352 42 2.6%
Sinter Fines 1,347 1,320 -27 -0.4%
Total 2,074 2,195 122 1.1%
Source: CRU, Market Outlook January 2017
… WHILE DEMAND FORECAST TO GROW THE STRONGESTLIMITED HISTORIC GROWTH IN TOTAL PELLET SUPPLY…
W H AT D R I V E S T H E P E L L E T P R E M I U M : C H I N A V S R E S T O F T H E
W O R L D
9
Africa: 5C&S America: 4
North America: 10
China: 15
SE Asia: 1
NE Asia:20
CIS: 2
Europe: 44
Middle East:12
IMPORTS OF PELLETS BY REGION 2016 (MT) PELLET MARKET IS DIVIDED BETWEEN CHINA & ROW:
– China is largely self sufficient in pellets
– Chinese apparent pellet production was 120MT in 2016
– Chinese pellet capacity utilisation 49%
– Chinese pellet production constrained by supply of local concentrate (at pricing below $80/t - depending on coking coal prices)
– Overcapacity in Chinese steel reduces demand for pellets at higher premiums
– Premiums will rise as environmental pressures increase & capacity decreases
– Ferrexpo does not target the Chinese market
Source: CRU, Market Outlook April 2017
ATLANTIC VS. CHINESE PELLET PREMIUM (US$/T)
0
5
10
15
20
25
30
35
40
45
50
China pellet premium Atlantic pellet premium
Source: Platts
AT L A N T I C P E L L E T P R E M I U M I S S E T B Y VA L E & L E A D I N G S T E E L
M I L L S I N E U R O P E & N O R T H E A S T A S I A
10
VALE’S MARGINAL COST OF PRODUCTION IS AROUND US$30 PER TONNE
Pellet conversion costs, $/t (nominal) 2016
Source: CRU March 2017, Ferrexpo internal analysis
Note: Costs include mining, processing, pelletising and inland logistics costs only. Royalties are excluded
– Vale is the market leader & the swing
producer
– Cost curve is also supported by high cost
large suppliers: IOC, LKAB, Cliffs
11
P E L L E T P R E M I U M S R E M A I N S TA B L E : F E R R E X P O P E L L E T I S I N G
C O S T S C . $ 1 0 P E R T O N N E V S AV E R A G E P R E M I U M S O F C . $ 3 0 / T
( 2 0 0 7 T O 2 0 1 7 )
PELLET PREMIUMS ARE RELATIVELY STABLE COMPARED TO THE IRON ORE FINES PRICE$ per tonne
Source: CRU, Market Outlook January 2017
– Ferrexpo’s pelletising cost is $8/t to $11/t through the cycle depending on cost inflation
166154
85
155166
135 140
98
56 58 57 5363 63 67
27
6212 44 37 30 32 37 34 32
4533 32 34 34
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017F 2018F 2019F 2020F 2021F
Iron ore fines 62% CFR China Blast furnace pellet premium to non-Chinese markets
T H A N K Y O U
12