Manganese Industry Outlook and Opportunities Elsabe Muller General Manager, Manganese Marketing May 2014
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Content Manganese market: review and outlook Improving industry productivity Slide 3
Ongoing demand growth for the next 10 years Global crude steel production (million tonnes) 3 000 Global manganese ore demand in alloys (million tonnes, contained Mn) 30 2 500 2.6% 1.8% 25 2.4% 1.7% 2 000 3.3% 20 3.2% 1 500 4.5% 3.6% 15 4.6% 5.5% 1 000 6.9% 10 7.2% 500 5 0 0 2000 2005 2010 2015e 2020e 2025e 2030e 2000 2005 2010 2015e 2020e 2025e 2030e China Rest of world China Rest of world x% CAGR over the 5 year period Source: BHP Billiton, World Steel Association Source: BHP Billiton, IMnI, CRU Slide 4
Manganese intensity use to stabilise Global Alloy Unit Consumption (gross kg alloy/t steel) 10.0 8.0 6.0 IMnI CRU Metal Expert SiMn Historical rise in manganese intensity use Changing steel specifications and enduse patterns over past decade. A shift to long/construction steel products in developing countries. Intensity view largely aligned amongst industry analysts until recent years. Outlook 4.0 2.0 0.0 HCFeMn Refined Global average intensity use continues to be driven by China and India. Intensity use has stabilised and is expected to decline gradually. Manganese demand growth expected to be more in proportion to steel production growth in the long term. Source: IMnI, CRU, Metal Expert Slide 5
Manganese ore import dependency to grow China ore supply and demand (kt, contained Mn) India ore supply and demand (kt, contained Mn) 12 000 Apparent consumption Inferred production 1 800 Apparent consumption Inferred production 10 000 1 600 1 400 8 000 6 000 Growing import dependency 1 200 1 000 800 Growing import dependency 4 000 600 2 000 400 200 0 2007 2008 2009 2010 2011 2012 Source: IMnI Annual Report 2012 0 2007 2008 2009 2010 2011 2012 Source: IMnI Annual Report 2012 Slide 6
Manganese reserve base and product qualities Manganese reserve base 1 (contained manganese) 1 billion tonnes 100 million tonnes 500 million tonnes (Typical product quality) Ukraine (Mid-grade) Kazakhstan (Mid-grade) China (Low-grade) Brazil (High-grade) Ghana (Low-grade) Gabon (High-grade) India (Mid-grade) South Africa (High and mid-grade) Australia (High-grade) 1. Defined by the US Geological Survey (USGS) as that part of an identified resource that meets specified minimum physical and chemical criteria related to current mining and production practices. The reserve base includes those resources that are currently economic (reserves), marginally economic (marginal reserves), and some of those that are currently subeconomic (subeconomic resources). Source: BHP Billiton analysis, Roskill 2012, USGS Slide 7
South African export capacity is a key driver in the industry Current export capacity Strong capacity growth in recent years driven by innovative export options including interim bridging capacity provided by Transnet. Saldanha Cape Town Rail Corridor Road Corridor Hotazel Port Elizabeth Metalloys Coega Future Corridor Richards Bay Durban Challenges of long distances and increasing costs and complexity. Recent export growth has outpaced incremental demand growth. Outlook The industry welcomes progress on longterm, structural solutions. Growth opportunities for all participants. Evolving trends of global ore product mix with the introduction of growing South African ore supply. Source: BHP Billiton, Transnet Company Reports Slide 8
Growth of South African export capacity will increase the share of medium-grade ore supply Proportion of supply by grade type (% of economical supply, tons of ore) South Africa rapidly expanding market share Recent growth has increased Mamatwantype ore supply. 2010 2015e 2020e 2025e 2030e Source: BHP Billiton, IMnI, CRU High grade > 40% Mn Medium grade 30-40% Mn Low grade < 30% Mn Anticipated growth mostly from mines in the Kalahari producing Mamatwan-type ore. Recent export growth has outpaced incremental demand growth. Price relativity Strong growth of a single ore type may put additional pressure on competitiveness as price relativities decline. Growth opportunities for all participants. Evolving trends of global ore product mix with the introduction of growing South African ore supply. Slide 9
Content Manganese market: review and outlook Improving industry productivity Slide 10
Increasing transparency Improving margins Increasing efficiency Working together to add value Spot sales Robust indices Focus on product quality E-documentation Slide 11
Evolution of commodity markets Commodity markets often follow a similar pattern of market evolution: 1. Shorter-term pricing periods 2. Market transparency 3. Physical trading platforms Further market development Physical trading platforms Commodity Established index BHP Billiton portfolio Crude oil Yes Energy coal Yes Copper Yes Aluminium Yes Nickel Yes Gold Yes Soybeans Yes 4. Risk management tools Index pricing Corn Yes Coffee Yes Freight Yes Iron ore Yes Benchmark pricing Short term pricing Journalistic pricing Steel (incl. scrap) Yes Metallurgical coal Evolving Manganese ore Evolving Alumina Evolving Source: BHP Billiton Slide 12
Factors feeding into ore selection Key process impacts of ore selection Ore selection is critical to competitive alloy production Environmental restrictions Tight margins Cash flow pressure Plant capabilities Ore selection Low quality ore High quality ore Ore price Ore price Productivity Productivity Electrical Power /Carbon source Electrical Power /Carbon source Process stability Process stability Alloy quality Alloy quality Environmental impact Environmental impact Asset life Asset life Blending Flexibility Blending Flexibility Slide 13
E-documentation platforms improve efficiency, security and working capital management External platforms Carriers & shipowners Banks Smelters/ Steel mills Mn ore/alloy suppliers Benefits: Improved productivity and efficiency: Transmit and track documents in real time Minimise human error Minimise administrative delays Reduce repetitive communications Decrease requirement for letters of indemnity Enhanced security: Improve authentication: e-signatures Retain control of transaction documents Optimised working capital management: Better management of credit facilities Improve predictability of cash flow BHP Billiton E-doc transaction volume for manganese (number of transactions) 350 300 250 200 150 100 50 0 CY10 CY11 CY12 CY13 Source: BHP Billiton Slide 14
Summary Long term drivers of steel demand remain intact with continued urbanisation in developing countries, although China production poised to peak and decline after 2025. Manganese demand growth remains robust, albeit at a slower pace, and will be increasingly satisfied by imports. Growth of South African export capacity key to meeting demand growth, and will increase the share of medium-grade ore supply in the long term. The manganese industry continues to face challenges that will drive us to find ways together to improve competitiveness. This will impact market-based pricing, raw material preferences and transaction channels and methods. BHP Billiton is well-placed to provide an optimal blend of medium- and high-grade ores. Through technical support, BHP Billiton can support our customers to improve their longterm competitiveness. Slide 15