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Developments in the silicon metal market
Kevin FowkesManaging Consultant
Argus European Light Metals ConferenceDusseldorf, 4th November 2015
0
1
2
3
Solar &semiconductors
Silicones
Aluminium
The ups and downs of the solar industry have driven silicon metal demand trends since 2009 – solar is in a strong growth phase once more
World silicon metal consumption by end-use sector(Mt)
Source: AlloyConsult
2009-2011First solar
boom
2011-2013Solar
depression
2013-Solar
growth resumes
0%
30%
60%
Though the growth of solar has been the big story of the past 10 years, aluminium and silicones remain the largest end-uses for silicon metal
Share of world silicon metal consumption by end-use sector(%)
Source: AlloyConsult
Solar & semiconductors
Silicones
Aluminium
52%
31%
16%
59%
37%
3%
80
100
120
140
160
180
200
220
240
Aluminium production has outpaced silicon metal consumption in aluminium – despite a declining silicon scrap usage rate
Index (2000=100)
Source: AlloyConsult, World Aluminium
World aluminiumproduction
(CAGR=5.8%)
World consumption of silicon metal in
aluminium(CAGR=4.5%)
0%
10%
20%
30%
% of silicon in global aluminium production deriving from scrap
Linearregression trend line
The transport sector accounts for about 60% of the silicon metal used in aluminium
China
Division of aluminium alloys by sector and type
Silicon metal used in aluminium by estimated end-use
China39% TRANSPORT
(Motor vehicles)
TRANS-PORT(Other)
NON-TRANSPORT(Machinery, consumer durbs,electrical,constructionetc)
0%
25%
50%
75%
100%
Transportalloys
Non-transport
alloys
Mill products(avg 0.5% Si)
Cast products(avg 8% Si)
Source: AlloyConsult, Roskill
0
100
200
300
Permissable CO2 emissions from vehicles will decline substantially in the next 10 years, especially in regions where limits are less strict at present
Permissable CO2 emissions frompassenger cars (g CO2 per car per km)
Source: Roskill, ICCT
USA
China
EU
Japan
− The EU and Japan have so far led the world in terms of automotive fuel efficiency / CO2 emission standards
− Over the next 10 years, standards in China and the USA will become much more strict, and will close the gap with the EU and Japan
− Lower CO2 emissions requires greater fuel efficiency, which requires a lighter automobile
− Other pressures on automakers add weight to cars – eg. greater crash resistance & better specification
− Using lighter materials with same strength is the best solution(good for aluminium, bad for iron & mild carbon steels)
0
100
200
The average aluminium content of a European car has nearly tripledsince 1990, and will rise by a further 15-30% by 2020
Average aluminium content of cars producedin Europe (kg per car)
Source: Roskill, European Aluminium Association
High case
Low case
− Aluminium’s superior strength-to-weight ratio makes it more effective for building fuel-efficient cars than steel or iron
− Main disadvantage of aluminium is higher cost – but legislation forces auto makers to act
− Average aluminium content of European-produced cars has nearly tripled since 1990
− There will be a further increase of 15-30% by 2020, and faster increases in other regions
− Automotive-related alloys account for the highest amount of silicon used in aluminium
Silicone consumption is driven by disposable income – significant growth potential exists from developing countries growing their middle class
China
Construction & renovation Chemical industry
Health & medicine Automotive
Energy & electronics Plastics
Textiles Paper
Other
World silicone consumption by end-use (value basis)
Source: Roskill
− Extremely wide array of consuming sectors; approx 10,000 individual applications – more constantly being developed
− Many are driven by consumer disposable income (eg. beauty, health, home renovation) – most consumption still in west, but substantial growth potential from developing countries building a bigger and richer middle class(especially China)
− Complex upstream & downstream production process – silicon metal most important raw material(approx 0.5kg/t of silicone)
The silicone industry is highly consolidated, with the top 5 producers accounting for approx. 85% of world output
China
World silicone production by company (value basis)
Source: Wacker Factbook, Roskill
− World silicone production is extremely consolidated – the top 5 producers control approx. 85% of world output
− Until recent years, most upstream capacity was in US, Europe & Japan, with developing world largely served from exports
− Massive investment in integrated silicone plants in China in recent years – much of it JVs with big 5
− Increased efforts to integrate upstream into silicon metal production over past 15 years(DC, Holla, Simcoa, Elkem-BS)
Dow Corning
WackerMomentive
Shin Etsu
BlueStar
Others
0
100
200
300
The solar sector now seems to be following a more sustainable growth path, with massive growth potential over the coming decades
World polysilicon production(kt)
Source: AlloyConsult, Viridis IQ
+71%
+67%
+60%
+50%
-8%
+11%
+8%
− The solar sector has returned to growth following the “solar depression” of 2011-13
− Growth in demand now more driven by unsubsidised PV installations, mostly in Asia. As such, growth is therefore likely to be more sustainable and less volatile than in the past
− Growth of ~10%pa expected over the long term, requiring hundreds of thousands of tonnes of extra silicon(stark contrast with flat demand outlook for steel)
+5%
0
1
2
3
Other
Germany
Spain
Canada
S.Africa
Thailand
Russia
Australia
France
USA
Brazil
Norway
China
World silicon metal production is expected to decline slightly to reach 2.54 Mt in 2015, with China now accounting for 65% of global output
World silicon metal production(Mt)
Source: AlloyConsult
65%
56%
46%
29%
0
600
1,200
1,800
Exports
Domesticsales
Unlike most ferroalloys, China’s rising silicon metal output has been export-driven in recent years, though exports have fallen slightly in 2015
Chinese silicon metal production(kt)
Source: AlloyConsult
0
100
200
300
400
500
600
700
800
900
Other
Middle East
Europe
Other Asia
S.Korea
Japan
Chinese exports almost doubled from 2012 to 2014. Though exports have fallen slightly in 2015, exports to Japan and Europe have continued to rise
Chinese silicon metal exports(kt)
Source: AlloyConsult
Cancellation of export tax
(1st Jan 2013)
0
100
200
300
Outside of China, the main development in silicon metal production has been reduced Brazilian output, due to electricity shortages
Silicon metal production(kt)
Source: AlloyConsult
64%
56%
46%
29%
Brazil
Norway
USA
France
− Brazilian output has halved since 2011, due to electricity shortages
− Following expiry of long-term power contracts at end-2014, many producers were unable to secure competitively priced power, and idled their production
− Higher output in Norway, partly due to furnace conversion from FeSi
− New furnace in Australia, on-stream since 2012
− Overall, non-Chinese output has been broadly stable for 15 years
− New projects proposed in Canada and Iceland
In Minas Gerais:CBCC (Dow Corning)RIMA Capitao Eneas
RIMA Varzea da PalmaMinasligas
LIASANova Era
ItalmagnesioBozel
In Bahia:Ferbasa
In Para:CCM (Dow Corning)
Location of main silicon metal and FeSi plants in Brazil:
Many silicon metal plants in Brazil are in the southern state of Minas Gerais, where the electricity situation has been particularly bad
• The impact of the electricity shortages has been very uneven across Brazilian producers in 2015
• Northern plants have been producing at close to normal levels whilst most capacity in Minas Gerais has been idle; in essence Dow Corning has been least impacted whilst most smaller producers have been badly affected
• Ferroalloy plants in northern Brazil negotiated favourable power contracts in mid-2015 lasting into the 2030s, average tariff in USD lower than in 2014 due to weak local currency
• Plants in Minas Gerais reported to be in the midst of negotiating new power agreements. Some production likely to return in Q4-2015, though dependent on the state of the market
• Brazilian output in 2016 highly likely to increase relative to 2015
Summary of recent developments in Brazil
• New company has estimated value of US$3.1bn
• Transaction expected to close in Q4-2015
• New company to be headquartered in London, listed in New York
• To be led by Alan Kestanbaum (Globe executive chairman); Joint CEOs will be Jeff Bradley (Globe CEO) and Pedro Larrea Paguaga (Ferroatlantica chairman and CEO)
• Expected cost savings of US$65M per year; debt expected to fall by US$30M over 3 years and cash flow to improve by US$100M (more efficient management of working capital and other efficiency savings)
• Approved by shareholders of Globe Specialty Metals in Sep 2015; still subject to approval by regulators in relevant jurisdictions
Proposed Globe-Ferroatlantica merger:Summary of publicly-released information
0 250 500
Ferroatlantica + Globe
Ferroatlantica
BlueStar / Elkem
Dow Corning
Hubei Sanxin
Gansu Sanxin
Xinjiang Hesheng
Guizhou Shibing Hengsheng
Globe Specialty Metals
Zhejiang Kaihua Yuantong Silicon
Maoxian Panda Silicon
The proposed merged company’s silicon metal capacitywould be twice that of the second-largest producer
Source: Roskill
World top-10 silicon metal producersby capacity (kt)
Ferroatlantica already world’s biggest producer of silicon metal
Globe currently world’s 8th
biggest producer (3rd largest non-Chinese owned producer)
New company will have silicon metal capacity approx. twice the size of the second largest producer
0%
25%
50%
75%
100%
World World exc.China
EU USA
Others
Chinese
Ferroatlantica
Globe
The merged company’s biggest impact on silicon metalmarket share will be in the USA
Source: AlloyConsult
Estimated silicon metal market share by supplier (2014)
6% 8% 2%
41%
8%11%
30%
15%
Silicon metal anti-dumping update
• EU anti-dumping duties against Chinese silicon metal expire in 2015, and the investigation into their potential renewal is at an advanced stage
• US anti dumping duties against Russian and Chinese silicon metal are not (ordinarily) scheduled for review until 2017/18
AD duties on Chinese silicon metal also in place in Canada and Australia
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
EU USA China export
Silicon metal spot prices – 10 year history
Source: AlloyConsult
Silicon metal spot prices(US$/t)
-20%
0%
20%
40%
60%
80%
100%
120%
EU vs China US vs China US vs EU
Source: AlloyConsult
Silicon metal spot price premiums – 10 year history
Silicon metal prices have significantly outperformed Mn alloys & FeCrsince 2008, and have maintained a very close correlation with FeSi
Source: AlloyConsult
20
40
60
80
100
120
140
160
180
Si metal
FeSi
SiMn
HC FeMn
HC FeCr
European bulk ferroalloy prices(Index, Jan 2008=100)
0%
25%
50%
75%
100%
Si metal(globalavg)
Si metal(Europe)
Si metal(Brazil)
Si metal(China)
Labour & other Quartz ElectrodesReductants Electricity
Silicon metal production costs are driven by electricity and reductant costs….average cash costs have declined significantly in 2015
Source: AlloyConsult
Ex-plant cash costs by component (2015)
50
100
150
200
250
300
350
Electricity Electrodes
Reductants Quartz
Labour Total cash cost
Silicon metal cash costs by component(Index, 2000=100)
0
1,000
2,000
3,000
Average cash cost,China (ex plant)
Average cash cost+10%
Chinese siliconmetal price(CIF Japan basis)
The level of Chinese silicon metal prices is increasingly being set by the average cash production cost
US$/t
Source: AlloyConsult
Solar boom2007-8 commodities
boom
Export tax rebates
Thank you for your attention