Ferrochrome Market Overview

Transcription

1 Ferrochrome Market Overview Outokumpu s Capital Markets Day 22 nd September 2010 LONDON BEIJING PHILADELPHIA WASHINGTON Prepared by: Vanessa Davidson Managing Consultant CRU Nickel & Chrome Group

2 Structure of the Ferrochrome Market Note: The term ferrochrome is used in this presentation to refer to high carbon ferrochrome and charge chrome only. 2

3 Most chrome ore is used in metallurgical applications Chrome Ore 7% 85% 8% Refractories & Foundries Metallurgical Industry Chemicals Iron & Steel Cement Glass Ceramics Machinery Others Stainless Steel - 80% Alloy Steels Non-ferrous Alloys Plating Corrosion Control Metal Finishing Pigments Tanning Compounds Wood Preservative Others 3

4 The use of ferrochrome in steel applications Stainless Steel: FeCr is used to increase corrosion and oxidation resistance. Stainless steel contains 18-20% chrome on average. Ferritic & duplex grades contain more Cr than austenitic. Primary Cr accounts for over 60% of the stainless industry s total Cr requirements, with stainless scrap supplying the rest. HC FeCr & MC FeCr LC FeCr Charge Cr % Carbon 4-6% >2% <0.1% % Chrome* 48-65% 55-65% 60-65% Market Size** 8Mt 275Kt 450Kt Main Application Stainless Special Special Steel Steels Steels *48-55% for charge chrome and 60-65% for HC FeCr. **Based on global estimates for

5 Regional breakdown for ferrochrome production and consumption Finland, 2% India, 11% China 24% Production Other 8% Kazakhstan 17% South Africa 38% Consumption Rest of Asia 26% Americas 6% China 42% Other, 6% W. Europe 19% Top 10 FeCr producers account for 60% of total production Asia accounts for almost 70% of world consumption Data based on figures for

6 Introduction: Recent Developments Note: The term ferrochrome is used in this presentation to refer to high carbon ferrochrome and charge chrome only. 6

7 Ferrochrome prices have doubled since the trough Spot price for HCFeCr, delivered Europe, in money of the day and real terms, , c/lb of contained Cr 300 Nominal Real Prices soar on tight supply and surging demand then plunge as buying activity collapses 200 Prices turn up as demand revives Jan-87 Jan-90 Jan-93 Jan-96 Jan-99 Jan-02 Jan-05 Jan-08 7

8 in response to very low stocks Industry stocks, wks of cons. (LHS) and HCFeCr spot price, US c/lb (RHS), Industry stocks HCFeCr Price Critical stock level (10 wks) 5 1Q1998 1Q2000 1Q2002 1Q2004 1Q2006 1Q2008 1Q

9 Key developments in 2010 so far: Ferrochrome demand has picked-up strongly, returning to pre-recession levels in Q1 Stainless sector has driven the recovery (stimulus( packages and end to de- stocking are key influences but real demand also showing signs of recovery) China has led the way others have been slower to rebound Shortages of scrap have boosted demand for primary ferrochrome Supply response has been measured Production problems have adversely affected some producers (eg. Indian producers have had difficulty securing ore) Elsewhere, producers have been cautious over re-starting too much capacity too quickly (concern over levels of demand in H2 esp. in Europe and China) Global stocks of ferrochrome are extremely low (producer cutbacks during the downturn were savage) Shortage of stocks creates the potential ti for some wild fluctuations ti in spot prices in the coming months, if demand exceeds expectations 9

10 Prospects for Stainless Steel Production 10

11 World stainless steel production fell 11% between 2006 and 2009 World production of stainless steel, m tonnes, Key Points: World stainless production grew at an annual average rate of 5.3% China Other Japan W. Europe USA between 1980 and CAGR: = 5.2% World stainless production fell = 4.6% e = 4.8% sharply between , due to f = 5.3% the economic downturn World stainless production is expected to rebound by +22% in 2010 as re-stocking boosts offtake and real demand begins to improve. Longer term prospects are positive with global growth of 5.3% forecast for the period

12 but we expect a 22% rebound in 2010! World stainless production, quarterly, m tonnes, Q Q Q Q Q1 Key Points: At the worst of the downturn, stainless output dropped by -30%, -31% and -18% in Q4 2008, Q and Q respectively. But thanks to a quick recovery in China, an end to de-stocking elsewhere and some improvement in real demand, world melted production returned to pre-recession levels in Q The year 2010 is expected to be a year of two halves. Melted production is projected to increase by almost 45% y-o-y in H1 but to rise by just 3% in H2. 12

13 There is marked variation between regions Stainless production outside China, m tonnes, Stainless production in China, m tonnes, USA Japan Europe Other Output unlikely to return to former highs in short term. 15 Stainless output to reach new peak in

14 Different regions have contributed to growth over the decades Production increase/decrease of stainless steel by region, m tonnes, Production increase/decrease of stainless steel by region, m tonnes, Other China W. Europe Other India starts to become more Japan USA important USA Japan China W. Eur

15 Summary of prospects for stainless steel production Stainless steel melted production by region, , m tonnes and % change 2009 % change 2010 % change 2015 CAGR % change N. America % % % Europe % % % China % % % Rest of Asia % % % Rest of World % % % Total World % % % CAGR = Compound annual growth rate. 15

16 Future Prospects for Ferrochrome Consumption 16

17 In volume terms, scrap availability typically lags behind demand in a growing market Scrap consumption by the stainless steel industry, 000t contained Cr, ,000 High nickel prices over the period drew out a disproportionately large quantity of scrap 1,500 1,000 Scrap volumes fell sharply below trend in 2008/09 Long-term trend rate of growth (5%pa) Key Points There has been a shortage of scrap over the last year. Lower levels of industrial output during the recession have restricted the creation of stainless scrap. Long-term future potential for scrap growth is 5% pa. Asia s share of the available scrap will increase but will not come close to covering the region s total requirements. There are lags (15-18 years) between the consumption of stainless steel and its recovery in the form of old scrap. China will not be a major generator of old scrap for some years yet. 17

18 Sizeable shift away from 300 series stainless steel is permanent World austenitic ratio (300 series ratio only), %, % Key Points High prices of stainless steel, triggered mainly by high nickel prices, were the key reason behind the substitution away from 300 series stainless. 70.0% 60.0% 50.0% Both 200 series (2-4% Ni) and 400 series (zero Ni) benefit from shift away from 300 series (8-9% Ni) Ferritic grades of stainless steel contain more chrome than austenitic grades. There is also less ferritic scrap available. Both developments are positive for primary FeCr consumption. Going forward, the 300 series ratio is expected to fluctuate between 50-60% depending on the nickel price. 18

19 Ferrochrome consumption has recovered after the slump in 2008/09 World consumption of ferrochrome, 000t, Key Points 10,000 8,000 6,000 4,000 2,000 ROW CIS & Eastern Europe Other Asia China Japan In 2008, world FeCr consumption fell by 11% after demand collapsed in the final quarter saw consumption persist at the same low level, as offtake remained weak in the first half of the year but began to recover in the second. This year, world consumption of FeCr is expected to rise by 21%, led by the stainless sector but also due to gains in offtake from the non-stainless end-uses In the longer term, prospects are bright, with growth expected to average 6% pa between Stainless steel will remain the key driver of higher FeCr consumption. 19

20 All regions should see an increase in ferrochrome consumption this year Ferrochrome consumption, Europe and China, 000 tonnes Ferrochrome consumption, rest of world, 000 tonnes China Rest of Asia CAGR = +30.5% pa CAGR = +0.3% Japan Europe 1000 CAGR = - 0.7% CAGR =-25%pa 2.5% RoW CAGR = +0.3% USA CAGR = -1.8% CAGR = Compound annual growth rate over years

21 Summary of prospects for ferrochrome consumption Ferrochrome consumption by region, 2009, 2010, 2015, m tonnes and % change 2009 % change 2010 % change 2015 CAGR, % N. America % % % W. Europe % % % China % % % Rest of Asia % % % Rest of World % % % Total World % % % 21

22 Prospects for Ferrochrome Supply 22

23 World ferrochrome production fell sharply in 2009 but output has revived this year World production of ferrochrome, quarterly, 000t, ,500 2,000 1,500 1,000 Market-induced cutbacks Revival underway Key Points: Global output fell heavily in 2009 (-19%) as the downturn in demand and prices led most producers to cut production. The most significant cuts in 2009 took place in South Africa (-28%). The revival in output currently underway this year has been based on furnace reactivations. 500 A global increase of 37% is forecast for 2010 in total, with South Africa leading the recovery Q Q Q Q3 23

24 Africa suffered brunt of cutbacks in 2009 but should see strongest recovery in 2010 Production increase/decrease of ferrochrome by region, 000t gross weight, Production increase/decrease of FeCr by region, 000t gross weight, Kaz. & Russia China India Row Europe S. Africa World World S.Africa China Europe Kaz. & Russia India Row -1,500-1, ,0001,5002,0002,500 NB. World increase stated before disruption allowance. 24

25 and this is mirrored in trends for capacity utilisation by region Trends in capacity utilisation for ferrochrome plants in selected countries, quarterly, %, % 80% 60% 40% 20% South Africa Kazakhstan China 0% Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Key Points World capacity utilisation dropped to a low of 55% in 2009, from 74% in The extent to which capacity utilisation fell last year varied by region, with South Africa suffering the greatest t decline. The recovery in demand and prices this year has enabled all producers to increase capacity utilisation rates. But we still expect global capacity utilisation to remain below desired levels at 70% in

26 Africa has by far the largest volume of exports to place in international markets International trade flows, net exports (-) / net imports (+) of FeCr, 000t gross weight, 2008 & 2009 Key Points: Africa Kaz. & Russia IndiaN. AmericaChina EuropeEast Asia Africa, including Zimbabwe, has been exporting over 3m tonnes of ferrochrome per year recently, with the exception of China, Europe and East Asia are the main net importing regions. In the long run there is a question mark over whether Chinese net imports of ferrochrome will continue to grow or whether expansions to domestic production will reduce the country s import requirement. 26

27 Over the longer term, production has been growing more slowly in S. Africa than elsewhere Production of ferrochrome, South Africa vs Rest of World, , 000 tonnes gross weight RoW South thafrica CAGR = 6.8% pa CAGR = 3.0% pa Key Points: South African production has grown at 3.0% pa. The rest of the world has experienced growth of 6.8% pa. South Africa s market share is being eroded due to a deterioration in the country s competitive position and electricity supply constraints. There are several reasons for the loss of competitiveness: -Hefty increases in power tariffs. -Appreciation of the Rand. - Rail capacity constraints have boosted transport costs. -Labour costs are rising. - Shift from OP to UG mining and higher % fines in feed have lifted costs. 27

28 Electricity constraints have led much planned new capacity in South Africa to be delayed or cancelled South African capacity expansions that have been delayed or cancelled Company Country Capacity Increase Status Original Start-up Date Current Start-up Date Xstrata Lion II S. Africa 364 Probable Xstrata t Lion III S. Africa 364 Possible 2015 Unknown Sam. Leopard S. Africa 1,500 Possible Hernic S. Africa 260 Possible 2011/2012 Unknown IFM Phase II S. Africa 400 Possible Tata Steel S. Africa 150 Possible Tharisa S. Africa 600 Possible Grand Total 3,638 Notes: Due to power shortages, Eskom has imposed a 90% capacity utilisation limit on all S. African FeCr plants. Eskom cannot guarantee any additional power supplies in the next five years, leaving S. African producers unable to expand capacity at least until the second half of the current decade. 28

29 South Africa is losing market share due partly to rising production costs Share of global FeCr production, South Africa vs RoW, , 2010 % 100% S. Africa RoW 75% 50% 25% 0% Stability at 50% Market Market share share rising eroding Average production costs for South African plants, US c/lb, 2002, 06, 10 Year Production costs, delivered basis, US c/lb F 80.4 *Weighted average production costs for S.African producers, delivered basis 29

30 Outside South Africa, China has historically shown the most rapid growth Production of ferrochrome in selected countries, , 000 tonnes gross weight Key Points: 5000 China Russia & Kazakhstan Chinese output has expanded from ,000tpy at the beginning of the decade to over 1.5m tonnes in We expect to see production of close to 2m tonnes from China in Indian FeCr production has increased from around 300,000t in 2000 to over 800,000t today. Indian producers have benefited from growing local demand as well as rising export demand Jointly, Russia and Kazakhstan have expanded production of FeCr from around 700,000t 000t in 2000 to close to1.4m tonnes this year. 30

31 Power constraints in South Africa afford other regions an advantage Capacity increase/decrease of ferrochrome by region, 000t gross weight, World Finland Russia & Kazakhstan China India Key Points: Capacity in South Africa is expected to decline slightly in the next five years. By contrast, India, China, Russia, Kazakhstan and Finland should all see expansions to capacity. Growth in Chinese FeCr production is dependent on securing ore from overseas, especially South Africa. Supplies are expected to be enhanced by increased use of UG2. S. Africa Of course, South Africa will still see a substantial increase in production in the period , as capacity utilisation is currently running at well below the Eskom imposed maximum. 31

32 Ferrochrome production rebounds in 2010 after heavy cuts in 2009 FeCr Production, m tonnes South Africa India China Kazakhstan & Russia Finland Other Europe* Other Sub-Total Disruption Allowance (4.0%) Grand Total % change -19.2% +36.7% +5.6%** * Including Turkey. ** CAGR,

33 The Supply / Demand Balance, Stocks and Prices 33

34 Ferrochrome production costs have risen sharply this decade Cost curves for ferrochrome, US c/lb contained Cr, delivered basis, 2002, 2007 and 2010 ion costs, delivered ba asis, c/lb st Quartile 2nd Quartile 3rd Quartile 4th Quartile estimate Product Cumulative share of production Note: Cost curves include selected plants only 34

35 Ferrochrome market still tending towards deficit in 2010 The global supply/demand balance: Ferrochrome consumption, m tonnes +0.9% +20.9% +7.3% +4.0% +6.6% +8.4% +3.7% % change Ferrochrome supply*, m tonnes % change Market balance, m tonnes Industry stocks, wks of cons** % +36.6% 6% +8.1% +6.8% +4.4% 4% +4.7% +11.3% * Including production and change in official stockpiles. ** Critical level for stocks = 10 weeks. 35

36 Conclusions: Ferrochrome consumption has recovered after the slump in 2008/09 and should set a new all time high in In the next 5 years, consumption is forecast to grow at an annual average rate of 6.0% pa. The 2010 increase is well distributed between China and the developed world but in the coming years will depend most heavily on China. Global ferrochrome production is recovering faster than consumption in However, this does not imply that the industry is willing or able to produce at full capacity. Some production restraint is still in place. Power shortages in South Africa imply no greenfield projects or brownfield expansions in the country in the next five years. Instead, new capacity will be installed in other locations, namely China, India, Kazakhstan, Russia and Finland. Industry stocks of ferrochrome were reduced to very low levels in 2008 and have not yet been replenished. Indeed, we believe it will take market surpluses in 2011, 2012 and 2013 before stocks return to comfortable levels. The combination of rising gproduction costs and low inventories of ferrochrome suggest that prices will remain well above $1.00/lb for at least the next five years. 36

37 Thank you for your attention! Vanessa Davidson Managing Consultant, t Nickel, Stainless Steel & Special Alloys CRU Analysis 31 Mount Pleasant London WC1X 0AD Tel.: Fax.: vanessa.davidson@crugroup.com 37