Most Chinese ferrosilicon exporters are expecting two new ferrosilicon projects starting up in Sarawak in East Malaysia in the next one to two years to further crimp China's exports of the ferroalloy.

The start-ups -- both expected to be ready by the first quarter of 2014 -- will together add 370,000 mt/year of ferrosilicon to the local market.

 

"China's policies which do not encourage ferroalloy exports have already made it very hard producers to export ferrosilicon...the Malaysian smelters will further affect ferrosilicon exports from China," said an official with a northwest Gansu ferrosilicon smelter. "The situation could be similar to when India more or less stopped buying ferrosilicon from China after they started up their own ferrosilicon industry."

 

Chinese market participants expect the Malaysian smelters to aim sales within Malaysia and at its Southeast Asian neighbors. The region alone is not a huge consumer of ferrosilicon but is a market Chinese exporters could target in the wake of dwindling exports to Europe, said a Shanghai-based trader.

And though China is geographically closer to Japan and South Korea, the Malaysian smelters will also likely look to sell to the two major ferrosilicon consumers if it is feasible to do so after taking into account freight costs, added other industry observers.

Chinese exporters also said they are disadvantaged by China's 25% export tax on ferrosilicon, in comparison to Malaysia which is unlikely to set export taxes on the ferroalloy.

But the exact impact is hard to gauge as production costs of the Malaysian smelters are unclear, though a source close to the Malaysian projects estimated that the upcoming smelters' power costs could be lower than northeast China's coal-fueled power costs by as much as 70%.

Some also pointed out that the Malaysian smelters may have to compete with ferrosilicon that evades China customs. Traders said these materials -- which are usually re-loaded from Vietnam and sold to the rest of the world -- are typically priced $100-200/mt lower.

Many Chinese ferrosilicon producers have switched to producing other products like manganese alloys in recent years because of the impact of the 25% export tax in order to survive.

China's ferrosilicon exports (more than 55% Si) fell 21% to 578,855 mt last year, according to data from the Chinese General Administration of Customs. Japan and South Korea accounted for 47% and 18% of the total exports respectively, while the Southeast Asia region accounted for 2%.

But market watchers noted that actual ferrosilicon exports out of China is larger as the official data does not include smuggled materials.

There is no estimation on exactly how much that is.

Australia-listed OM Holdings plans to start commercial operations of its manganese alloy and ferrosilicon smelter in Sarawak early 2014 and expects to reach full production of 290,000 mt/year and 310,000 mt/year for the respective products by January-March 2015.

Pertama Ferroalloy with capacity to produce 120,000 mt/year of silicomanganese, 54,000 mt/year of ferromanganese and 60,000 mt/year of ferrosilicon is expected to start production in the third quarter of 2013.

The company is 60%-invested by Hong Kong's Asia Minerals, 20% by Japan's Nippon Denko, and the rest by minority stakeholders in Japan and Malaysia.