Energy in the shape of a ferroalloy: FeSi from a European perspective

Kevin Fowkes Ferroalloy Industry Consultant

www.kevinfowkes.com

15th November, 2010

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 (20% of global FeSi consumption) and for producing magnesium metal in China (7% of global FeSi consumption)
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FeSi accounts for 20% of the ferroalloy sector, with projected global revenues of US$11bn in 2010
Global bulk ferroalloy revenues (billion US$) 80 60 40 20 0 2004 2005 2006 2007 2008 2009 2010F Silicon metal Ferrosilicon Chrome Manganese

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The FeSi business has been consistently less profitable than the manganese and chrome businesses
Average industry EBIT margin 60%

40% Manganese Chrome Ferrosilicon Silicon metal

20%

0%

-20% 2004 2005 2006 2007 2008 2009 2010F

Based on analysis of financial results of 50 major ferroalloy producers

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FeSi is driven by electricity rather than raw materials a fundamental difference from FeMn/SiMn and FeCr
Typical electricity consumption (MWh per tonne) 15 80% 60% 40% 5 20% 0 0% Raw materials as percentage of Chinese cash operating costs (2010)

10

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Ferrosilicon market characteristics

Standard ferrosilicon accounts for ~85% of global FeSi consumption (Standard FeSi is 75% Si, 1.5% Al, 0.1% Ti, 0.1% C, balance Fe) The remaining 15% of global FeSi output is special grades magnesium FeSi and inoculants for foundry castings, high-purity and refined FeSi for alloy and electrical steel production Standard FeSi production is overwhelmingly dominated by China and Russia Special FeSi grades continue to be mainly produced by established western producers in Europe, N.America and Brazil

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European steel output has recovered only sluggishly, reducing Europes share of global FeSi demand
Crude steel production since collapse of Lehman Brothers (Index, Sep 2008=100) 160 140 120 100 80 60 40 China N.America Europe Asia exc. China

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Europe now only represents 12% of world FeSi consumption and 8% of production
World FeSi Production (2010)
China Rest of Asia Europe

World FeSi Consumption (2010)

China Rest of Asia Europe

8%

N.America S.America CIS Africa & Mid East

12%

N.America S.America CIS Africa & Mid East

Total volume 6.9 million tonnes

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Speciality grades make up over 20% of the European FeSi market, more than in most other regions
European FeSi consumption by end-use European FeSi consumption by grade

Carbon steel Stainless steel Foundry Other

Standard

HP, lowAl, low-C MgFeSi, inoculants

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Anti-dumping duties have had a significant impact upon the European FeSi market
The European Commission imposed provisional anti-dumping duties on ferrosilicon imports in August 2007. The final duty rates were imposed in February 2008 The exporting countries affected by the duties were China, Egypt, Kazakhstan, Macedonia and Russia Since the duties were imposed, there has been a significant reduction in ferrosilicon exports to the EU from all these countries, most notably China. Spot prices in Europe now normally trade at a premium Duties are for the standard 5-year term but can be subject to interim review. Macedonias duty was eliminated by a review in 2009. A review into the duty on Russia was instigated in 2010
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FeSi anti-dumping duty rates in the European Union

China Erdos China others Egypt Kazakhstan Macedonia Russia

* Reduced to zero in review, Dec 2009 ** Currently subject to review

16% 29 31% 15 18% 34% 5%* 18 23%**

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European producers have significantly recovered their market share since AD duties were imposed
Market share, EU FeSi market 100%
Others AD duties imposed

80% 60% 40% 20% 0%

Brazil China CIS

European producers

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Since AD duties were imposed, European FeSi prices have held a consistent premium over other regions
Standard 75 FeSi spot prices (US$/tonne)
AD duties imposed

3,000 2,500 2,000 1,500 1,000 500 0

China export USA Europe

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Chinas FeSi exports unlikely to return to 2007-2008 levels due to rising domestic demand and export tax
Chinese FeSi production by destination (million tonnes) 6

Exported Consumed domestically

0 2004 2005 2006 2007 2008 2009 2010F

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A map of the European ferrosilicon industry

Finnfjord Elkem Iceland

Elkem Salten Fesil Rana Elkem Bremanger Elkem Bjolvefossen

NORWAY & ICELAND

Huta Laziska OFZ Ferroatlantica Chateau Feuillet Ferroatlantica Laudun Ferroatlantica Pierrefitte Silmak

EASTERN EUROPE

Ferroatlantica Cee Ferroatlantica Dumbria

FRANCE & SPAIN

Over 50% of European FeSi output is controlled by two companies, and 98% is controlled by five companies
Share of European FeSi production (2010)
13% 2% 22%

Ferroatlantica Elkem Fesil

16%
Finnfjord Huta Laziska

13%

34%
OFZ

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European FeSi production costs tend to be high, but that does not necessarily question their survival
Full production cost curve, FeSi (global ex-plant ranking, excluding taxes and duties)

European producers

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Reasons to be cautiously optimistic for the future of the European ferrosilicon industry
The major producers remain leaders in the production of premium-priced speciality grades, with only limited competition from overseas. The European producers are also technology leaders in an era of increased environmental awareness and legislation Economics of exporting ferrosilicon from China to Europe are bad, even disregarding the existence of anti-dumping duties. China pulling back from exporting to other markets has also reduced exports to Europe from other sources Anti dumping duties against China likely to remain in place for next 2-3 years at least Changes in ownership structure of the European FeSi industry are likely, and should be a good thing
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Thank you for your attention today

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