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PR Newswire
17-04-2012, 03:41 PM
Omh is a big venture that is highly lucrative if there is no intervention from the government. To start off, the main purpose of manganese is as part of a raw material required in the steelmaking process where iron is turn into steel. Thus, demand for it is driven by demand for steel (94% of manganese are used for this purpose). 8-10 kg of manganese is required for every single ton of steel produced. Steel is used in the production of infrastructure and some other goods like automobile, which means that it is highly reliant on the economic condition. Other than steel, it is also used dry cell batteries and aluminum can.
For the supply side, big companies like BHP and Samancor have been cutting down on the production as the selling price is currently lower than the production cost. China has always been the largest supplier of manganese metal but the problem lies in that China’s ore are of a lousier grade. The trend continues that china’s manganese grade is dropping by 0.5% per year after having dropped 30% since 2002. High grade manganese ore are need in the production of refined Ferro manganese (1 of 3 grades of ferro manganese). One interesting thing regarding manganese is that, unlike other metals there is no economical way to recycle it from scrap metal which means this is a finite metal resources though there is still plenty of reserve around the world.
For manganese to be added to the steel-making process, it has to be turned into ferroalloy. During the production process, 40% of the cost lies in the manganese ore while another 25% lies in the electricity. This is why this Sarawak project can be so lucrative. They are promised 500 MW of competitively priced electricity for 20 years as well 5 years of tax holiday without any import or export taxes. This will make them the lowest cost producer of ferro manganese globally where many others are suffering from electrical and trade tariff. China, the largest producer of manganese imposed a 20% export tariff as it seeks to control outflow of natural resources as part of its energy and resources security policy. Other than this, half of the smelting production will be dedicated to ferro silicon where the electricity cost is as high as 45% of the production cost.
I believe that this is the competitive advantage that FF Wong sees in OMH which is its ability to be the lowest cost producer of ferro manganese and silicon in a commoditized business. Being a vertically integrated producer, it will be able to keep the cost of manganese ore (40% of production cost) low while enjoying low electricity cost (25% of production cost) at the same time. And while production will start in 2015, it has already signed a contract with JFE Shoji Trade Corporation to provide them with 100,000 tonnes of ferro silicon annually (total production of the plant is 600,000 tonnes pa).
The only caveat is that no one can be assured that environmental or nationalistic issue will not destroy the deal. This is part of the SCORE project where they are making use of the comparative advantage of Sarawak with its 28000 MW renewable supply of energy. Risk is mitigated by the fact that there are 2 other aluminum smelter plants and that it is stationed in an industrial park far away from the urban area. Singapore is a 710 square km piece of land with a population of 5m people. Sarawak is a 124,450 square km piece of land (175 x of Singapore) with 2.31 million people. Thus, even if it were to conduct pollutive activity in a land size of 50x Singapore, there will still be sufficient safe land for the purpose of accommodation.
For manganese price to resume its uptrend, global steel production needs to ramp up though supply has already begun to cut. Prices seemed to have bottomed due to the ability of the mining companies to cut production as a result of a highly concentrated industry.
(vested)
For the supply side, big companies like BHP and Samancor have been cutting down on the production as the selling price is currently lower than the production cost. China has always been the largest supplier of manganese metal but the problem lies in that China’s ore are of a lousier grade. The trend continues that china’s manganese grade is dropping by 0.5% per year after having dropped 30% since 2002. High grade manganese ore are need in the production of refined Ferro manganese (1 of 3 grades of ferro manganese). One interesting thing regarding manganese is that, unlike other metals there is no economical way to recycle it from scrap metal which means this is a finite metal resources though there is still plenty of reserve around the world.
For manganese to be added to the steel-making process, it has to be turned into ferroalloy. During the production process, 40% of the cost lies in the manganese ore while another 25% lies in the electricity. This is why this Sarawak project can be so lucrative. They are promised 500 MW of competitively priced electricity for 20 years as well 5 years of tax holiday without any import or export taxes. This will make them the lowest cost producer of ferro manganese globally where many others are suffering from electrical and trade tariff. China, the largest producer of manganese imposed a 20% export tariff as it seeks to control outflow of natural resources as part of its energy and resources security policy. Other than this, half of the smelting production will be dedicated to ferro silicon where the electricity cost is as high as 45% of the production cost.
I believe that this is the competitive advantage that FF Wong sees in OMH which is its ability to be the lowest cost producer of ferro manganese and silicon in a commoditized business. Being a vertically integrated producer, it will be able to keep the cost of manganese ore (40% of production cost) low while enjoying low electricity cost (25% of production cost) at the same time. And while production will start in 2015, it has already signed a contract with JFE Shoji Trade Corporation to provide them with 100,000 tonnes of ferro silicon annually (total production of the plant is 600,000 tonnes pa).
The only caveat is that no one can be assured that environmental or nationalistic issue will not destroy the deal. This is part of the SCORE project where they are making use of the comparative advantage of Sarawak with its 28000 MW renewable supply of energy. Risk is mitigated by the fact that there are 2 other aluminum smelter plants and that it is stationed in an industrial park far away from the urban area. Singapore is a 710 square km piece of land with a population of 5m people. Sarawak is a 124,450 square km piece of land (175 x of Singapore) with 2.31 million people. Thus, even if it were to conduct pollutive activity in a land size of 50x Singapore, there will still be sufficient safe land for the purpose of accommodation.
For manganese price to resume its uptrend, global steel production needs to ramp up though supply has already begun to cut. Prices seemed to have bottomed due to the ability of the mining companies to cut production as a result of a highly concentrated industry.
(vested)