ferro-alloys market tracker - metal bulletin · 2012-08-14 · ferro-alloys market tracker a unique...

Ferro-alloys Market TrackerA unique source of market intelligence, analysis and forecasts covering the international ferro-alloys industry

Issue 239June 201219 July 2012www.metalbulletinresearch.com

ContentsFerro-alloy prices 2Ferro-silicon 4Silicon Metal 6Manganese 7Ferro-chrome 10 Nickel 12Molybdenum 13Vanadium 15Economic indicators 16

With steelmakers reducing operating rates and taking temporary outages for the summer months, primarily in Europe and North America, ferro-alloy producers are also beginning to temporarily reduce capacity. In our view, with steel demand trending stable to lower in the major markets, any impetus for improvement in ferro-alloy prices will come from the supply side.

Despite the recent announcements of several ferro-alloy production cuts, we do not expect to see any near-term improvement in ferro-alloy prices. Instead, the move by some ferro-alloy producers to trim operating rates may help to remove excess supply and force steelmakers to run down inventories, positioning the market for higher prices when steelmakers resume purchasing at more normal levels from September.

Production discipline, however, is not universal. With the end of Eskom’s power buy back agreements, South African ferro-chrome output is rising. Increased production, together with persistently weak demand from the stainless sector and a declining rand, led to a $0.10/lb reduction in third-quarter charge chrome contracts. We are also seeing rising alloy output in China as power rate reductions prompt higher production of ferro-silicon and silicon metal, in particular, and renewed downward pressure on prices.

l Ferro-alloy prices trending stable to lower...l...prompting ferro-alloy production cuts...l...but production discipline is far from universal

European ferro-alloy price forecasts ($/tonne)Ferro-alloy prices fell further in July as sluggish demand from both carbon and stainless steelmakers lent

little support to prices

Source: Metal Bulletin Research

With demand from steelmakers poised to decline in the near term, any price improvement will be dependent on reduced ferro-alloy supply

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FeSi 75%SiMn 65-70%HC FeCr 60%

Forecast prices

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IMPORTANT NOTICE

2 Ferro-alloys Market Tracker July 2012

Metal Bulletin Research

2009 2010 2011 2011 2012Year Year Year Dec Jan Feb Mar Apr May Jun Jul

EUROPEAN FREE MARKET PRICES(1,3)

Ferro-silicon, 75% Si €/t 932 1,326 1,331 1,130 1,115 1,135 1,223 1,240 1,208 1,124 1,080

Ferro-manganese, 78% Mn €/t 906 1,092 992 805 816 866 972 988 977 962 933Silicon Metal, min. 98% Si, 10-20 tonne lots €/t 2,309 2,290 2,251 2,184 2,138 2,100 2,067 2,050 2,050 2,050 2,052Silico-manganese, 65-75% Mn €/t 809 956 1,025 805 846 929 1,026 1,045 1,038 1,001 961Charge chrome, 52% Cr $/lb 0.85 1.24 1.26 1.20 1.15 1.15 1.15 1.30 1.35 1.35 1.25Ferro-chrome, 6-8% C, 60% Cr $/lb 0.87 1.23 1.23 1.11 1.11 1.16 1.18 1.19 1.19 1.16 1.12Ferro-chrome, 0.1% C, 68-70% Cr $/lb 1.89 2.00 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30 2.30Nickel, LME cash(4) $/lb 6.67 9.89 10.36 8.23 8.99 9.28 8.49 8.11 7.72 7.50 7.47Nickel, 3-month forward(4) $/lb 6.70 9.92 10.37 8.24 9.01 9.33 8.52 8.14 7.75 7.53 7.49Nickel, melting grade(4) $/lb 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Nickel, plating grade(4) $/lb 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00Ferro-molybdenum, 65-70% Mo $/kg 27.71 39.86 38.37 32.62 33.94 35.73 34.68 34.51 33.55 31.91 31.36Molybdic oxide, drummed(4) $/lb 11.44 15.84 15.69 13.44 13.89 14.64 14.24 14.22 13.90 13.26 12.71Ferro-titanium, 70% Ti $/kg 3.58 6.25 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00 7.00Ferro-tungsten, 75% W(4) $/kg 26.68 28.61 41.52 47.42 47.81 48.61 52.06 53.99 54.61 54.68 55.75Ferro-vanadium, 70-80% V $/kg 25.07 30.04 28.72 24.03 23.26 25.30 25.78 25.57 26.05 25.63 25.23

US FREE MARKET PRICES(1,5)

Ferro-silicon, 75% Si $/lb 0.70 0.96 1.03 0.93 0.92 0.94 0.95 0.94 0.93 0.91 0.89Silicon metal $/t 2,670 2,752 3,419 3,310 3,194 3,138 3,002 2,896 2,866 2,856 2,844Ferro-manganese, 78% Mn $/t 1,226 1,393 1,323 1,303 1,180 1,176 1,290 1,319 1,278 1,262 1,238Silico-manganese, 65-75% Mn $/t 1,153 1,378 1,362 1,155 1,163 1,317 1,647 1,604 1,593 1,477 1,334Ferro-chrome, 6-8% C, 60-65% Cr $/lb 0.84 1.26 1.25 1.09 1.11 1.15 1.18 1.18 1.20 1.17 1.14Ferro-molybdenum, 65-70% Mo $/lb 12.76 18.42 17.83 15.99 16.28 16.57 16.06 16.19 15.99 15.42 14.89Molybdic oxide, canned $/lb 11.33 15.39 15.86 13.46 13.76 14.52 14.37 14.19 14.10 13.53 12.93Ferro-vanadium, 70-80% V $/lb 11.71 14.56 14.73 14.26 13.71 14.18 14.92 15.38 15.36 15.19 14.40

CHINESE EXPORT PRICES(6)

Ferro-silicon min. 75% $/t 1,110 1,429 1,506 1,430 1,430 1,420 1,390 1,400 1,413 1,415 1,393Ferro-manganese min. 75% Mn, 7.5% C $/t 1,380 1,504 1,505 1,505 1,505 1,505 1,505 1,505 1,505 1,505 1,505Silico-manganese min. 65% Mn, max 17% Si $/t 1,272 1,476 1,510 1,510 1,510 1,510 1,510 1,510 1,510 1,510 1,510Silicon metal min. 98.5% fob Chinese ports $/t 1,666 2,142 2,448 2,318 2,343 2,346 2,331 2,329 2,297 2,203 2,101Ferro-chrome 8% C, 60% Cr $/lb 0.80 0.96 0.99 0.90 0.93 0.95 0.95 0.93 0.93 0.94 0.92

JAPANESE IMPORT PRICES(7)

Ferro-silicon, Chinese $/t 1,165 1,517 1,539 1,425 1,408 1,415 1,410 1,435 1,438 1,414 1,400Silicon metal, spot $/t 1,719 2,334 2,597 2,445 2,425 2,425 2,395 2,390 2,390 2,390 2,365Silico-manganese, Chinese $/t 1,326 1,572 1,561 1,565 1,565 1,565 1,565 1,565 1,603 1,640 1,600Charge chrome, producer $/lb 0.87 1.26 1.27 1.17 1.17 1.17 1.17 1.37 1.37 1.37 1.27Molybdic oxide $/lb 11.44 15.70 15.51 13.38 13.89 14.63 14.03 14.20 13.81 13.25 12.83Ferro-vanadium $/kg 25.63 29.80 28.77 24.25 22.93 25.50 25.85 25.63 26.15 25.69 25.25

BULK ORE PRICES

Manganese Ore 48-50%, max 0.1%P fob $/mtu 5.34 7.72 6.03 5.40 5.21 4.63 4.63 4.63 4.63 4.63 5.25Chrome Ore South Africa lumpy 35-40%(8) $/t 149 243 245 195 200 200 200 200 200 200 185

EXCHANGE RATES

Dollar/sterling $/£ 1.57 1.55 1.60 1.56 1.55 1.58 1.58 1.59 1.60 1.55 1.56Yen/dollar ¥/$ 93.69 87.78 79.73 77.83 76.94 78.29 82.35 81.43 79.87 79.06 79.54Dollar/euro $/€ 1.39 1.33 1.39 1.32 1.29 1.32 1.32 1.32 1.28 1.25 1.23

Source: Metal Bulletin ResearchNotes:Current month's averages are to the 13th(1) Tonnage prices are bulk basis; lb or kg prices are metal contained

(3) Delivered basis, except (4) in warehouse (5) in warehouse, Pittsburgh (6) fob main Chinese ports

(7) average of Tex report bimonthly quotes, (8) cif main Chinese ports

July 2012 Ferro-alloys Market Tracker 3


2009 2010 2011 Q2 11 Q3 11 Q4 11 Q1 12 Nov 11 Dec 11 Jan 12 Feb 12 Mar 12 Apr 12 May 12

Belgium 5.38 8.08 8.02 2.25 2.02 1.75 1.61 0.58 0.57 0.50 0.47 0.64 0.66 0.68

France 12.83 15.58 15.51 4.27 3.54 3.87 4.14 1.35 1.11 1.36 1.30 1.48 1.42 1.48

Germany 32.65 43.82 44.27 11.80 10.95 10.17 10.84 3.46 3.03 3.35 3.58 3.90 3.60 3.71

Italy 19.56 25.85 28.44 7.73 6.54 7.23 7.31 2.57 1.96 2.20 2.42 2.69 2.41 2.57

Spain 13.27 16.24 15.91 4.56 3.51 3.42 3.67 1.19 0.89 1.18 1.17 1.33 1.26 1.29

United Kingdom 9.85 9.79 9.53 2.52 2.36 2.21 1.90 0.72 0.67 0.67 0.56 0.67 0.86 0.92

Other Europe 44.76 55.86 56.26 14.93 13.56 13.59 14.34 4.45 4.36 4.73 4.62 4.98 4.72 4.69

Total Europe 138.29 175.21 177.94 48.04 42.46 42.22 43.80 14.31 12.58 13.99 14.13 15.69 14.93 15.34

% Change Y-o-Y -30.6% 26.7% 1.6% 0.6% 3.9% -3.1% -3.1% -3.4% -4.0% -3.3% -2.8% -3.3% -6.0% -6.6%

Canada 8.73 13.10 13.09 3.27 3.39 3.23 3.35 1.06 1.12 1.05 1.10 1.20 1.16 1.20

USA 58.19 80.94 86.09 21.58 22.18 21.81 22.62 7.18 7.33 7.60 7.26 7.76 7.71 7.67

Total N America 144.13 94.04 99.18 24.85 25.57 25.04 25.97 8.24 8.45 8.65 8.36 8.96 8.87 8.87

% Change Y-o-Y -2.1% -34.8% 5.5% 0.3% 9.3% 8.5% 9.5% 11.0% 7.7% 9.2% 10.1% 9.3% 8.7% 5.9%

Latin America 52.34 62.24 68.59 17.81 17.77 16.77 16.76 5.53 5.48 5.49 5.41 5.86 5.69 5.76

% Change Y-o-Y -21.1% 18.9% 10.2% 14.4% 13.5% 5.4% 3.2% 5.0% 7.4% 3.4% 5.4% 1.0% -0.3% -7.1%

Japan 87.52 109.60 107.50 26.35 26.90 26.57 26.56 8.70 8.40 8.63 8.61 9.32 9.07 9.23

India 55.88 66.20 71.62 17.99 18.27 18.30 18.00 6.00 6.15 6.10 5.70 6.20 6.00 6.20

South Korea 48.70 58.19 68.27 17.41 16.64 17.82 16.59 5.79 5.95 5.12 5.45 6.02 6.01 5.97

Taiwan 15.69 22.56 21.13 5.00 5.72 5.31 5.73 1.74 1.92 1.90 1.78 2.05 1.80 1.84

Other Asia (excl. China) 41.72 48.03 54.16 13.47 13.59 14.12 10.39 4.49 4.83 3.60 3.20 3.59 3.32 3.54

China 575.30 626.50 677.21 179.21 174.75 156.72 163.84 49.88 52.16 52.07 55.88 55.88 60.58 61.23

Total Asia 824.81 931.06 999.88 259.42 255.87 238.84 241.11 76.59 79.41 77.42 80.62 83.07 86.78 88.01

% Change Y-o-Y 4.5% 12.9% 7.4% 6.7% 13.0% 3.6% -1.9% 1.4% 1.7% -3.0% 2.1% -4.5% 1.4% 0.9%

Africa 14.48 16.85 14.18 3.47 3.51 3.50 3.56 1.09 1.20 1.08 1.17 1.30 1.26 1.28

Australasia 6.04 8.15 7.29 1.92 1.79 1.49 1.58 0.43 0.42 0.46 0.55 0.58 0.55 0.08

Russia 58.65 66.85 69.55 17.33 17.56 17.38 17.92 5.58 5.89 5.95 5.58 6.40 5.90 6.10

Ukraine 29.91 32.49 34.91 9.09 8.31 8.77 8.25 2.90 2.80 2.87 2.68 2.70 2.52 2.60

Other CIS 7.46 8.15 8.11 2.10 2.16 1.86 1.70 0.63 0.60 0.58 0.52 0.59 0.58 0.61

World Total 1,174.39 1,395.04 1,479.62 384.03 374.99 355.86 360.66 115.30 116.84 116.49 119.02 125.15 127.07 128.64

% Change Y-o-Y -9.7% 18.8% 6.1% 5.2% 10.6% 2.3% -1.1% 0.7% 0.7% -2.4% 2.2% -3.0% 0.2% -0.8%

Source: International Iron & Steel Institute, Metal Bulletin Research

(million tonnes)Global Crude Steel Production


Quarterly crude steel production - emerging markets (% change y-o-y)


Quarterly crude steel production - mature markets (% change y-o-y)

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Market Outlook

Europe facing more steel capacity closuresFurther steel mill capacity closures are likely across Europe in the next 12 months due to falling regional steel demand. The steel sector outlook is negative, with demand conditions likely to be muted into next year and lingering production over-capacity to persist over this period. ArcelorMittal has refused to rule out further site closures in Europe.

Third-quarter ferro-silicon contracts in Europe have been settled well down from the previous quarter. Three-month business has been signed off at €1,140/tonne ($1,400/tonne) between suppliers and consumers. Second-quarter contracts were settled at €1,220-1,240/tonne delivered, with third-quarter contracts returning to a par with first-quarter contract levels of €1,125-1,140/tonne.

Meanwhile, spot market prices have declined sharply over the past month, sliding to €1,050-1,100/tonne ($1,290-1,350/tonne) in July from €1,150-1,170/tonne last month. There has also been industry talk that Russian exporters shipped some 12,000 tonnes of ferro-silicon to the EU in May, although it is unclear where that might be warehoused.

Given uncertain consumption trends, with further weakness likely in the near term, steelmakers may opt to supplement their raw material stocks from the spot market until after the seasonal slowdown. We expect only modest spot market activity in the coming weeks, with prices likely to trend stable to lower in the near term.

Chinese producers cut pricesChinese spot price offers for ferro-silicon 75% grade are in the range of RMB6,150-6,250/tonne ($975-990/tonne) ex-works in mid-July, down RMB200/tonne over the past month, and at RMB5,900-6,000/tonne ex-works for ferro-silicon 72% grade. Export prices for ferro-silicon 75% grade are around $1,400-1,410/tonne FOB China via legal trade, down from $1,410-1,440/tonne last month, and at $1,380-1,390/tonne FOB China via legal trade for ferro-silicon 72% grade, also down $10-20/tonne from June.

Ferro-silicon highlights

l European third-quarter contract prices settled downl Chinese producers cut prices as power rates declinel Price competition among suppliers forces US prices lower

The European ferro-silicon spot market has edged down further as demand in the steel sector continued to soften prompted by the heavy industry summer break. European steel mills are shutting for an extended period this summer as underly-ing consumption declines. In some areas the mill shutdowns will be for more than double the usual two-week closures. The European steel sector looked stable in May, with production utilisation rates at 75-80% of capacity, but steel mills were keen to sell material last month before the seasonal slowdown and that prompted

a sell-off in raw materials. The Chinese ferro-silicon market has been sluggish in July, with prices hovering at low levels. The spot market has been quiet after low tenders from steel mills forced producers to lower price offers to promote sales. Export business, meanwhile, has been subdued due to weak demand and the arrival of the summer break in the West. US industry sources say ferro-silicon prices are being affected by European weakness. US steel production levels may stabilise around the current production rate, however, as the fall in utilisation rates has slowed.

European third-quarter contract prices decline against decreasing demand from steelmakers and sufficient ferro-silicon supply

Chinese HR steel prices vs. FeSi and SiMn export prices, Ample supply and weak demand are

reflected in struggling steel and ferro-alloy prices


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Traders in Ningxia province said a few producers have lowered their offer prices for ferro-silicon 72% grade to RMB5,700/tonne ($1,255/tonne) ex-works. Offers for 75% ferro-silicon are solid at RMB6,450/tonne delivered to Tianjin port, however, due to limited stocks of 75% grade ferro-silicon.

Chinese Customs has strengthened its efforts to inspect exported materials. As a result, many shipments of ferro-silicon have been delayed, with some cargoes delayed by more than a month.

The Ministry of Industry and Information Technology (MIIT) has published targets to cut ferro-alloys capacity in 2012. MIIT is aiming to eliminate old plants with high energy consumption and poor pollution control. The measures, however, are expected to have only limited influence on the Chinese ferro-alloys industry as production is plentiful and these plans to close outdated capacity are announced regularly by the Chinese government will little noticeable effect in ferro-alloy markets. The 2012 target is a reduction of 2.89m tonnes of outdated ferro-alloys capacity, which affects 248 companies, an increase of nearly 37% from last year’s 2.11m tonnes.

Over-capacity has troubled the Chinese ferro-alloys industry for years. Annual Chinese ferro-alloys production capacity is over 36m tonnes, while annual demand is about only 24-25m tonnes.

In a positive move for Chinese industry consolidation, however, Qinghai Jiutong Group, incorporated with ten ferro-alloys producers in Ledu county, Qinghai province, was launched officially on July 8. Annual ferro-alloys production capacity for Qinghai Jiutong Group is more than 600,000 tonnes, mostly ferro-silicon, silicon metal, high-purity silicon metal and barium silicon, while total income is expected to be nearly RMB5bn ($784m).

US prices fall again as producers competeUS spot ferro-silicon prices have dropped further, with producers competing for business amid weakening demand. US ferro-silicon spot prices are down $0.03/lb in July to $0.86-0.88/lb in-warehouse versus $0.89-0.91/lb last month.

Some ferro-silicon producers, such as Ferroatlantica and Russian Ferro-Alloys, have reportedly been selling material below trader replacement levels. If that aggressive selling persists, then we expect further price weakness, particularly as US steel producers are not active in the spot market.

While steelmakers began to taper back operating rates in June, with average capacity utilisation rates declining to 76% in June versus 80% in May, with utilisation rates slipping to 75% so far in July, the reductions seen so far have been insufficient to balance US steel supply with demand.

We expect to see further US steel production cutbacks in the coming weeks, however. While the well-publicised closure of RG Steel’s Sparrows Point and the company’s other operations have had little impact on domestic steel supply and market sentiment, other major mills are planning third-quarter maintenance outages. AK Steel was vocal at the recent AMM/WSD Steel Success Strategies event in New York in stating that it makes no sense to continue feeding steel into the market at this time. We expect to see outages from AK Steel, Severstal, and ArcelorMittal, and would not be surprised to see other mills temporarily remove capacity in an attempt to rebalance supply and demand in the North American market.

Chinese authorities again try to clamp down on surplus ferro-alloy capacity

US prices sliding as demand from steelmakers slows and ferro-silicon suppliers become more aggressive

Global Ferro-silicon Supply-Demand Balance ('000 tonnes Si content)

Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11 Q2 11 Q3 11 Q4 11 2011 Q1 12f Q2 12f Q3 12f Q4 12f 2012

Global Consumption 1,250 1,325 1,200 1,210 4,985 1,375 1,450 1,225 1,250 5,300 1,265 1,490 1,275 1,350 5,380

Global Production 1,275 1,350 1,250 1,180 5,055 1,325 1,475 1,300 1,250 5,350 1,290 1,470 1,300 1,365 5,425

Market Balance 25 25 50 -30 70 -50 25 75 0 50 25 -20 25 15 45

Price Forecast - European Market ($/t) 1,520 1,814 1,696 2,021 1,763 2,036 2,008 1,786 1,600 1,858 1,493 1,545 1,370 1,500 1,477Price Forecast - US Market ($/lb) 0.85 0.95 0.93 1.10 0.96 1.07 1.04 1.01 1.00 1.03 0.94 0.93 0.89 0.93 0.92




Market Outlook

Silicon metal highlights

l Chinese prices declining on increased supplyl US prices falling as suppliers target the relatively-stronger US marketl Prices show further softness in Europe on weak demand

The Chinese silicon metal market has been sliding due to weak demand and prices have dropped sharply in July. Traders in Sichuan province said export business has been thin with few enquiries, although suppliers have so far refused offers as being too cheap. The price of silicon metal in the USA has come under renewed pressure as slow demand persists amid cheaper offers. Trading has ground to a virtual halt in the past few weeks due to the traditional seasonal slow-down as producers close down operations to

carry out repairs and maintenance. Consum-ers are likely to be sidelined from the spot market until late August. If demand bounces in Europe then prices in the US are expected to track higher quickly given relatively low stock levels. Any pick-up in European de-mand, however, is expected to be slight after the seasonal slowdown as most consumers are satisfied with their intake of silicon metal in longer-term deals. Across Europe stocks are being held at low levels.

China restarts productionA number of producers in Yunnan and Sichuan provinces have restarted production as the wet season arrives, despite weak demand from downstream industries and excess supply. These producers in Yunnan and Sichuan are eager to sell their material to relieve working capital pressures. Chinese silicon metal spot prices for 5-5-3 grade have softened to RMB10,700-11,000/tonne ($1,700-1,745/tonne) delivered. Spot price offers for silicon metal 4-4-1 grade are around RMB11,300-11,500/tonne ($1,795-1,825/tonne) delivered. Plentiful stocks should persist in depressing the market in the coming weeks.

US coming under pressureTraders report renewed efforts by Brazilian producers to generate sales in the USA as business in Europe sinks due weakening demand amid the euro-zone crisis. The spot price of 5-5-3 silicon metal is down to $1.25-1.30/lb delivered. Demand in the USA across the metallurgical and chemical sectors is doing well compared with Europe.

Overall silicon metal inventory levels are fairly low due to strong underlying domestic demand, particularly in the auto sector, that has boosted demand for aluminium-silicon alloys. Auto sales in the USA surged 22% year-on-year in June to 1.3m units. North American automakers intend to take significantly shorter third-quarter maintenance outages this year, reflecting stronger underlying demand from consumers.

European market eases againThe European silicon metal spot market has eased further on an extended period of quiet demand since May, which has knocked prices of both standard and refined grades, and that trend is seen persisting through much of the current quarter. Underlying consumption is weakening, particularly in southern Europe, and is starting to affect stronger northern European economies.

Meanwhile, prices for standard secondary aluminium-grade (98.5% grade) (5-5-3) silicon metal are off €50/tonne to €1,900-1,950/tonne ($2,335-2,395/tonne) FCA (free on truck) duty paid, while refined grades of low iron content silicon metal (4-4-1) are also off €50/tonne to €2,000-2,050/tonne ($2,455-2,515/tonne).

Ferroatlantica has announced it will cut silicon metal production until the end of 2012, after only restarting 30,000 tonnes of production in April. Ferroatlantica has entered into a production reduction plan from June to December 2012, and silicon metal production will be cut 20,000 tonnes, including 12,000 tonnes in France, 4,000 tonnes in Spain and 4,000 tonnes in South Africa. Further production cuts may be considered, depending on market conditions.

Chinese producers boost silicon metal production as power costs decline, with increased supply dampening prices

European silicon metal prices struggling, prompting Ferroatlantica to cut output

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Market Outlook

Europe eases amid slowdown, seen persistingSpot European high-carbon ferro-manganese prices have slipped to €940-970/tonne ($1,155-1,190/tonne) delivered versus €950-990/tonne in June amid slowing steel production in Europe. Medium-carbon ferro-manganese prices are around €1,225-1,250/tonne ($1,505-1,535/tonne).

European spot silico-manganese prices, meanwhile, are unchanged at €940-980/tonne ($1,155-1,205/tonne) delivered. Persistent weakness in the construction sector is affecting steel production and further declines in silico-manganese prices are expected in the short term. Third-quarter deals have not been concluded and most business is expected to be done on a spot basis, while second-quarter deals were settled slightly above €1,000/tonne delivered in northern Europe.

Most steel works in Europe that produce long steel for use in the construction sector are shutting for six weeks in the seasonal slowdown, and a few are even closing down for eight weeks. That compares with the typical summer shutdown of only two weeks.

With steelmakers set to shut for much longer in the European summer, spot silico-manganese prices will be vulnerable to further losses, possibly down to below €900/tonne as the third quarter progresses.

Macedonian producer shuts down plantMacedonian manganese ferro-alloys smelter Skopski Leguri will shut down until the end of August, with the plant will be out of operation for approximately two months. Skopski Leguri has three working furnaces and produces silico-manganese and high-carbon ferro-manganese from two of them, each with a monthly production capacity of 5,000 tpm. The third furnace has a monthly production capacity of 330 tonnes of ferro-nickel. At the start of September, the smelter will restart monthly production at a rate of 5,000 tpm, with a view to restarting full monthly production of the second ferro-alloys furnace should market conditions justify that move.

Manganese highlights

l European prices sliding on reduced demandl Chinese ore prices rolled over, but alloy prices slippingl US silico-manganese prices retreat rapidly from earlier highs

The European ferro-manganese market has eased again in July against a generally weaker background for all alloy raw materials used in steelmaking. We believe few steelmakers expect a rebound in September, with most company officials pessimistic on the prospects for European steel production through December. Chinese silico-manganese production is being pressured by high production costs and weak demand. Some producers in Yunnan province said they are reluctantly running silico-manganese furnaces to supply regular

customers, although the market price for silico-manganese is close to production costs. Producers in Ningxia province said the production of silico-manganese there is also under pressure from weaker tender prices and higher costs, while overall Chinese producers are pessimistic about the market in the short term because of slow demand. Electricity prices have been cut in Gansu, Inner Mongolia and Ningxia provinces, however, producers said the recent increase in manganese ore prices more than offsets the cheaper power costs.

US mill capacity utilization rates vs. domestic SiMn prices

Silico-manganese prices have plunged in response to slowing

steel output

Source: AISI, Metal Bulletin Research

European prices tumble as steelmakers prepare for extended summer shutdowns

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China squeezed on costs, weak demandBHP Billiton has rolled over its manganese ore prices to China for shipment in August after three successive monthly increases, as weaker demand affects the market. BHP is offering siliceous lump, with minimum 46% metal content, at $5.35/mtu CIF China for delivery next month. Metallurgical fines, with minimum 48% metal content, are $4.90/mtu.

Spot price offers for silico-manganese 65/17 grade are in the range of RMB7,200-7,400/tonne ($1,140-1,175/tonne) ex-works, down from RMB7,500-7,600/tonne last month, and the export price for silico-manganese 65/17 grade is nominally at $1,610-1,625/tonne FOB via legal trade.

The Chinese ferro-manganese market has also been sluggish in line with demand. Traders in Hebei province said they have received some enquiries for ferro-manganese, although no deals have been done due to what are being seen as expensive price offers. Traders in Beijing, meanwhile, said demand is weak and it is difficult to do deals given such slow demand. Some Chinese traders, however, are importing ferro-manganese from India and Indonesia due to their competitive prices, before re-exporting material. High-carbon ferro-manganese graded at 70% manganese is said to be available at $1,050/tonne FOB.

High-carbon ferro-manganese 65% grade spot prices are in the range of RMB6,400-6,600/tonne ($1,015-1,045/tonne) ex-works, down from RMB6,600-6,800/tonne in June. Export prices for high-carbon ferro-manganese 65% grade are about $1,400-1,440/tonne FOB China via legal trade. Some sources are offering material at $1,200/tonne FOB on an export tax unpaid basis, although that is uncompetitive due to cheaper offers from India. Exports of 75% manganese high carbon ferro-manganese are nominally at $1,600-1,650/tonne FOB via legal trade.

US markets decliningUS silico-manganese prices have fallen some 10% on cheaper supplies against declining demand. US prices, which were as low as $0.50/lb at the start of this year, have plunged to $0.58-0.61/lb in July from $0.67-0.69/lb last month. Silico-manganese prices may decline another couple of cents before heavy industry returns in full after the seasonal slowdown.

Suppliers have been dumping material into the market in recent weeks to try and book profits before the seasonal slowdown. However, demand is weak and we see the market being slow through August and into September.

According to our sources, silico-manganese suppliers, such as Felman and CCMA, have been punting cheaper material in the US market in recent weeks. If so, and US prices fall below $0.50/lb in the near term, it will bring the market close to production cost levels and possibly prompt production cuts.

The US high-carbon ferro-manganese market has slid further as soft demand in Europe has encouraged more suppliers to divert shipments across the Atlantic. The US spot market is down to $1,220-1,230/long ton in-warehouse, while third-quarter deals have been done at around $1,250/tonne on the same basis. Medium-carbon ferro-manganese prices are around $0.91-0.93/lb in-warehouse, down from $0.93-0.95/lb in June.

Recently weaker markets in Europe and Asia have prompted suppliers such as BHP Billiton, Eramet and Assmang to turn their attention to stronger demand in the USA. However, steel production in the US has dipped as mills trim capacity rates back towards 75%.

Global High-carbon Ferro-manganese Supply-Demand Balance ('000 tonnes)

Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11 Q2 11 Q3 11 Q4 11 2011 Q1 12 Q2 12 Q3 12 Q4 12 2012

Global Consumption, Mn Content 821 857 800 820 3,298 890 925 825 855 3,495 900 950 830 940 3,620

Global Production (Gross Weight) 1,010 1,100 1,030 1,075 4,215 1,125 1,150 1,070 1,112 4,457 1,050 1,175 1,200 1,294 4,719Global Production, Mn Content 788 858 803 839 3,288 878 897 835 867 3,476 819 917 936 1,009 3,681

Market Balance, Mn Content -33 1 3 19 -11 -13 -28 10 12 -19 -81 -34 106 69 61

Price Forecast - European Market ($/t) 1,326 1,446 1,487 1,539 1,450 1,540 1,568 1,293 1,125 1,381 1,160 1,259 1,175 1,200 1,199Price Forecast - US Market ($/l.ton) 1,400 1,498 1,313 1,345 1,389 1,327 1,321 1,323 1,321 1,323 1,215 1,287 1,250 1,275 1,257

Global Silico-manganese Supply-Demand Balance ('000 tonnes)

Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11 Q2 11 Q3 11 Q4 11 2011 Q1 12 Q2 12 Q3 12 Q4 12 2012

Global Consumption, Mn Content 1,410 1,475 1,320 1,426 5,631 1,545 1,625 1,425 1,599 6,194 1,585 1,650 1,500 1,615 6,350

Global Production (Gross Weight) 2,110 2,225 2,000 2,177 8,512 2,350 2,500 2,200 2,376 9,426 2,300 2,600 2,400 2,362 9,662Global Production, Mn Content 1,414 1,491 1,340 1,459 5,703 1,575 1,675 1,474 1,592 6,315 1,541 1,742 1,608 1,583 6,474

Market Balance, Mn Content 4 16 20 33 72 30 50 49 -7 121 -44 92 108 -32 124

Price Forecast - European Market ($/t) 1,335 1,474 1,441 1,531 1,445 1,436 1,426 1,267 1,128 1,314 1,224 1,327 1,250 1,275 1,269Price Forecast - US Market ($/lb) 0.63 0.69 0.61 0.62 0.64 0.59 0.60 0.62 0.57 0.60 0.62 0.71 0.65 0.67 0.66

Source: Metal Bulletin ResearchNote: We have revised some of our historical consumption and production figures to reflect improved data



Global Stainless Steel Production ('000 tonnes)

2010 2011 Q3 2011 Q4 2011 Q1 2012 Oct-11 Nov-11 Dec-11 Jan-12 Feb-12 Mar-12 Apr-12

Belgium 1,306 1,241 263 277 348 111 115 51 118 114 117 117

France 274 297 65 68 84 26 24 18 27 28 30 28

Germany 1,506 1,507 316 373 398 133 135 105 119 140 140 69

Italy 1,557 1,596 339 398 435 145 145 108 137 145 153 142

Spain 844 807 181 193 248 65 74 54 78 83 87 79

United Kingdom 279 330 69 67 99 28 26 13 39 33 27 25

Sweden 546 586 120 146 155 51 48 47 55 51 49 47

Finland 992 1,003 226 253 284 79 96 78 97 78 109 102

Austria 53 64 16 18 15 7 7 4 5 5 5 5

Total EU15 7,357 7,431 1,594 1,793 2,067 645 669 479 674 676 717 615

Other Europe 101 118 30 26 34 10 12 5 11 11 12 11

Total Europe 7,458 7,550 1,624 1,819 2,102 655 681 484 686 687 729 626

% Change Y-o-Y 24.3% 1.2% 1.1% 2.3% -0.5% -3.8% 7.4% 4.3% 1.4% -0.1% -2.6% -12.7%

USA 1,889 2,074 449 458 494 140 154 164 167 163 163 173

Brazil 240 413 104 99 0 45 32 21 - - - -

Total Americas 2,129 2,487 553 557 494 186 186 186 167 163 163 173

% Change Y-o-Y 28.9% 16.8% -5.3% -0.8% -36.6% -8.7% -7.0% 17.1% -35.7% -37.1% -37.1% -13.0%

South Africa 309 444 92 104 141 35 35 35 47 47 47 -

% Change Y-o-Y -20.77% 43.59% 24.6% 38.8% 8.5% 38.8% 38.8% 38.8% 8.5% 8.5% 8.5% 0.0%

China 11,255 12,590 3,170 3,215 3,433 1,072 1,072 1,072 1,144 1,144 1,144 -

India1 3,225 3,385 875 791 450 281 247 262 260 189 - -

Japan 2,781 2,682 680 622 671 230 201 191 201 221 249 -

South Korea 2,290 2,366 587 613 596 208 195 210 199 199 199 215

Taiwan 1,683 1,783 472 438 427 142 149 147 117 157 153 132

Total Asia2 21,234 22,805 5,784 5,679 5,576 1,932 1,864 1,883 1,921 1,910 1,745 347

% Change Y-o-Y 23.7% 7.4% 9.5% 1.7% -0.4% 4.7% -0.2% 0.5% 1.7% 8.4% -10.5% -82.1%

Total Stainless 31,130 33,286 8,053 8,159 8,313 2,807 2,765 2,587 2,821 2,808 2,684 1,147

% Change Y-o-Y 23.5% 6.9% 6.7% 2.0% -3.6% 1.9% 1.4% 2.6% -1.6% 2.0% -10.6% -60.4%

Sources: ISSF, AISI, Eurostat, Tekko Tokei Geppo, TSIIA, KISA, Jernkontoret, UKISSB, Eisen Und Stahl, Federacciai, IBS, INSG, Metal Bulletin Research 1 Italicised data is inferred 2 Indian data included where available


Historical and forecast global stainless steel production growth rates (% change y-o-y)

Source: IISI, Metal Bulletin Research

European HC ferro-chrome price vs global stainless steel production (% change y-o-y)


Historical and forecast global stainless steel production growth rates (% change y-o-y)


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('000 tonnes) 7,730 7,931 8,552 8,380(chg yoy) 3% 2% -3% -1%

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Europe

Asia Chinese stainless steel output fell 1.2% in the first quarter to 3.4m tonnes, reflecting a slowdown in the

country's economic expansion.

European stainless mills are operating at around 50% of capacity as demand slides.

Global stainless steel output fell 2.8% in the first quarter of 2012. Output in all majorproducing regions decline in year-on-year terms.

US stainless demand is stable, but over-supply is a growing concern, and mill lead times are shortening



Market Outlook

Falling benchmark price sets the tone for weaker ferro-chrome pricingWith ThyssenKrupp returning as the lead negotiator, the third-quarter European benchmark price for charge chrome fell $0.10/lb to $1.25/lb following a $0.20/lb rise in the second quarter. This was not surprising given weak stainless steel demand, particularly in Europe and Asia. Furthermore, the end of the Eskom power buyback deals meant South African ferro-chrome producers were restarting at least 50% of the production capacity they previously idled.

The relevance of the benchmark price continues to be questioned, with some industry sources predicting that it could be replaced with another pricing mechanism as early as the end of this year. Confidence in this pricing mechanism’s credibility has eroded with increased discounting – and more confidential discounting – of the benchmark price being reported. But the big question is what the alternatives would be to this negotiated price and if they would be any better at representing the true price for ferro-chrome.

Spot ferro-chrome prices fall in all the major regionsFerro-chrome prices globally appear to be following the benchmark price downward. In Europe, spot high-carbon ferro-chrome prices fell about $0.02/lb at the high end of the trading range in the past week to $1.08-1.14/lb. We have also heard of discussions at prices as low as $1.02/lb, but we understand no business has yet been concluded at this level.

Ferro-chrome highlights

l Third-quarter benchmark price falls $0.10/lbl Spot prices fall on thin trading volumes, lacklustre stainless demandl Over-capacity remains an issue with the end of Eskom power buyback deals

While charge chrome contract business has been holding up fairly well, the same cannot be said of the spot market where trading is very thin and any business that is being conducted is being done so at lower pricing levels. Given that the European third-quarter benchmark settled down $0.10/lb to $1.25/lb, the restart of some ferro-chrome production capacity with the end of the Eskom power deals, and lacklustre stainless steel demand,

buyers are sitting on the sidelines fearful that prices could fall further. We believe that through the traditionally slower northern hemisphere summer months prices could continue to drift downward, but will then begin to recover slightly in September before seeing a more significant uptick early next year. The magnitude of the pricing recovery depends on the degree of improvement in the European and Asian economies.

Third-quarter charge chrome contracts settled down $0.10/lb, and spot market prices tumble in response

Chrome ore inventory at Chinese ports (‘000 tonnes) Ore stocks approached 3.0m tonnes in June, but have

receded in early July

Source: Metal Bulletin Research, SteelHome

European charge chrome price comparison, South African producers are still

enjoying elevated prices in local currency terms despite

the $0.10/lb decline in contract prices


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Fangchenggang ZhanjiangTianjin ShanghaiLianyungang



Chinese prices are also down, falling to $0.93/lb cif Shanghai in mid-July compared with $0.94/lb in mid-June and $0.96/lb at the end of May. Baosteel Stainless, Taigang Stainless and Jiuquan Steel have all cut their high-carbon ferro-chrome purchase prices for July delivery. Baosteel’s July bid price was RMB7,750/tonne ($1,226/tonne) including delivery, compared with RMB7,900/tonne in June. Both Taigang and Jiuquan’s July delivery purchase prices were set at RMB7,650/tonne ($1,211/tonne) including delivery, which was a RMB150/tonne month-on-month drop for Taigang and a RMB250/tonne month-on-month decline for Jiuquan.

Even in the USA, where stainless steel demand has held up better than the other major regions of the world, prices have also been falling, largely due to fears that the recession in Europe and slowing of growth in Asia could eventually have a negative impact on demand domestically. In very sparse spot trading, prices as low as $1.08-1.18/lb have been reported compared with $1.16-1.20/lb a month ago. With the northern hemisphere summer slowdown upon us, prices could slide further before slowly improving in the autumn. We do not, however, expect to see any significant strengthening until at least after the US presidential election and probably not until next year.

US prices for low-carbon ferro-chrome are relatively flat at about $2.20/lb for 0.10% product and $2.30-2.33 for 0.05% ferro-chrome.

Eskom is not planning any further electricity buybacksFerro-chrome over-capacity continues to be an issue. South Africa’s state electricity supplier Eskom has stated that despite previous speculation, the company will not be making any additional power buyback deals for the remainder of the year, even though its power shortage situation is not expected to ease until 2013 when Medupi comes online.

As a result, there have been a number of announcements of South African ferro-chrome smelters restarting at least half of their idled capacity. We do not believe, however, that many more restart announcements will be forthcoming until global stainless steel demand warrants the additional capacity.

Global stainless output depends on European and Asian economies, as well as nickel pricesGlobal stainless steel demand continues to be suppressed by the European recession, slower economic activity in China and elsewhere in Asia, and pricing uncertainty caused by falling prices of nickel and other alloying ingredients (including ferro-chrome). The International Stainless Steel Forum (ISSF) reports that while first-quarter stainless output was up 2.7% versus the fourth quarter of 2011, output was down 2.8% year-on-year. With even the US market showing signs of at least a modest slowdown, be believe that second-quarter stainless steel production could show both quarter-on-quarter and year-on-year declines. We are hopeful the Chinese stimulus program could help boost demand, therefore production, later in the year, but much depends on what happens in Europe and if nickel prices start to strengthen again.

Chinese stainless mills reduce ferro-chrome purchase prices in July

South African ferro-chrome output rising as Eskom power buy back agreements end

Ferro-chrome Supply-Demand Balance ('000 tonnes)

Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11 Q2 11 Q3 11 Q4 11 2011 Q1 12f Q2 12f Q3 12f Q4 12f 2012f

Global Consumption 1,977 1,984 2,133 2,153 8,247 2,667 2,193 1,947 2,024 8,830 2,223 2,332 2,156 2,435 9,147

Global Production 2,176 2,252 1,974 2,173 8,575 2,302 2,379 2,068 2,147 8,896 2,217 2,179 2,247 2,427 9,070

DLA Stock Disposals 14 4 0 0 18 0 1 0 0 1 0 0 0 1 1

Market Balance 213 272 -159 20 346 -365 187 121 124 67 -6 -153 91 -7 -76

Price Forecast - Europe ($/lb) 1.13 1.32 1.22 1.24 1.23 1.30 1.30 1.19 1.13 1.23 1.15 1.18 1.13 1.18 1.16Price Forecast - USA ($/lb) 1.13 1.33 1.24 1.31 1.25 1.37 1.33 1.20 1.11 1.25 1.15 1.19 1.15 1.19 1.17




Market Outlook

LME stocks edging up yet againIn the first 6 months of 2012 LME nickel stocks increased by 12.8kt, very close to our estimated market surplus of 11kt which we forecast for the period. Looking at the fundamental forecast for the third quarter, in the accompanying balance table, we are anticipating a further 16kt surplus to build in the third quarter alone. Indeed after holding close to 103-104kt for a few weeks, LME stocks do appear to be on the rise again. Since the start of July we have noted an average inflow rate of almost 270tpd into LME warehouses, an increase of 2.4kt to date. If deliveries continue at this rate, we would expect to see close to 5kt per month being added over the third quarter, which would take us close to our surplus estimate.

Premiums down in China, up in USAIn China, nickel premiums are still coming down, adding more pain on top of the drop in LME pricing. Premiums on standard Norilsk Nickel plating material are being offered at $50-100/tonne compared with $80-100/tonne the previous week. Even with these reductions the interest from buyers is said to be dead. On the upside though in the USA, melting grade premiums have moved off the record lows of several weeks ago. These numbers – $440-550/tonne – however are being supported by just a handful of small volume transactions. Most movement of nickel is still just deliveries against long-term contracts, rather than fresh spot buying, but here at least there have been no reports of any cancellations.

Nickel highlights

l LME stocks holding steady…l …having risen by 12.8kt in H1l US stainless demand slowing on contagion fears

A breach of the $16,000/tonne level which we have been anticipating for several weeks finally occurred in the past week, just as we were becoming more convinced that nickel had found its floor. There was no one specific piece of news which did this, but rather the contract is buckling under the cumulative weight of more nickel units being added to global output. As we noted last week, the market is being characterised by supply additions rather than supply cuts, which appears to have been sufficient to push cash prices down to a 30-month low of $15,835/tonne with a cash-three month contango which is hovering around $50/tonne. Could

this break below $16,000/tonne be the trigger needed to trim back production? We are far from convinced on this as yet. Looking at relative developments in prices and open interest, it appears that a significant short position is being built, which could potentially play a role in triggering a short covering in coming weeks. However we would suggest prudence in buying into such a rally as it is likely to be ephemeral in nature. For now we continue to hold our price forecasts of $17,000/tonne for the third quarter, implying a bounce back from current lows but with little belief that anything over this level is sustainable at current demand levels.

We are anticipating a further 16kt surplus to build in Q3 alone

Most movement of nickel is still just deliveries against long-term contracts, rather than fresh spot buying

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Global refined nickel supply-demand balance ('000 tonnes) and base case price forecasts, 2009-2014

2011 2012f 2013f 2014f 2009 2010 2011 2012Year Year Year Year Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3f Q4f

Production 1,547 1,682 1,782 1,866 315 316 320 335 338 366 356 365 363 376 396 412 401 415 428 438% change year-on-year 8.6% 8.7% 5.9% 4.7% -11.7% -12.0% -3.6% 2.8% 7.5% 15.8% 11.3% 9.0% 7.4% 2.7% 11.2% 12.9% 10.5% 10.4% 8.1% 6.3%

Consumption 1,554 1,642 1,750 1,856 258 285 321 352 354 370 349 364 366 383 395 410 398 407 412 425% change year-on-year 8.1% 5.7% 6.6% 6.1% -26.9% -17.6% -1.2% 30.4% 37.2% 29.8% 8.7% 3.4% 3.4% 3.5% 13.2% 12.6% 8.7% 6.3% 4.3% 3.7%

Balance -7 40 32 10 57 31 -1 -17 -16 -4 7 1 -3 -7 1 2 3 8 16 13% of consumption 0.5% 2.4% 1.8% 0.5% 21.9% 10.9% 0.3% 4.8% 4.5% 1.1% 2.0% 0.3% 0.8% 1.8% 0.3% 0.5% 0.8% 2.0% 3.9% 3.1%

Reported stocks 251 291 323 333 257 288 287 270 254 250 257 258 255 248 249 251 254 262 278 291Weeks consumption 8.4 9.2 9.6 9.3 12.9 13.1 11.6 10.0 9.3 8.8 9.6 9.2 9.0 8.4 8.2 7.9 8.3 8.4 8.8 8.9

LME cash price $/tonne 22,853 18,074 20,875 24,000 10,460 12,992 17,601 17,543 20,077 22,566 21,188 23,598 26,899 24,168 22,043 18,303 19,651 17,146 17,000 18,500$/lb 10.37 8.20 9.47 10.89 4.74 5.89 7.98 7.96 9.11 10.24 9.61 10.70 12.20 10.96 10.00 8.30 8.91 7.78 7.71 8.39



Market Outlook

As prices fall close to costs, production cuts could be imminentChinese buyers were expected to re-enter the market when prices fell to around the $13/lb level. Restocking at this level would mean that prices were just above the production cost of molybdic oxide in China, thought to be around $12/lb. With prices trading in the $12.80-13.10/lb CIF in-warehouse range, demand is still weak. Prices do not have much room for further downward revisions without forcing the introduction of production cuts.

After a promising start to 2012, which saw prices climb 8.3% between January and February, prices have slipped back with the year-to-date average price at just $14.04/lb, down from $17.33/lb in the same period in 2011. The decline is the result of falling steel production across the globe. In China, CISA-reporting mills produced slightly less than 60m tonnes of crude steel in June, with production rates declining throughout the month. With around 80% of molybdenum used in steel production, continually declining steel output levels do not lend much support to molybdenum consumption.

Demand outside of China is failing to absorb excess supplyAs requirements for material in the domestic market dwindle, Chinese producers are

Molybdenum highlights

l Molybdenum prices fall on weak demandl Chinese producers flood the export market to shift materiall CAPEX continues, even though prices are falling

Demand for molybdenum products continues to evade the market as slowing steel production growth rates reduce steel mills’ requirements for material. Continual Chinese export surpluses are forcing international prices downwards as supply remains more than adequate. It was thought that falling prices would entice Chinese buyers back into the market as the spot price is nearing production prices, however this has not yet occurred. The result is likely to be a curtailment of production by smelters should prices fall

much further. As we look ahead, we may see a slight revival in prices during the final quarter of the year as mills look to restock material. The effect of continued and co-ordinated expansionary policies by governments and central banks should also help to support molybdenum demand from steelmakers, and in turn prices, in the coming months.

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Canada’s Molybdenum Trade Balance (tonnes) Canada has run a trade deficit, but this is declining

Source: Metal Bulletin Research, Customs Data

Chinese GDP Growth and European Ferro-Moly Prices, Slowing Chinese GDP growth, and in turn

steel demand and output, is reflected in molybdenum prices

Source: Metal Bulletin Research, CEIC

Chinese molybdenum prices are sliding and approaching production costs

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European FeMo prices, $/kg




diverting their excess molybdenum production to the export market, increasingly supply and forcing prices downward owing to weak demand abroad too. China has now run an export surplus for molybdenum throughout 2012.

While this surplus is becoming almost normal in the molybdenum market, in the first five months of the year molybdenum exports were down 36.4% year-on-year at 8.08 million pounds while imports collapsed 31.6% year-on-year to 5.24 million tonnes. The export surplus is now expected, but we note the actual reduction in total trade volumes. This is both the product of a 15% tax on molybdic oxide reducing the attractiveness of the export market to Chinese producers and the slowdown in the domestic market.

There is a clear correlation between Chinese GDP growth figures and European ferro-molybdenum prices. In the first quarter of 2010 when GDP was growing at just over 12%, prices reached around $20/lb, however as growth has slowed to its lowest rate since 2009, prices have tailed off too. Slower Chinese GDP growth is reflected in reduced demand for stainless and specialty steel products, leaving both surplus stainless steel and molybdenum to be exported, and in turn, negatively affecting prices in other markets, including Europe.

In Europe, prices continue to fall to the lower end of the $31.00-32.00/kg range ($14.23/lb) on weak demand. The recent IMF World Economic Outlook update provided revised forecasts for GDP growth and warned that further downside risks to the global economy are considerable. The downward revision for global GDP growth to 3.5% in 2012 relies on an easing of the dire situation in the euro-zone and emerging economies undertaking measures to boost growth.

But the supply keeps comingCanadian miner Columbia Yukon Explorations announced plans to raise $150,000 of funds via a share issue in order to continue with its exploration and development of its Storie Property molybdenum project. Canada has run a trade deficit in ferro-molybdenum consistently through 2011 and 2012 to date. However, this deficit is in decline. All of Canada’s production is destined for the USA.

Overall level of Chinese trade is in decline, but the country is still running a molybdenum export surplus

Plans to increase molybdenum production in Canada

Primary Molybdenum Supply-Demand Balance (million lb Mo contained)

Q1 10 Q2 10 Q3 10 Q4 10 2010 Q1 11 Q2 11 Q3 11 Q4 11 2011 Q1 12 Q2 12f Q3 12f Q4 12f 2012f\

Global Consumption 129 138 130 133 530 142 137 131 135 545 139 137 144 153 572

Global SupplyGlobal Mined Production 116 133 133 143 525 135 159 152 154 599 143 152 148 158 601Conversion Losses to Oxide (1.5%) -2 -2 -2 -2 -8 -2 -2 -2 -2 -9 -2 -2 -2 -2 -9Recovery from Catalysts 1 1 1 1 4 1 1 1 1 4 1 1 1 1 4Total Global Supply 115 132 132 142 521 134 157 151 153 594 142 151 147 157 596

Market Balance -14 -6 2 10 -9 -9 20 20 18 49 3 14 3 4 24

Price Forecast - European MarketFerro-Molybdenum ($/kg) 38.56 41.19 39.31 40.00 39.77 43.43 40.26 36.64 33.00 38.33 34.78 33.47 33.00 33.50 34.38Molybdic Oxide ($/lb) 16.15 16.43 15.14 15.88 15.90 17.42 16.70 14.62 13.41 15.54 14.26 14.10 13.50 15.00 14.21

Source: Metal Bulletin ResearchNote: We have revised our historical molybdenum consumption and production figures to reflect improved data



Market Outlook

Vanadium highlights

l Vanadium prices follow other ferro-alloy prices downwardsl Slowing steel output growth will help to rebalance the marketl A revival in Chinese construction demand will boost prices

Vanadium prices eased through July owing to weak downstream demand and no disruptions to supply. After trading lower through June, down from $25.85/kg at the start of the month to $25.53/kg, prices have stooped lower and sales have been made in July below the $25.00/kg level in Europe for 70-80% ferro-vanadium. This 3.7% fall

is not as pronounced as seen in the US spot market. The weakening US market, where a slowdown in manufacturing activity is evident, saw prices decline 7.7% from $34.17/kg ($15.50/lb) to $31.53/kg ($14.30/lb). This has reduced the premium of US material to just $6.33/kg.

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Floor Space Started: Commercial Y-o-Y

Chinese Commercial Construction Growth Chinese construction declined sharply in recent months,

but a recovery aided by stimulus measures will push

vanadium demand higher


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European ferro-vanadium (70-80%) prices, $/lb The price declines that started in May continued through

July


Vanadium prices declining, but producer margins still protected

Chinese expansionary policies benefitting the construction sector should help boost vanadium demand

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Production cuts unlikely as costs are not yet under threatVanadium producers are likely to be able to avoid production cuts with current prices for 70-80%% V basis material $25-30/kg in Europe and the USA. With around 80% of vanadium production sourced from vanadium-bearing ores, production costs are relatively small at just $15-20/kg V if produced from vanadium slag while the cost of production from primary ore is slightly higher at $20-25/kg V. With around 70% of vanadium oxide supply sourced from vanadium slag, the slowdown in growth of global steel production will have a knock-on effect on vanadium supply, but MBR expects prices to slide further until the market is rebalanced with slowing demand levels.

Continued expansionary policies will promote demandWe mentioned last month that China is determined to boost demand in its economy. With second-quarter GDP growth numbers showing growth of 7.6%, down from 8.1% in the first quarter of the year, there is a chance of further expansionary policies in addition to the cutting of interest rates and bank deposit ratios.

These will help boost the ailing construction industry and thus vanadium prices as demand will be aided by the need for grade 3 rebar to be used in new construction projects. It is thought that if all rebar in China were produced to Grade 3 standard using vanadium, the total demand for vanadium would increase by 27,000 tpy. With steel production slowing and buyers withdrawing from the market, however, spot prices could fall further before they reverse their recent downward trend.

Ferro-Alloys Market Tracker / Issue 239 / 19 July 2012

Published monthly by Metal Bulletin LtdISSN 0967-8204Produced by: Amy Bennett, Colum Staunton

Metal Bulletin Research Nestor House, Playhouse Yard London EC4V 5EXTel: +44 20 7827 6488Fax: +44 20 7827 6430

Subscription enquiries:Tel: +44 20 7779 7999 Email: [email protected]

Other MBR reports available include:

l Steel Raw Material: Weekly Market Trackerl Stainless Steels Market Trackerl Coated Steels Market Trackerl Welded Steel Tube and Pipe Market Trackerl Seamless Steel Tube and Pipe Market Trackerl Base Metals Market Trackerl Steel: Weekly Market Tracker

To receive a free sample of any one of the above reports, email your details to: [email protected] document is for information purposes

only. The information contained in this document has been compiled from sources believed to be reliable. Whilst every effort has been made to ensure that the information is correct and that the views are sound, Metal Bulletin Ltd cannot be made liable for any loss no matter how it may arise.

Copyright Notice: © Metal Bulletin Ltd 2012. All rights reserved. No part of this publication (text, data or graphic) may be reproduced, stored in a data retrieval system, or transmitted, in any form whatsoever or by any means (electronic, mechanical, photocopying, recording

or otherwise) without obtaining Metal Bulletin Ltd’s prior written consent. Unauthorised and/or unlicensed copying of any part of this publication is in violation of copyright law. Violators may be subject to legal proceedings and liable for substantial monetary damages per infringement as well as costs and legal fees. For information about copyright licenses please contact Simon Gates on COPYWATCH in the UK on +44 (0) 20 7827 6481. Brief extracts may be used for the purposes of publishing commentary or review only provided that the source is acknowledged.

Source: IISI, Metal Bulletin ResearchSource: Metal Bulletin Research


Unit 2011 2012 Q1 2012 Q2e Apr-12 May-12 Jun-12JapanIndustrial Production YoY % -2.3 3.4 5.3 12.9 3.1 - Motor Vehicle Production YoY % -12.3 60.7 77.8 173.8 59.5 - CPI YoY % -0.3 0.3 0.2 0.4 0.2 - Construction: New Build Started YoY % 4.3 2.9 2.6 0.9 6.8 - ChinaIndustrial Production: MV YoY % 2.5 4.8 15.6 12.3 20.3 14.1PMI:Mfg N/A 51.4 51.5 51.3 53.3 50.4 50.2CPI YoY % 5.4 3.8 2.9 3.4 3.0 2.2FDI: ytd Construction RMB mn 325275 60539 187086 83411 127943 187086USAIndustrial Production YoY % 4.1 4.4 4.7 5.0 4.4 4.7Automobile Production YoY % 9 46.5 38.9 59.7 56.9 - Inventories:Sales Ratio N/A 2.1 1.9 1.4 2.0 2.3 - Private Housing Starts YoY % 5.2 24.7 20.8 35.9 26.5 - CPI YoY % 3.1 2.8 1.9 2.3 1.7 1.7ISM: Manufacturing PMI N/A 55.2 53.3 52.7 54.8 53.5 49.7EUIndustrial Production YoY % 3.4 -1.3 -1.4 -1.9 -2.3 - Construction Production YoY % 1.1 -3.6 -1.9 -5.6 - - CPI YoY % 2.7 2.7 2.4 2.5 2.4 2.3BrazilIndustrial Production YoY % 0.4 -3.5 -3.0 -3.4 -5.7 - Mfg: Capacity Utilisation (SA) % 82.2 81.9 53.9 81.0 80.7 - CPI YoY % 6.6 5.8 5.0 5.1 5.0 4.9RussiaIndustrial Production YoY % 4.8 4.0 2.2 1.2 3.6 1.9Fixed Capital Investment YoY % 15.8 24.4 10.3 15.7 15.1 - CPI YoY % 8.5 3.9 3.8 3.6 3.6 4.3IndiaIndustrial Production YoY % 4.8 0.7 0.5 -0.9 2.4 - Industrial Production: Mining YoY % -1.7 -0.4 -1.4 -3.2 -0.9 - Motor Vehicle Production YoY % 16.7 10.9 7.6 5.8 10.5 6.5Foreign Inward Investment: Direct YoY % 122.6 108.6 -29.4 -31.5 -56.9 - WPI YoY % 9.5 7.5 7.4 7.5 7.5 7.3GermanyIndustrial Production YoY % 8.2 1.0 -0.2 -0.8 0.1 - Motor Vehicles YoY % 14.4 5.4 -0.2 1.1 -1.8 - Construction: New Builds Started Unit 2151 1757 1430 1,888 2403 - FranceIndustrial Production: excl. Construction YoY % 2.4 -1.5 -0.9 0.8 -3.5 - Construction: New Building Started Sq m Thou 2282 2020 1168 1708 1797 - United KingdomIndustrial Production YoY % -1.2 -3.0 -0.3 -1.0 - - Vehicle Production: Passenger YoY % 5.5 13.1 17.2 9.3 42.2 - Vehicle Production: Commercial YoY % -1.6 -8.4 -1.4 3.2 -7.4 - CPI YoY % 4.5 3.5 2.7 3.0 2.8 2.4ItalyIndustrial Production YoY % 0.3 -5.8 -5.4 -9.3 -6.9 - IP: Motor Vehicles, Trailers and Semi Trailers YoY % 3.1 -9.7 -6.0 -7.4 -10.7 - CanadaIndustrial Production YoY % 2.6 1.5 0.0 - - - PMI % 59.3 62.2 57.9 52.2 66.3 55.3TurkeyIndustrial Production YoY % 9.2 2.8 2.5 1.5 5.9 - Motor Vehicle Production YoY % 9.4 -6.2 -8.4 -14.6 1.7 -12.2CPI YoY % 6.5 10.5 9.4 11.1 8.3 8.9MexicoIndustrial Production YoY % 4.0 3.1 1.9 4.0 1.8 - Motor Vehicle Production YoY % 13.0 7.3 7.0 23.1 -2.0 - Construction Output MXN mn 15987 16164 5454 16363 - - South KoreaIndustrial Production YoY % 7.0 4.3 0.9 0.0 2.6 - Motor Vehicle Production YoY % 9.3 11.3 -1.2 0.1 -0.1 -3.6Buildings Commenced YoY % 5.7 11.3 -0.8 -7.1 4.7 -

Sources: CEIC. Notes: SA: seasonally adjusted, CPI: Consumer price index, PMI: Purchasing Managers Index, FCI: Fixed Capital Investment. e denotes a quarter-to-date value

Selected Demand Indicators

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Foreign Exchange

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European HC ferro-manganese price vs global steel production (% change y-o-y)


Historical and forecast global steel production growth rates (% change y-o-y)

Q3 11 Q4 11 Q1 12 Q2 12('m tonnes) 375 358 361 384(chg yoy) 11% 3% -1% 0%

USA

Europe

Asia

Global crude steel production rose a mere 0.8% year-on-year in the first five months of

2012. Slower growth in crude steel production reflects economic uncertainties in Europe

as well as slower growth in China. We expect to see production post further declines in

the third quarter as the northern-hemisphere summer shutdowns are extended.

European steelmakers are slashing production in the face of economic uncertainty and falling steel prices.

US crude steel production rose an impressive 9.2% year-on-year in the first five months of 2012.

Over-supply is dampening steel prices, however, and mills are beginning to reduce utilisation rates.

Chinese crude steel output rose just 2.2% year-on-year in the first five months of 2012. Action by the Chinese government to spur economic growth will likely lead to higher output in the latter half of the year.

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