HIGH-GRADE NI-CU-PT-PD-ZN-CR-AU-V-TI DISCOVERIES IN THE "RING OF FIRE"
NI 43-101 Update (September 2012): 11.1 Mt @ 1.68% Ni, 0.87% Cu, 0.89 gpt Pt and 3.09 gpt Pd and 0.18 gpt Au (Proven & Probable Reserves) / 8.9 Mt @ 1.10% Ni, 1.14% Cu, 1.16 gpt Pt and 3.49 gpt Pd and 0.30 gpt Au (Inferred Resource)
Message: Xstrata/Glencore Merger And Low Profitability Of Chrome Business
| Xstrata/Glencore Merger And Low Profitability Of Chrome Business |
| = How can the chrome business survive in the combined company? = |
| The world's fourth largest resource company will be born. Xstrata and Glencore agreed to merge during the second half of 2012. The combined company, under the name of Glencore, will be the fourth largest after BHP-Billiton, Rio Tinto and Vale. Xstrata has been in chrome business as one of the main line of its business since it was born, while it expanded as it grew to other natural resource business like coal, nickel and zinc. When it purchased Falconbridge, a Canadian company, nickel joined Xstrata's business lineup. With regard to chrome business, Xstrata holds an internationally large share, owning many facilities in South Africa, i.e. 5 chrome mines with an annual run-of-mine output of 5.30 million tons, and 20 ferrochrome furnaces with an annual ferrochrome production of 1.97 million tons. In addition, a new capacity of annually 360,000 tons of ferrochrome, the second phase of Lion project, will come on stream during the first half of 2013. The overall production capacity of ferrochrome in South Africa is 4.0 million tons per annum, so Xstrata currently holds almost a half of it. As to the Lion project phase II, although current tight power supply situation in South Africa restricts construction of new facilities of high power consumption (as a matter of fact, the parastatal power company, ESKOM intends not to supply power to new facilities before 2015, and ferrochrome furnaces consume a lot of power), Xstrata had already secured supply of enough power from ESKOM for the new plant, but at the same time there is a plan that an in-house power generator is constructed at the new plant for just in case. Xstrata's ferrochrome production is the most cost competitive operation in the world, rivaling ENRC's in Kazakhstan, but due to the depressed demand for chrome brought from 2011, Xstrata's chrome operation is probably not so profitable, maybe close to breakeven, as its other business divisions have been. The low profitability of chrome business in 2011 must have been a headache even for Xstrata, the No. 1 in market share and competitiveness. Despite the very fast growth of Chinese stainless steel production and the increased consumption of ferrochrome, its prices in China started declining in the second half of 2011, and the benchmark prices for Europe slid correspondingly to US‘115 in the Q1 (January – March) of 2012, compared to US‘125 in the same quarter of 2011. As to marketing of ferrochrome by the new company, there will be basically no change, because Xstrata's ferrochrome has been marketed by Glencore as an agent for a long time. It is certain that demand for ferrochrome will increase as stainless steel production grows, but the arena is in China. World's crude stainless steel production in 2011 was, partly by estimate, 34.0 million tons, of which 15.0 million tons (44% of the world) was produced in China, up by about 15% from its production in 2010. The benchmark system was introduced in order to pursue maximum sustainability of ferrochrome producers by setting up a price on producer/consumer agreement; however, the system has been rather often destabilized by the fast growth of China, now as a very big consumer. In several local markets, the benchmark seems to have already lost its original importance. Until recently, in Europe, Japan and Korea, to which Xstrata was selling its ferrochrome in a large volume, the benchmark system was working, but the stainless steel mills in those market have been, due to the depressed demand, obliged to substantially cut output and undergoing structural changes by, for example, consolidation in order to solve the overcapacity problem. China, based on the big stomach of having consumed as much as more than 4.0 million tons of ferrochrome in 2011, has a good reason to eventually lead the world with the price of ferrochrome, but the problem of such situation is that the price-setting process in China is a bit too simple, by supply and demand only, and, unfortunately China is basically a buyers' market, as there are many ferrochrome producers of all sizes in China. China has another big stomach for chrome ore from abroad. It is forecasted that China will need to import more than 10 million tons of ore annually as it imported 9.44 million tons already in 2011. Some market watchers say it will become difficult some day in the near future for China to constantly import chrome ores of such a big quantity, while some others say the country can continue imports without difficulty of whatever quantity it may need for at least the coming 5 – 10 year, as the sources of the ores are rather diversified. The ferrochrome producers in China, reportedly cost competitive, were compelled to cut output as the price dipped below the breakeven point in the Q4 (October – December) of 2011. However, now that China has more or less free hand in the ferrochrome market as the by far big consumer, it is the ferrochrome producers in the western world who must stay vigilant on the prices which may more easily and more widely fluctuate in 2012. How can the chrome business of low profitability in the new Glencore survive the difficult situation? |
| last modified : Wed 15 Feb, 2012 [11:55] |
http://www.texreport.co.jp/xenglish/eng-genryou/201202/201202101042Fri-4.html
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