The need for new manganese alloy capacity and where it will emerge in the future

Kevin FowkesManaging Consultant

Metal Bulletin 28th International Ferroalloys Conference

Berlin, 12th November 2012

• Manganese is the world’s fourth most heavily consumed metal

• Global mine output of 15 million tonnes in 2011 – over 90% goes into steel

• All steels contain manganese

• Manganese is used to remove sulphur from liquid steel(sulphur causes steel to crack)

What is manganese?

(sulphur causes steel to crack)

• There is no viable substitute for manganese as a de-sulphuriser

• Manganese is also used to improve the strength of certain steels(structural steels, high strength flat steels)

• Non-steel consumption of manganese includes de-polarisation of dry-cell batteries, and as an additive in certain aluminium and copper alloys

10

12

14

16

18

Global consumption of Mn alloys(million tonnes, gross weight basis)

HC FeMn

MLC FeMn

11%

9%

25%

Global demand for Mn alloys has doubled in the past decade.Trend has been towards SiMn, away from HC FeMn

Mn metal

16.8

10%

9%

0

2

4

6

8

10

SiMn

48%

56%

9%

41%

8.0

9%

Average Mn content of global crude steel output

0.76%

0.78%

0.80%

0.82%

Average Mn content per tonne of steel hasincreased by 15% over the past decade

+6.0%

5.5%

6.0%

6.5%

Global average annual growth rate, 2000-2012

0.68%

0.70%

0.72%

0.74%+5.1%

4.0%

4.5%

5.0%

Crude steel production

Manganese demand

10

12

14

16

18

Rest of world

Other Asia

11%

Demand growth has been fuelled by China. In 2012 China accounts for 52% of global demand, Asia in total for 68%

Global consumption of Mn alloys(million tonnes, gross weight basis)

16%

16.8

0

2

4

6

8

10China

CIS

N.America

Europe

22%

14%

18%

21%

11%

8%

52%8.0

Growth of Chinese crude steel production

15%

20%

25%

5

6

7

8

Th

ou

san

ds

Extra annual Mn alloy demand by 2020under various China steel growth rates*

mill

ion tonnes, gro

ss w

eig

ht basis

Demand level for Mn alloys over the next decade depends on steel growth rate in China, which has fallen sharply in 2012

21.2%

Industry long-term expectation

85% 67%61%

36%50%

0%

5%

10%

0

1

2

3

4

1% 2% 3% 5% 8%

?

Annual Chinese steel productiongrowth rate, 2013-20

mill

ion tonnes, gro

ss w

eig

ht basis

1.5%

9.4%Industry

long-term expectation

2012 growth rate

* assumes Chinese Mn alloy consumption per tonne of steel at 2012 level

15

20

25

11%

Assumptions on Chinese steel consumption/production growth make a huge difference to Mn alloy demand forecast for 2020

Global consumption of Mn alloys(million tonnes, gross weight basis)

16%

24.2

16.8

20.9

19.118.217.5

(8%pa)

(5%pa)

(3%pa)(2%pa)(1%pa)

0

5

10

11%

8%

52%

8.0

Forecasts assume Chinese Mn alloy consumption per tonne of steel at 2012 level

45%

50%

55%

60%

65%

0.76%

0.78%

0.80%

0.82%

BRICs shareof global

steel output(right axis)

More positively, there are reasons to believe that the average Mncontent of steel will continue to rise

Structural steels require strength,

so tend to have a high manganese

content

Developing countries focus more on

structural steel consumption – for

infrastructure and buildings

Chinese building / earthquake

Average Mn content of global crude steel

output(left axis)

20%

25%

30%

35%

40%

45%

0.68%

0.70%

0.72%

0.74%

Chinese building / earthquake

resistance standards will continue

to tighten, leading to higher Mn

content in steel (especially rebar)

Strong demand potential from India

and other early-stage developing

nations

Increasing use of high-strength

steels in automotive sector

60%

80%

100%

Other Asia & Oceania

India

China

Global Mn alloy production by region, 2012

Currently, Mn alloy output is dominated by China. India, Korea, Ukraine, S.Africa and Norway are also very large producers

0%

20%

40%

SiMn HC FeMn MLC FeMn Mn metal

China

Africa & Mid East

S.America

N.America

CIS

Europe

SiMn world trade flowsIndia has supplanted China and Ukraine as the number 1 net exporter

+200

+400

+600

+800

+1000India

CIS

China

Africa & Mid East

NET EXPORTER

Net exports of SiMn(thousand tonnes)

-800

-600

-400

-200

+0

+200

Europe

N.America

Other Asia & Oceania

Africa & Mid East

S.America

NET IMPORTER

Net exports of HC FeMn(thousand tonnes)

+200

+400

+600

IndiaCIS

China

Africa & Mid East

NET EXPORTER

HC FeMn world trade flowsSouth Africa is extending its domination of world net exports

-600

-400

-200

+0

Europe

N.America

Other Asia & OceaniaS.America

NET IMPORTER

Net exports of MLC FeMn(thousand tonnes)

+50

+100

+150

+200

+250

China

Other Asia & Oceania

Africa & Mid EastNET

EXPORTER

MLC FeMn world trade flowsSouth Korea starting to rival South Africa’s lead in world net exports

-200

-150

-100

-50

+0

+50

India

CIS

Europe

N.America

S.America NET IMPORTER

SiMn

Global average Mn alloy production costsby component, 2012

ElectricityLabour & other

25%29%

HC FeMn

ElectricityLabour & other

19%25%

Ore

Reductant

32%15%

29%

Ore

Reductant

41%15%

Average power prices in Mn alloy production, 2012

Electricity + labour are ~50% of production costs, and are the two cost components which vary most widely between countries

Global average~$65/MWh

Global average~$300/tonne

Average total labour-related costs inSiMn production, 2012*

85% 67%

36%50%

85%

36%50%

* includes all maintenance, R&D and overhead costs

• China

• India

• Rest of Asia

ConclusionAnalysis of Mn smelting potential by region

• South Africa

• Middle East

• USA

• Huge nominal capacity of ~15 million tpy of Mn alloys

• New capacity still being built despite well-publicised closures

• Export taxes render export markets unprofitable, but future of export taxation uncertain in face of WTO opposition and economic slowdown

• Smuggling via Vietnam already a major factor in Mn metal & FeSi markets

Future Mn alloy smelting potentialChina

• Smuggling via Vietnam already a major factor in Mn metal & FeSi markets

• China has not become significant net importer of Mn alloys; where this has become the case (eg FeCr), it is diminishing

• Uncertainty over slowdown of Chinese steel growth – could this eventually lead to a return of Chinese exports?

• Environmental factors will become more important – in Mn metal especially

• High market power prices, but captive power plants common

• Labour costs cheaper than China

• Expansion of ferroalloy production driven by anticipated growth of steel output which hasn’t happened yet

• Consequently, Mn alloy exports have risen substantially

Future Mn alloy smelting potentialIndia

• Consequently, Mn alloy exports have risen substantially

• Increasing reliance on imported ore – from 10% to 50% of consumption over past 5 years – especially for FeMn production

• Arguably exports have “maxed out”, and may reduce as rising local steel production absorbs more Mn alloys

• However, Indian Mn consumption per tonne of steel is highest in the world, and will gradually fall more in line with rest of world

• Potentially low power prices & low labour costs

• But highly dependent on future market growth and what happens to China

• Restrictions on ore exports may force more local smelting (eg Indonesia)

• Proposed projects:

Future Mn alloy smelting potentialRest of Asia

− OM Holdings, Sarawak, Malaysia265,000 tpy Mn alloys, 310,000 tpy FeSiCommissioning 2014-2015

− Asia Minerals Limited, Sarawak, Malaysia350,000 tpy Mn alloys & FeSiCommissioning 2013-2014

− Indonesia

• Numerous ongoing expansions, focused on HC FeMn:

− New furnace at BHP Billiton Meyerton

− Gradual conversion of Assmang Machadodorp now 75% complete

− Kalagadi smelter

Future Mn alloy smelting potentialSouth Africa

− Total effect of above +700,000 tpy extra HC FeMn output

• Power situation in South Africa increasingly favours switching to HC FeMnfrom SiMn and FeCr – strong possibility of further conversions to come

• Plentiful local availability of good quality ore – labour & reductant costs very competitive

• Low power prices can be negotiated (<$40/MWh)

• Plentiful local capital availability:

− Sovereign wealth funds full of oil & gas revenues

− Ambition to diversify into local non-oil & gas projects

Future Mn alloy smelting potentialMiddle East

− Sharia compliance and small project size can be problematic

• Rapidly growing domestic market

• Political risk

• Poor track record of previous Middle Eastern ferroalloy projects

• Impact of shale gas revolution on energy prices is a game-changer

• Large, resilient domestic market, over-reliant on imports

• Stringent environmental regulation, but much worse for old sites

• Competitive labour costs away from highly unionised rust belt

Future Mn alloy smelting potentialUSA

• Competitive labour costs away from highly unionised rust belt

• Potential expansion of existing capacity & switching from FeSi

• Potential Mn metal projects based on very low-grade domestic ores

• Resource self-sufficiency becoming major issue