While the Chinese government has committed to eliminating 80 million mt/year of steel capacity nationwide by 2017, the reduction will be gradual which will see demand for raw material ferrosilicon remain steady in 2014 as compared with 2013, a company official from China's largest ferrosilicon producer Erdos said Monday.
"A drastic cut in the steel output is unlikely," Wang Nan, the Chief Representative of Erdos Metallurgy Group Beijing told Platts in Tokyo.
Chinese steel mills consume up to 5 kg of ferrosilicon to produce 1 mt crude steel.
"The steel capacity will be adjusted down gradually towards 2017. There will be pressure from stricter environmental standards, but the reduction will be left mainly up to the market forces to take away steel facilities that underperform in times of weak economy," he added.
China's 2013 ferrosilicon production was 5 million-5.5 million mt, up 10% from 2012, outpacing the growth in steel output which was up 7.5%.
Erdos' ferrosilicon output in 2013 was 830,000 mt, up 19.9% year on year.
"Old ferrosilicon capacities totaling around 100,000 mt/year [in China] have been replaced by 100,000 mt/year of new capacities that are larger and more efficient. Ten years ago, it took around 8,500 kWh [to produce] 1 mt of [ferrosilicon], now it requires around 8,000 kWh. Also, furnace energy efficiency improved as technology of Dalian Huanri Heavy Industries and other local engineering firms allowed re-use of redundant energy generated during production," Wang said.
With more efficient plants and higher output, supply of ferrosilicon outstripped demand, leading many Chinese ferrosilicon producers to consolidate their production capacities.
"Larger producers [of 0.5 million-1 million mt/year capacity] will grow bigger while smaller producers will focus on specialized grades or special export demands," he said.
Specialized grades are typically those containing less aluminum but more barium, rare earth and other chemical content not found in standard 75%-Si ferrosilicon, or falling outside the standard size of 10-50 mm.
On its part, Erdos plans to expand through acquisitions of local competitors, in order to increase its domestic market share.
"We are looking into ferrosilicon producers affiliated with power companies, as the central government policy is to have power companies focus on power supply operations, and they may exit from ferrosilicon market," Wang said.
Erdos will also provide support to the Tianjin Ferroalloy Exchange that started ferrosilicon contract trades in January 2010, to develop a pricing benchmark for the Chinese market.
"The exchange trade is lackluster and it is hardly used to settle prices between buyers and sellers. The exchange has little meaning if only steel mills use it. We would like to encourage participation of magnesium producers in the exchange," Wang said. Around 1.2 mt of ferrosilicon is used for producing 1 mt of magnesium, Wang said. China is the world's largest producer of magnesium, producing 770,000 mt in 2013, according to China Magnesium Association data.
ERDOS CONTINUES SEEKING EXPORT TAX REDUCTION
Currently 90% of Erdos' total output is meant for the local Chinese market, while 10% is exported, Wang said.
"We have around 50% share of the export market. Previously, there were around 100 companies with export licenses, now exporters have reduced to around 10 players," Wang said.
"Due to anti-dumping duties in the European Union, Russian materials are heading to Japan and South Korea, and some Chinese material, instead of going to Japan and South Korea, are going to North and South America," he said.
Erdos exported around 50,000 mt to North and South America in the past year, said Wang.
"We have no plan for acquisitions overseas. But we will continue to ask the Chinese government to reduce the 25% export tax ... to remove a misunderstanding that ferroalloy industry is harmful for the environment," Wang said.
Ferrosilicon producers, traders and overseas market participants have maintained that the 25% export tax levied on Chinese ferrosilicon has encouraged trade of un-taxed material transported across borders.
"I believe there are two ways to combat tax evasion, by reducing tax, and [controlling] smuggling. Changes in tax policies are more effective and we will continue our lobby activities to change it," Wang said.
