Energy in the shape of a ferroalloy:

FeSi from a European perspective

Kevin Fowkes

Ferroalloy Industry ConsultantFerroalloy Industry Consultantwww.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

www.kevinfowkes.com

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)

Global bulk ferroalloy revenues

(billion US$)

FeSi accounts for 20% of the ferroalloy sector, with

projected global revenues of US$11bn in 2010

60

80

www.kevinfowkes.com

0

20

40

2004 2005 2006 2007 2008 2009 2010F

Silicon metal

Ferrosilicon

Chrome

Manganese

Average industry EBIT margin

The FeSi business has been consistently less profitable

than the manganese and chrome businesses

40%

60%

www.kevinfowkes.com

-20%

0%

20%

2004 2005 2006 2007 2008 2009 2010F

Manganese

Chrome

Ferrosilicon

Silicon metal

Based on analysis of financial results of 50 major ferroalloy producers

Typical electricity consumption

(MWh per tonne)

FeSi is driven by electricity rather than raw materials –

a fundamental difference from FeMn/SiMn and FeCr

10

15

60%

80%

Raw materials as percentage of

Chinese cash operating costs (2010)

www.kevinfowkes.com

0

5

10

0%

20%

40%

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

www.kevinfowkes.com

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

Crude steel production since collapse of Lehman Brothers

(Index, Sep 2008=100)

European steel output has recovered only sluggishly,

reducing Europe’s share of global FeSi demand

120

140

160

www.kevinfowkes.com

40

60

80

100

120

China

N.America

Europe

Asia exc. China

China

Rest of Asia

China

Rest of Asia

World FeSi

Production (2010)

World FeSi

Consumption (2010)

Europe now only represents 12% of world FeSi

consumption and 8% of production

Europe

N.America

S.America

CIS

Africa & Mid East

Europe

N.America

S.America

CIS

Africa & Mid East

www.kevinfowkes.com

Total volume 6.9 million tonnes

12%8%

StandardCarbon steel

European FeSi

consumption by end-use

European FeSi

consumption by grade

Speciality grades make up over 20% of the European

FeSi market, more than in most other regions

HP, low-Al, low-C

MgFeSi, inoculants

Stainless steel

Foundry

Other

www.kevinfowkes.com

• 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

Anti-dumping duties have had a significant

impact upon the European FeSi market

www.kevinfowkes.com

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.

Macedonia’s duty was eliminated by a review in 2009. A review into the duty

on Russia was instigated in 2010

FeSi anti-dumping duty rates in the European Union

China – Erdos 16%

China – others 29 – 31%

Egypt 15 – 18%

www.kevinfowkes.com

Kazakhstan 34%

Macedonia 5%*

Russia 18 – 23%**

* Reduced to zero in review, Dec 2009

** Currently subject to review

Market share, EU FeSi market

European producers have significantly recovered their

market share since AD duties were imposed

60%

80%

100%

CISChina

Brazil

Others

AD duties

imposed

www.kevinfowkes.com

0%

20%

40%

60%

European

producers

Standard 75 FeSi spot prices

(US$/tonne)

Since AD duties were imposed, European FeSi prices

have held a consistent premium over other regions

2,000

2,500

3,000

China export

AD duties

imposed

www.kevinfowkes.com

0

500

1,000

1,500

2,000 China export

USA

Europe

Chinese FeSi production by destination

(million tonnes)

China’s FeSi exports unlikely to return to 2007-2008

levels due to rising domestic demand and export tax

4

6

Exported

www.kevinfowkes.com

0

2

4

2004 2005 2006 2007 2008 2009 2010F

Consumed domestically

Elkem Iceland

Finnfjord

Elkem Salten

Elkem BremangerElkem Bjolvefossen

Fesil Rana

A map of the European ferrosilicon industry

NORWAY &

ICELAND

Ferroatlantica

Chateau FeuilletFerroatlantica Cee

Ferroatlantica Dumbria

Ferroatlantica Laudun

Ferroatlantica Pierrefitte

Huta LaziskaOFZ

Silmak

FRANCE &

SPAIN

EASTERN

EUROPE

22%13%2%

Ferroatlantica

Elkem

Share of European FeSi

production

(2010)

Over 50% of European FeSi output is controlled by two

companies, and 98% is controlled by five companies

34%13%

16%

Fesil

Finnfjord

Huta Laziska

OFZ

www.kevinfowkes.com

Full production cost curve, FeSi

(global ex-plant ranking, excluding taxes and duties)

European FeSi production costs tend to be high, but that

does not necessarily question their survival

European producers

www.kevinfowkes.com

• 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

Reasons to be cautiously optimistic for the future of the

European ferrosilicon industry

www.kevinfowkes.com

• 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

Thank you for your attention today

Check out my websitewww.kevinfowkes.com

Associate of and