South Africa’s position in the

global ferroalloy industry

Kevin Fowkes

Ferroalloy Industry ConsultantFerroalloy Industry Consultantwww.kevinfowkes.com

29th September, 2010

PRETORIAJOHANNESBURG

South Africa has an extensive industry for both

mining and smelting ferroalloy products

Eastern

Chrome Belt

Western

Chrome Belt

Manganese mining

Chrome mining

FeCr smelting

Mn alloy smelting

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DURBAN

CAPETOWN

Richards Bay

Port Elizabeth /

Coega

Kalahari

Manganese

Fields

Mn alloy smelting

FeSi smelting

Si-metal smelting

South Africa as a percentage of global output, 2008-10

South Africa is a leading player in the Cr and Mn

sectors, but only a minor player in Si and FeSi

Cr ore

FeCr 38 – 42%

35 – 39%

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Si metal

FeSi

Mn ore

Mn alloys

2008

2009

2010e

4 – 8%

18 – 25%

1%

3%

Global ranking of top-70 ferroalloy companies by ferroalloy revenues

(estimate for financial year ending 2010)

South Africa’s ferroalloy production is

dominated by major industry players

BH

P B

illi

ton

3

Company with ferroalloy

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BH

P B

illi

ton

Xst

rata

Sin

ost

eel

Fer

roat

lanti

ca

Ass

man

g /

AR

MS

aman

cor

Chro

me

UM

K /

Tra

nsa

lloys

Her

nic

Tat

a S

teel

Inte

rnat

ional

Fer

ro M

etal

sR

uukki

0

bil

lio

n U

S$

Company with ferroalloy

production in South Africa

South African consumption vs exports of Cr and Mn products*

South Africa’s ferroalloy production is currently

export-focussed, with the exception of chrome ore

98% 38% 91% 76%

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FeCr Cr ore Mn alloys Mn ore

Exported

Consumed in South Africa

* estimated data for 2010

Present and future power availability is a major

constraint for South African ferroalloy producers

• Over the past decade, economic growth and development programmes have

significantly increased South Africa’s electricity consumption

• Generation capacity has not increased in line with demand, and the country

has reached the limit of its effective generation capacity

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• The ferroalloys industry has been hit by immediate limits on its power

consumption

• Power availability will remain constrained at least for the next 5-10 years,

making expansion of ferroalloy smelting in South Africa difficult

• Tight power availability has resulted in steep tariff increases. Tariffs are

expected to continue rising at 20-40% per year in the next 5 years

Average power price for South African ferroalloy plants:

Power tariffs for South African ferroalloy plants are

projected to more than double in the next 5 years...

100

120

140

MW

h

www.kevinfowkes.com

0

20

40

60

80

2006 2007 2008 2009 2010 2015 projection

US

$ p

er M

Wh

Global ranking of power tariffs in major ferroalloy producing countries:

... possibly causing South African power prices to

rank amongst the highest in the industry

2010

2015?

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S.A

fric

a2010

Range of electricity consumption per tonne

of ferroalloy produced, South African plants:

Of the electricity used in South African

ferroalloy output, 75% is used to produce FeCr

Charge FeCrAvg 3700

HC FeMn1800 GWh

1200 GWh

1400 GWh

SiMn

Si / FeSi

Annual South African electricity

consumption per ferroalloy:

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2000 3000 4000 5000

SiMn

HC FeMn

kWh per tonne

Avg 2900

Avg 4300

FeCr13000 GWh

HC FeMn

Technology continues to reduce unit power consumption

in FeCr smelting. Conversions to FeMn possible

• Power consumption per tonne of FeCr produced in South Africa ranges from

2,400kWh/tonne to 4,200kWh/tonne

• The wide range reflects technology differences across plants

- eg. pelletising, pre-heating, pre-reduction

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• FeCr producers will continue to increase their use of these technologies to

reduce unit power consumption and enable increased use of UG2 ore

• Power constraints may also cause producers to switch from FeCr to less

electricity-intensive alloys (HC FeMn). Integrated South African production

is relatively lower cost for HC FeMn compared with FeCr. Assmang has

converted furnaces in 2010

South African FeCr producers are

increasing their use of UG2 ore

• South African FeCr smelters have become increasingly able to use cheap and

plentiful UG2 fines (by products from the platinum industry)

• This reflects more widespread installation of pelletising plants and a move

towards installing DC furnaces

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• Low Cr2O3 content of UG2 fines lowers content of FeCr. High percentage of

UG2 in ore mix can lower Cr content of FeCr below 50%. This may have

customer implications

• UG2 is more difficult and expensive to transport than higher-grade and

lumpy ores – nevertheless it is thought that UG2 is now being exported to

China

120

Global HC / charge FeCr production costs, estimated 2010:

South African FeCr production costs are now

middle-ranking on a global comparison...

Company with FeCr

production in South Africa

0

60

www.kevinfowkes.com

US

cen

ts p

er l

b

2000

Global HC FeMn production costs, estimated 2010:

... whilst South African HC FeMn production costs

remain amongst the lowest in the world

Company with HC FeMn

production in South Africa

0

1000

www.kevinfowkes.com

US

$ p

er t

on

ne

Percentage of world reserves in South Africa:

The world will need more units of chromium and

manganese to be mined in South Africa

37%

As much as 70-80% of

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24%

Cr Mn

Source: USGS

As much as 70-80% of

world RESOURCES of

these ores are thought to

be in South Africa

Chinese chrome ore imports by source:

South Africa now accounts for nearly half

of Chinese chrome ore imports...

5

6

7

8

Other

mil

lio

n t

on

nes

www.kevinfowkes.com

0

1

2

3

4

5

2004 2005 2006 2007 2008 2009

Other

Oman

Kazakhstan

India

Turkey

South Africa

mil

lio

n t

on

nes

Chinese manganese ore imports by source:

... and for around 25% of Chinese

manganese ore imports

4

5

Other

mil

lio

n t

on

nes

co

nta

ined

Mn

www.kevinfowkes.com

0

1

2

3

2004 2005 2006 2007 2008 2009

Other

Myanmar

Brazil

Gabon

Australia

South Africamil

lio

n t

on

nes

co

nta

ined

PRETORIA

JOHANNESBURG

Manganese ore exports from South Africa are

constrained by rail and port capacity

Kalahari

Manganese

Eastern

Chrome Belt

Western

Chrome Belt

JOHANNESBURG

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DURBAN

CAPETOWN

Richards Bay

Port Elizabeth /

Coega

Manganese

Fields

Rail capacity

constraints

Port capacity

constraints

Manganese ore exports from South Africa are

constrained by rail and port capacity

• Manganese ore for export from the Kalahari mines travels to Port Elizabeth

down a rail line that is at full capacity

• The manganese export terminal at the port is also capacity constrained

• Short term, this is already leading to rationing of rail paths between

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• Short term, this is already leading to rationing of rail paths between

producers, with pressure from new mines coming on-stream

• Long term, both rail and port capacity will have to be expanded to enable

South Africa to meet growth in world demand for manganese ore

• Trucking to port is an option, but only borderline viable at current prices, and

not good for road congestion nor the environment

In conclusion...

• South Africa is a leading player in the global ferroalloy industry, especially in

the chrome and manganese sectors

• South Africa will need to be an even bigger player in these sectors in the

future, given its large percentage of world mine resources

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• Power availability will be a significant constraint in terms of smelting

ferroalloys in South Africa in the next decade

• Rail and port capacity bottlenecks will continue to limit exports of

manganese ore without significant infrastructure investment

• Potential political objections to export of both chrome and manganese ores

• Heavy use of UG2 fines is a cost benefit but may have customer implications

Thank you for your attention today

Check out my website for independent ferroalloy market information and consultingwww.kevinfowkes.com

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