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China and its impact on theglobal ferrosilicon market
Kevin FowkesManaging Consultant
Metal Bulletin 28th International Ferroalloys Conference
Berlin, 13th November 2012
• 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
What is ferrosilicon?
• 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 65% of global FeSi output is used in steel
• Other important applications are for de-carburising molten grey iron for the production of foundry castings and for producing magnesium metal in China
Global FeSi consumption(million tonnes 75% basis)
Global FeSi demand has doubled over the past decade. China’s share has risen from 21% in 2000 to 63% in 2012
6
8
10
Rest of world
Other Asia
7.9M
0
2
4
Other Asia
China
CIS
N.America
Europe
11%24%
21%
63%3.7M
FeSi apparent consumption (kg) per tonne of crude steel output
Consumption of FeSi per tonne of steel in China is 75% higher than in most other countries
7
8
9
China
3
4
5
6
EuropeJapan
USA
World average
60%
80%
100%
Rest of world
Share of global total, 2012
Hence Chinese share of global FeSi consumption is far higher than its share of global steel production
0%
20%
40%
FeSiconsumption
Crude steelproduction
Stainless steelproduction
China
63%
46% 44%
100%
Other
Magnesium
Foundry
FeSi consumption by end-use sector, 2012Around 65% consumed in steel
0%Europe China World
Steel - other carbon
Steel - electrical
Steel - stainless
Chinese FeSi consumption by end use (%)
60%
Chinese FeSi consumption by end-use sectorFurther growth potential limited overall if carbon steel growth stays low
Other carbon steel
0%Stainless
Foundry
Magnesium
Electrical & alloy steel
Growth of Chinese crude steel production
15%
20%
25%
3
4
5
Th
ou
san
ds
Extra annual FeSi demand by 2020under various China steel growth rates*
mill
ion tonnes, 75%
basis
21.2%
Industry long-term
Demand level for FeSi over the next decade depends most onsteel growth rate in China, which has fallen sharply in 2012
85% 67%61%
36%50%
0%
5%
10%
0
1
2
1% 2% 3% 5% 8%
?
Annual Chinese steel productiongrowth rate, 2013-20
mill
ion tonnes, 75%
basis
1.5%
9.4%Industry
long-term expectation
long-term expectation
2012 growth rate
* assumes Chinese FeSi consumption per tonne of steel at 2012 level
8
10
12
11%
Assumptions on Chinese steel consumption/production growth make a huge difference to FeSi demand forecast for 2020
Global consumption of FeSi(million tonnes, 75% basis)
16%
12.2
7.9
10.3
9.28.88.3
(8%pa)
(5%pa)
(3%pa)
(2%pa)(1%pa)
0
2
4
6
11%
8%
52%
3.7
Forecasts assume Chinese FeSi consumption per tonne of steel at 2012 level
China
Russia
China
Rest of Asia
World FeSi consumption and productionBoth completely dominated by China
Global FeSi production,2012
Global FeSi consumption,2012
Norway/Iceland
Brazil
USA
Other
Europe
N.America
CIS
Other total
7.8 million tonnestotal
7.9 million tonnes
63% 72%
(total FeSi production capacity in China is ~10 million tonnes)
60%
80%
100%
Rest of world
Global production, 2012
Of all the main steel-related ferroalloys, FeSi output isby far the most dominated by Chinese producers
0%
20%
40%
FeSi SiMn HC FeMn MLC FeMn HC/Ch FeCr
Rest of world
China
72%
53%
42% 46%31%
Chinese FeSi producers are mostly quite low on the cost curve, before export taxes or anti-dumping duties are added
1000
1200
1400
1600
1800
FeSi ex plant cash production cost (US$ per tonne, 2012)
0
200
400
600
800
1000
0 1 2 3 4 5 6 7 8
China low cost
China average
cost
China high cost
Million tonnes
This contrasts with Mn alloys and FeCr, where Chinese are the high-cost marginal producers even before export taxes
1,000
1,200
1,400
1,600
1,800
90
100
110
SiMn ex plant cash production cost (US$ per tonne, 2012)
HC/Ch FeCr ex plant cash production cost (US$ per tonne, 2012)
0
200
400
600
800
1,000
0 2 4 6 8 10 12
China average
cost
50
60
70
80
0 2 4 6 8 10
Million tonnesMillion tonnes
100%
Labour & other
Reductants
The key difference in FeSi is the composition of the cost structure in China, with ore (quartz) being of little importance
Ex-plant cash production costs by component, 2012
0%FeSi SiMn HC FeMn
(EAF)HC FeMn
(BF)HC/Ch FeCr
Ore / Quartz
Electricity
US$ per tonne
In the long term, Chinese FeSi prices track production costs closely….but plants making a loss in 2012
1,000
1,100
1,200
1,300
Average Chinesedomestic FeSi price
Average Chinese FeSiproduction cost (ex-plant)
600
700
800
900
FeSi price
US$ per tonne (average for 2012)
Sales to most export markets are also currently unprofitablefor the average Chinese FeSi producer, if exported legally
1,500
2,000
2,500
EU anti-dumping duty Export tax Cost to supply domestic customers
Price EUPrice USA
Price Japan
0
500
1,000
Most competitive Chinese plants
Average Chinese plant
Less competitive Chinese plants
Price China domestic
Chinese FeSi exports(thousand tonnes 75% basis)
This has provoked an epidemic of smuggling. Smuggled material via Vietnam accounts for almost 50% of total Chinese FeSi exports
1,000
1,200
1,400
1,600
1,800
0
200
400
600
800
1,000
via Vietnam
Official
Estimated Chinese FeSi export via Vietnam(thousand tonnes 75% basis)
For 2012, around 350,000mt of Chinese FeSi is beingsmuggled through Vietnam to avoid export tax
250
300
350
400
USA
India
Thailand
to
0
50
100
150
200
250
2010 2011 2012e
Thailand
Turkey
S.Korea
Japan
Taiwan
Indonesia
(thousand tonnes 75% basis)
Chinese FeSi exports by destination, including smuggled material
1,000
1,200
1,400
1,600
1,800
Other
EU
to
0
200
400
600
800
1,000
2007 2008 2009 2010 2011 2012e
USA
S.Korea
Japan
1500
2000
2500
3000
EU US Japan China domestic
US$ per tonne
Poor demand and oversupply have resulted in falling FeSi prices globally through 2012
0
500
1000
1500
• Extent of recovery in Chinese domestic consumption
• Potential lowering / removal of export taxes due to weak domestic market and WTO pressure
• Epidemic smuggling through Vietnam
Points to watch
• Anti-dumping duty expiry in EU
• Potentialfor increase in Chinese exports if domestic demand remains weak and export taxes / duties are lowered