icda-chromium-2012-s..

Ferrochrome Market Overview
Sheraz Neffati
ICDA Chromium 2012 - Stockholm – December 6,2012

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Chrome: Stainless steel’s essential ingredient
• Defining characteristic of stainless steel = Cr>10.5%
• Common stainless steel grades contain 16-20% Cr
• Production of ferritic grades consumes more primary ferrochrome than
austenitic grades
• Primary ferrochrome accounted for around 62% of chrome units in global
stainless output in 2011
Charge Cr HC FeCr MC FeCr LC FeCr
% Carbon 4-7.5% 4-8% >2%

Chrome: Stainless steel’s essential ingredient
• Roughly 75% of HC/Charge Chrome consumption
(in gross volume terms) goes to stainless steel production
• Production profiles for HC/Ch ferrochrome and stainless steel are closely correlated –
although ferrochrome production growth has outperformed stainless steel since 2006
• Chrome costs constitute roughly 12% of recent 304 CR strip price (basis: East China
distributor price, Aug. 2012)
160
Global HC/Ch FeCr production correlates closely with
stainless steel output
Chrome's relative contribution to cost of 304 CR strip
(Chinese distributor basis)
Index of production (2006=100)
140
120
100
80
60
40
HC/Ch FeCr production (RHS)
Global stainless steel production (LHS)
50%
45%
40%
35%
30%
25%
20%
15%
10%
12,4%
45,6%
41,9%
20
5%
0
Source: ICDA
2006 2007 2008 2009 2010 2011
0%
Chrome Nickel Remainder*
*Including Fe units, other costs, logistics to distributor, plus margins.
Source: Steelhome, LME, ICDA

Setting the scene: Recent developments
• Chinese and European prices have diverged since late 2011 – and the
reasons for this relate to recent supply/demand developments
140
Ferrochrome prices:
European spot vs. Chinese domes6c spot
(US cents/lb. Cr unit)
130
120
110
100
90
80
70
EU transaction 49-51% FeCr FM
Chinese HC FeCr 49-65 Cr%, domestic transaction
60
Jan-­‐06 Mar-­‐06 May-­‐06 Jul-­‐06 Sep-­‐06 Nov-­‐06 Jan-­‐07 Mar-­‐07 May-­‐07 Jul-­‐07 Sep-­‐07 Nov-­‐07 Jan-­‐08 Mar-­‐08 May-­‐08 Jul-­‐08 Sep-­‐08 Nov-­‐08
Source: Ryan's Notes

Recent developments: Supply
• Chinese supply of HC/Ch FeCr has surged over the last two years – if anything,
the Chinese market has become structurally oversupplied (Third quarter 2012:
estimate)
3 000 000
Quarterly Chinese HC/Ch FeCr output has consistently
increased since 2010
Rest of the world
45%
Chinese output as a % share of world output
2 500 000
Chinese HC/Ch output
40%
35%
2 000 000
30%
25%
tonnes
1 500 000
20%
1 000 000
15%
10%
500 000
5%
0
Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12
Source: ICDA
0%
Q1 10 Q2 10 Q3 10 Q4 10 Q1 11 Q2 11 Q3 11 Q4 11 Q1 12 Q2 12 Q3 12
Source: ICDA

Recent developments: Supply
• Energy-saving agreements led to a year-on-year drop of approx. 330,000t
in South Africa charge chrome supply in 2012
South African Charge Chrome Output - 2011 vs 2012
1 000 000
900 000
800 000
2011
2012*
700 000
600 000
tonnes
500 000
400 000
300 000
200 000
100 000
0
Q1 Q2 Q3 Q4
Source: ICDA

Recent developments: Demand
• Stainless steel production growth has slowed so far in H1 2012 – lowest rate
of global growth since 2009
• Short-lived period of restocking in Dec ‘11/Jan ‘12 gave way to bearishness in
Q2 and early Q3 – as illustrated by nickel price changes
50%
Stainless steel production -- H1 2012* saw the lowest rate
of annual growth since 2009
30000
Nickel Spot Prices
(USD/tonne)
40%
28000
Year-on-year % change
30%
20%
10%
0%
-10%
EU27
China
-20%
Global
-30%
2007 2008 2009 2010 2011 2012*
Source: ICDA, ISSF; *H1 on an annualized basis
26000
24000
22000
20000
18000
16000
14000
12000
10000
03/07 07/07 10/07 01/08 04/08 07/08 10/08
Source: London Metal Exchange

Recent developments
Returning to the original price chart…
140
130
120
110
100
90
80
70
60
Jan-­‐06 Apr-­‐06 Jul-­‐06 Oct-­‐06 Jan-­‐07 Apr-­‐07 Jul-­‐07 Oct-­‐07 Jan-­‐08 Apr-­‐08 Jul-­‐08 Oct-­‐08
Source: Ryan's Notes
Ferrochrome prices:
European spot vs. Chinese domestic spot
(US cents/lb. Cr unit)
EU transaction 49-51% FeCr FM
Chinese HC FeCr 49-65 Cr%, domestic transaction
Key points:
• Surge in EU charge chrome
price looks to have been a
function of brief period of
restocking and concerns about
South African supply
• Chinese prices also
responded to brief period of
restocking around turn of the
year – but stable domestic
supply and comparatively low
demand growth has ensured
lower prices in China

Longer-term outlook for HC/Ch FeCr:
Prospects for Demand

Prospects for Demand: Stainless Steel output
tonnes
9 400 000
9 200 000
9 000 000
8 800 000
8 600 000
8 400 000
8 200 000
8 000 000
7 800 000
Key points:
• Global stainless steel output
(melting basis) grew by average
annual rate of around 3.6% between
2006-11
• Year-on-year growth dropped well
below this level in Q1-2 2012, due to
aggregate global destocking and
weak demand
• Q3-4 2012 expected to see
improved output growth – new
Chinese capacity coming on stream,
potentially favourable change in
stocking cycle
7 600 000
Q1 2011 Q3 2011 Q1 2012 Q3 2012
Source: ICDA; Q2-4 2012 are forecasts
• This scenario is largely dependent
on conditions in China

Prospects for Demand: Stainless Steel output
• China likely to remain the motor for stainless steel production growth in coming
years – average annual growth for ex-China markets likely to be less than 1% for
period 2007-2014
World Stainless Steel output: China and the rest of
the world
45 000 000
50%
Year-on-year growth of stainless steel output: China
has provided the lion's share of growth in recent
years
40 000 000
35 000 000
Remainder
China
40%
Chinese output
30 000 000
30%
tonnes
25 000 000
20 000 000
20%
World output
15 000 000
10%
10 000 000
5 000 000
0%
0
2007 2008 2009 2010 2011 2012* 2013* 2014*
Source: ICDA; 2012-14 are forecasts
-10%
2007 2008 2009 2010 2011 2012* 2013* 2014*

Prospects for Demand: HC/Ch FeCr demand
• Chinese stainless steel production has tended to rely on “primary” chrome units
• Scrap ratios are already low – growth in use of “primary” chrome units may not
in the near future outstrip growth in crude stainless steel output by as much as it
did in recent past
3 500 000
3 000 000
2 500 000
The majority of the chrome in China’s stainless steel
comes from primary ferrochrome
Total chrome units in
Stainless Steel
Chrome units in "New
Stainless"
400
350
300
Growth in primary ferrochrome consumption in
stainless steel has outpaced the growth in total chrome
units
tonnes
2 000 000
1 500 000
Index: 2006=100
250
200
150
1 000 000
100
Chrome units in "New
Stainless"
500 000
50
Total chrome units in
Stainless Steel
0
2006 2007 2008 2009 2010 2011 2012* 2013*
Source: ICDA; 2012-14 are forecasts
0
2006 2007 2008 2009 2010 2011 2012* 2013*

Prospects for Demand: Alloy
• The global alloy steel sector has increased its consumption of chrome units
at a slightly faster rate than the stainless steel sector since 2006
• A proportion of the chrome units consumed come from LC and MC FeCr, as
well as HC FeCr
2 000 000
1 800 000
1 600 000
Chrome units (LC, MC and HC FeCr) consumed by global production
of alloy steels and other special alloys
tonnes
1 400 000
1 200 000
1 000 000
800 000
600 000
400 000
200 000
CAGR 2006-11: 6.27%
0
2006 2007 2008 2009 2010 2011
Source: ICDA

Prospects for Demand: HC/Ch FeCr demand
Projected consumption HC/Ch FeCr (gross volume)
tonnes
12 000 000
10 000 000
8 000 000
6 000 000
4 000 000
2 000 000
0
2006 2007 2008 2009 2010 2011 2012* 2013*
Source: ICDA; 2012-13 are forecasts
Ch/HC FeCr to stainless steels
Ch/HC FeCr to non stainless and
special alloys
Key points
• Y-o-y growth of 4% in 2012
and up to 6% in 2013
• Stainless steel output
remains the main driver
behind HC/Ch FeCr
consumption
• Rate of growth should
outpace overall rate for
stainless steel in 2012 on the
back of marginally lower
scrap ratios
• Longer-term, substitution of
austenitic grades should go
on benefiting HC/Ch FeCr
demand

Longer-term outlook for HC/Ch FeCr
Prospects for Supply

Prospects for Supply
• Transformation in Supply: China is on course to become the
world’s largest ferrochrome producer this year
Global HC/Ch Production - 2010
Global HC/Ch Production – H1 2012
Africa
Africa
20,8%
China
India
Remainder
20%
China
India
Remainder
42,7%
35%
11,7%
10%
24,7%
35%
Total vol.: 8.94m tonnes
Source: ICDA
Total vol.: 4.55m tonnes
Source: ICDA

Prospects for Supply
• Key expansion projects due for commissioning prior to 2015: Outokumpu; ENRC;
Xstrata Lion II…and several projects planned in China, notably the Shanxi Taigang
Wanbang JV (300kt) and Mintal in Inner Mongolia (300kt)
• The Chinese expansion projects depend on imported ore. This has proved viable in
the recent past, as chrome ore has lost value relative to ferrochrome since 2010
Chrome ore prices have been weaker than ferrochrome prices since mid-2010
140
130
120
Index: Jan 2010=100
110
100
90
80
70
Chinese HC FeCr import, transaction, US cents/lb Cr
Turkish ore, cif China
UG2 ore, cif China
60
Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Mar-08 Jun-08
Source: Ryans Notes

Prospects for Supply: China
Is there enough future chrome ore supply to satisfy China’s requirements?
• China’s resort to South African UG2 chrome concentrate
• Prospects for UG2 supply and price
China's Imports of Chrome Ore - South African supply
has taken market share
UG2 beneficiation plant capacity
7 000
10 000 000
Pakistan
Oman
9 000 000
Turkey
India
6 000
UG2 concentrator
capacity
8 000 000
South Africa
Remainder
5 000
7 000 000
6 000 000
5 000 000
4 000 000
3 000 000
2 000 000
1 000 000
0
2007 2008 2009 2010 2011 H1 2012
Source: ICDA
'000 tonnes
4 000
3 000
2 000
1 000
0
Source: ICDA
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012* 2013*

Prospects for Supply: China
How much of a threat to China would a ban/duty on South African chrome ore exports be?
• No alternative to South African supply in event of ban
• Modest duty may not have much impact – and would not alter UG2 concentrate supply
growth, unless targeted. Alternative sources of supply could provide supplement
China's Apparent Met-grade Chrome Ore Consumption (tonnes)
12 000 000
10 000 000
8 000 000
6 000 000
2012 onwards are forecasts
4 000 000
2 000 000
0
2006 2007 2008 2009 2010 2011 2012 2013 2014
Source: ICDA

1 400 000
1 200 000
1 000 000
Prospects for Supply: South Africa
• Xstrata due to commission 360kt Lion II smelter before end of 2013 , but otherwise
expansions will be limited by energy constraints
• Energy capacity due to increase by 2015 – but the issue is relative cost vis-à-vis
Chinese producers. Threat of periodic power shortages to remain next year.
• Assuming increasing Chinese ferrochrome self-sufficiency, South Africa will have to
tailor its output to fit demand from markets that are either shrinking or growing far
slower than China
China's imports of HC/Ch FeCr
from Kazakhstan
from South Africa
Remainder
Estimated Chinese HC/Ch FeCr requirement for future
stainless steel output vs domestic supply
5 000 000
4 500 000
4 000 000
3 500 000
tonnes
800 000
600 000
400 000
tonnes
3 000 000
2 500 000
2 000 000
1 500 000
1 000 000
Gross volume HC/Ch
FeCr used in SS
production tonnes
Chinese production
200 000
500 000
0
Jan-July 2010 Jan-July 2011 Jan-July 2012
Source: ICDA
0
2006 2007 2008 2009 2010 2011 2012* 2013* 2014*
Source: ICDA; * connotes forecast

1 200
Prospects for Supply: South Africa
• Ex-China markets have shown patchy demand – Europe’s imports of charge chrome
to date in 2012 have been buoyed by early year restocking, but since end of Q1
activity has been slow
• Short term, South African supply will probably compensate in Q3-4 for some of the
production cuts earlier this year
• Longer term, the expansion at Outokumpu appears to increase the chances of
Europe’s external demand for HC/Ch declining
South Africa's main charge chrome export markets
Outokumpu's FeCr expansion could reduce European
import demand, which would impact S.African producers
2 100 000
1 000
1 900 000
1 700 000
'000 tonnes
800
600
400
EU27
Japan
Taiwan
tonnes
1 500 000
1 300 000
1 100 000
900 000
HC Ferrochrome imports (C>4%)
tonnes
200
700 000
HC Ferrochrome apparent
consumption (C>4%) tonnes
0
2006 2007 2008 2009 2010 2011 2012*
Source: ICDA, 2012*= Jan-May annualised
500 000
Source: ICDA
2006 2007 2008 2009 2010 2011 2012* 2013* 2014* 2015*

Conclusions
• Pricing developments so far this year point to a divergence
between the Chinese and ex-Chinese markets for HC/Ch FeCr – the
influential factors behind this have been growing Chinese supply and
contracting South African supply
• Stainless steel production likely to grow at 4%+ in 2012 – but most of
that increase will be due to growth in China
• HC/Ch FeCr consumption growth likely to exceed stainless steel
production growth, but only modestly
• Obstacles to China becoming increasingly self-sufficient in HC/Ch FeCr
over the next few years do not look especially severe – sufficient
chrome ore supply should be available
• China’s self-sufficiency displaces demand for South African supply –
South Africa producers will have to tailor supply to slower-growing
markets until they become more cost competitive

Thank you for your attention
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