Key Trends In The Global Chrome Industry

23 May 201023 May 2010 Prabhash Gokarn, Tata Steel LtdPrabhash Gokarn, Tata Steel Ltd 11

23 May 2010Prabhash GokarnPrabhash Gokarn


Trend #1Trend #1Shift in production base of Shift in production base of stainless steelstainless steel


SS production 2000SS production 2000

Europe, 42%

Japan, 18%

India, 4%

USA, 12%

Korea, 8%

China, 3%

Europe

China

Japan

India

USA

Korea

Source Chromenet & MBR


SS Production 2009SS Production 2009

Europe, 24%USA, 6%

China, 35%

Japan, 8%

India, 12%

Korea, 7%

Europe

China

Japan

India

USA

Korea

Source Chromenet & MBR


•• Key driver of the chrome world is the Stainless Steel industry. During Key driver of the chrome world is the Stainless Steel industry. During

the start of this decade(2000 AD), SS production was dominated by the start of this decade(2000 AD), SS production was dominated by

Europe followed closely by Japan. Europe followed closely by Japan.

•• However, at the end of this decade Stainless Steel production is However, at the end of this decade Stainless Steel production is

witnessing a major change worldwitnessing a major change world--wide. wide.

•• Europe and Japan have shrunk significantly while China and India Europe and Japan have shrunk significantly while China and India

have demonstrated a significant jump in Stainless Steel production. have demonstrated a significant jump in Stainless Steel production.

•• China today has the largest share of production of SS and therefore China today has the largest share of production of SS and therefore

the most attractive market for all the most attractive market for all ferroferro chrome producers worldchrome producers world--wide. wide.

Shift in production base of stainless steelShift in production base of stainless steel


Trend #2Trend #2

Shift in production base of Shift in production base of Chrome AlloysChrome Alloys


Ferro Alloys In The 1990s’Ferro Alloys In The 1990s’ Before 2000 AD Cr Alloy production was located in regions close to Before 2000 AD Cr Alloy production was located in regions close to

the SS production centre (Japan, Europe)the SS production centre (Japan, Europe)

Apart from Apart from OutokompuOutokompu in Europe which is fully integrated right from in Europe which is fully integrated right from

Chrome production to SS, SS producers have depended on long term Chrome production to SS, SS producers have depended on long term

tietie--ups with the ups with the FeCrFeCr producers in different countries, to source their producers in different countries, to source their

requirement.requirement.

SA is the leading producer of Charge Chrome and controls nearly 40SA is the leading producer of Charge Chrome and controls nearly 40--

45% of the total production of 45% of the total production of FeCrFeCr. Kazakh, China, India, Zimbabwe . Kazakh, China, India, Zimbabwe

complete the tally of being the other notable complete the tally of being the other notable FeCrFeCr producers of the producers of the

worldworld

Chinese Chinese FeCrFeCr production has increased to become the world’s 2production has increased to become the world’s 2ndnd

largest largest FeCrFeCr producer, thus keeping in sync with their strategy to producer, thus keeping in sync with their strategy to

become self dependent on become self dependent on FeCrFeCr productionproduction


The Big 3 : SA, Kazakh, India The Big 3 : SA, Kazakh, India

SA and Kazakh with the world’s biggest reserves of chrome ore is SA and Kazakh with the world’s biggest reserves of chrome ore is

struggling to maintain its supremacy in struggling to maintain its supremacy in FeCrFeCr production. production. FeCrFeCr

production in SA is clearly affected by the problems of power. production in SA is clearly affected by the problems of power.

Despite producing almost half the world’s Ferro chrome, its real Despite producing almost half the world’s Ferro chrome, its real

growth has only been 12% during the current decadegrowth has only been 12% during the current decade

Kazakhstan is probably feeling threatened because it exports Kazakhstan is probably feeling threatened because it exports

almost 40% of its material to China. Hence it is trying to invest into almost 40% of its material to China. Hence it is trying to invest into

South African reserves and grow in strengthSouth African reserves and grow in strength

Indian story has been quite significant in this context. With Indian story has been quite significant in this context. With

government support by way of restriction of chrome ore exports government support by way of restriction of chrome ore exports

and captive power plants to reduce its dependence on power, the and captive power plants to reduce its dependence on power, the

Indian Indian ferroferro--chrome production has increased by a huge 98% chrome production has increased by a huge 98%

during the current decade. during the current decade.


Share of Share of Cr Alloy Production Cr Alloy Production 15%

12%

11%

9%

10%

12%

11%

10%

9%

3%3%

2%

4%

5%

6%

8% 10

% 12

%

15

%

15

%

19

%

31

%

7%

7%

8%

9% 1

0% 1

2%

12

%

11

% 12

%

12

%

47

%

48

%

48

%

49

% 46

% 41

%

39

%

43

% 41

%

47

%

12%

14%

15%

15%

15%

16%

16%

15%

14%

19%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Europe Japan China India SA Kazakh

Source Chrome net Q2 2009


IndiaIndia--A A FeCrFeCr Production PowerProduction Power--househouse??

Significant rise in its GDP growth and increased Significant rise in its GDP growth and increased prosperity prosperity

The SS production has increased keeping in step The SS production has increased keeping in step with the growing demand and need for SS with the growing demand and need for SS products in India.products in India.

AsiaAsia-- the nerve centre for SS production. India the nerve centre for SS production. India wellwell--placed to grab this advantage. placed to grab this advantage.

Indian govt’s policy of restricting exports of Indian govt’s policy of restricting exports of chrome ore has provided the right business chrome ore has provided the right business environment for environment for FeCrFeCr producers.producers.


Trend #3Trend #3

Overall Cost Of Power Overall Cost Of Power Increasing Increasing -- Power Power Differentials fallingDifferentials falling


Cost of PowerCost of Power

5

6 67

8 8 8 8.8 99

1112

1316

0

2

4

6

8

10

12

14

16

SA

Can

ada

Au

stra

lia

Ch

ina

Fra

nce

Fin

lan

d

Sw

eden

Ind

ia

Bel

giu

m

US

A

UK

Sp

ain

Ger

man

y

Ital

y

SA Canada Australia China France

Finland Sweden India Belgium USA

UK Spain Germany Italy

ESKOM prestn MBR HK conf Mar 2010


Overall Cost Of Power Increasing Overall Cost Of Power Increasing -- Power Power Differentials fallingDifferentials falling

Power is the 2Power is the 2ndnd most important requirement most important requirement for for FeCrFeCr production. production.

India is still at a disadvantage compared to the India is still at a disadvantage compared to the power cost in SA and Kazakhstan.power cost in SA and Kazakhstan.

However, the gap between cost of power in SA However, the gap between cost of power in SA and India has clearly reduced bridging the gap and India has clearly reduced bridging the gap between production costs and making between production costs and making FeCrFeCrproduction in India very much sustainable. production in India very much sustainable.


Trend #4Trend #4

Decreasing Export Of Decreasing Export Of Ore/Concentrate Ore/Concentrate ––Increase in Export of Ferro Increase in Export of Ferro Chrome from India to Chrome from India to ChinaChina


Indian chrome Indian chrome mktmkt share in Chinashare in China

64% 74%

74%

62%

32%

13%

32%

28%

31%

21%

16%

13% 8

%

8%

6%

12%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Ore/conc mkt share FeCr mkt share


Exports To China : Exports To China : Shift From Indian Cr Ore to Shift From Indian Cr Ore to FeCrFeCr

Over the years India has been highly dependent on the Chinese Over the years India has been highly dependent on the Chinese

market for export of its ore/concentrate. market for export of its ore/concentrate.

During the start of the decade, Indian ore/concentrate enjoyed a During the start of the decade, Indian ore/concentrate enjoyed a

high high mktmkt share in China. However, over the years, it has witnessed a share in China. However, over the years, it has witnessed a

fall owing to issues of availability and thus the need for Chinese to fall owing to issues of availability and thus the need for Chinese to

look at alternative markets elsewhere in the world. look at alternative markets elsewhere in the world.

The shift from chrome ore to Ferro chrome exports from India is The shift from chrome ore to Ferro chrome exports from India is

obvious and one can see the Indian obvious and one can see the Indian ferroferro chrome having a higher chrome having a higher

market share and a more desirable commodity in the Chinese market share and a more desirable commodity in the Chinese

market in recent times. market in recent times.

From zero imports in 2003, the Indian Ferro chrome quickly notched From zero imports in 2003, the Indian Ferro chrome quickly notched

up double digit figures in up double digit figures in mktmkt share in China.share in China.


Trend #5Trend #5

Has India permanently lost Has India permanently lost ground in China?ground in China?


Indian CrIndian Cr22OO33 unit Market Share unit Market Share in Chinain China

12%8%

64%

74%

65%

54%

27% 31% 29%

15%

0%

10%

20%

30%

40%

50%

60%

70%

80%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

??


If one converts both If one converts both FeCrFeCr/Charge Chrome and Chrome Ore/Concentrate /Charge Chrome and Chrome Ore/Concentrate

into Chrome Unit Equivalents, there has been a significant drop in into Chrome Unit Equivalents, there has been a significant drop in

India’s share till 2008India’s share till 2008

Is the slight increase in Indian market share in Chrome Unit Equivalents Is the slight increase in Indian market share in Chrome Unit Equivalents

in China in 2009 an early indicator of an increasing trend ?in China in 2009 an early indicator of an increasing trend ?

Indian Ferro chrome is a more desirable commodity in the Chinese Indian Ferro chrome is a more desirable commodity in the Chinese

market. market.

Indian Ferro chrome has, to a small extent, has begun to win back a part Indian Ferro chrome has, to a small extent, has begun to win back a part

of the lost territory, which otherwise might have been eaten up by the of the lost territory, which otherwise might have been eaten up by the

Kazakh and South African suppliers. Kazakh and South African suppliers.

Whether the increase in share in 2009 is sustainable is debatable.Whether the increase in share in 2009 is sustainable is debatable.

Indian CrIndian Cr22OO33 units units mktmkt share in Chinashare in China


Trend #6Trend #6

Is India becoming less Is India becoming less China dependent ?China dependent ?


India’s India’s FeCrFeCr ExportsExports--DestinationsDestinations

0

16% 3

3%

31% 48

%

20%24%

26%

24%19%

17%

21%

51%

30%

24%

26% 19%

23%

22% 19%10% 14% 12%

20%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2003 2004 2005 2006 2007 2008

ChinaChina JapanJapan KoreaKorea EuropeEurope


Is India becoming less China dependent ?Is India becoming less China dependent ?

India continues to play the role of a spot producer with its fortunes being India continues to play the role of a spot producer with its fortunes being

tied to the development of SS business worldwide. Thus it cannot ignore tied to the development of SS business worldwide. Thus it cannot ignore

China.China.

Japan/Korea in the past were major destinations for India, when they Japan/Korea in the past were major destinations for India, when they

were the big boys of SS production in Asia. were the big boys of SS production in Asia.

With the increase in China’s requirement for With the increase in China’s requirement for FeCrFeCr, Indian exports to , Indian exports to

China increased significantly, almost reaching to a stage when 50% of China increased significantly, almost reaching to a stage when 50% of

its exports were being made to China. its exports were being made to China.


Is India becoming less China dependent ?Is India becoming less China dependent ?

In 2008, when the market took a dip, China became a keenly contested In 2008, when the market took a dip, China became a keenly contested

destination for all the destination for all the FeCrFeCr producers, India was unable to retain its producers, India was unable to retain its

market share. market share.

Perhaps Indian Perhaps Indian ferroferro chrome producers have shifted their tonnage to chrome producers have shifted their tonnage to

other destinations as well, thereby spreading the risk. other destinations as well, thereby spreading the risk.

This has helped Indian This has helped Indian FeCrFeCr producers from being recognised as a producers from being recognised as a

stable alternative to SA and Kazakh material. stable alternative to SA and Kazakh material.

It also has provided the Indian It also has provided the Indian FeCrFeCr industry the capability to ride out industry the capability to ride out

the storm by spreading itself geographically and trying to serve the long the storm by spreading itself geographically and trying to serve the long

term customers in Korea and Japanterm customers in Korea and Japan


Trend #7Trend #7

Increase in the Ferro Increase in the Ferro Chrome Price inevitable?Chrome Price inevitable?


R² = 0.6985

0

50

100

150

200

250

FeCrFeCr Benchmark Prices in cents/lb Cr Benchmark Prices in cents/lb Cr

c/ lb

of

Cr


FeCrFeCr Price : Cyclical but Increasing Price : Cyclical but Increasing LT trend LT trend

Well known fact that the pricing of H C Well known fact that the pricing of H C FeCrFeCr is is cyclical. cyclical.

It is interesting to note is the fact that the trend It is interesting to note is the fact that the trend line is curving upwards. line is curving upwards.

After the sharp drop in prices during the peak of After the sharp drop in prices during the peak of 2007, the prices have bounced back thanks to an 2007, the prices have bounced back thanks to an increase in SS production in China.increase in SS production in China.


FeCrFeCr Price : Cyclical but Increasing LT trend Price : Cyclical but Increasing LT trend

Cost Push :Cost Push :

Overall Inflation Overall Inflation –– labour costs, transport labour costs, transport

Electricity Cost Increases Electricity Cost Increases –– South Africa, China and South Africa, China and

IndiaIndia

ReductantReductant Cost increasesCost increases

“Environmental Costs” “Environmental Costs” –– South Africa, China South Africa, China

Increased mining costs Increased mining costs –– UG, LF ores, UG, LF ores,

Demand PullDemand Pull

Rising Demand for Stainless Steel from fast growing Rising Demand for Stainless Steel from fast growing

economies economies –– India, China fuelling demand for India, China fuelling demand for FeCrFeCr

BroadbasedBroadbased demand demand –– even during a global meltdown, even during a global meltdown,

demand from China and India remained relatively demand from China and India remained relatively

strong.strong.


Uniformly High Prices ?Uniformly High Prices ?


Uniformly High Prices ?Uniformly High Prices ?

We have all projected high and rising prices for Ferro Chrome in 2010 We have all projected high and rising prices for Ferro Chrome in 2010

given the resurgence after the global economic meltdown and the given the resurgence after the global economic meltdown and the

cost push. cost push.

Held true not even for the first two month of the (Indian) financial Held true not even for the first two month of the (Indian) financial

year…year…

Chinese Government cooling its economy : reduced demand and Chinese Government cooling its economy : reduced demand and

sliding back of sliding back of ferroferro chrome prices …chrome prices …

EU problems & sharp fall in Nickel also affecting Chrome sentiments EU problems & sharp fall in Nickel also affecting Chrome sentiments


One Trend Will Never Change : One Trend Will Never Change :

Predicting The Ferro Chrome Predicting The Ferro Chrome Markets Will Remain Fraught Markets Will Remain Fraught

With Danger.With Danger.


An economist is one who An economist is one who knows tomorrow, why knows tomorrow, why what he predicted what he predicted yesterday did not yesterday did not happen today happen today

The Economist The Economist

Early 1900sEarly 1900s



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Key Trends In The Global Chrome Industry

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