Yasar Ozdirek: Looking ahead to the challenges and opportunities in the chrome industry in 2013

Asian Metal: Yasar, thank you for accepting the interview. Would you please start by telling us the market position of YILDIRIM Group and ETI KROM?

Yasar: YILDIRIM Group is a well-respected actor in both Turkish and international markets with domestic and foreign companies operating in more than 10 different industries including mining and ferroalloys, fertilizers and chemicals, coke and lumpy coal, power and energy, port operation and management, shipping and shipbuilding, real estate development and private equity.

YILDIRIM GROUP‘s trading activities are performed across 5 continents. In 2012, the company made investments in excess of $1 billion including 2 new ports in the Sea of Marmara and is now being recognized as a major player among global port operators.

ETI KROM INC. was founded in 1936 by the Turkish government and has since become Turkey`s largest chrome ore and sole high carbon ferrochrome producer, as well as the country’s largest chrome ore exporter. From its creation as a state owned operation through its acquisition by YILDIRIM HOLDING INC., ETI KROM has been a dynamic success story that’s grown increasingly competitive in the international industry. It owns and operates chrome ore mines in various regions of Turkey, processing the ore into ferrochrome at its Elazığ plant. Autonomous mining and processing allows ETI KROM to be a powerhouse of success.

The chrome ore division utilizes 79 mines spread all over the country, mainly located underground, that total at around 1 million MT of chrome ore production capacity per annum. At the ferrochrome plant, 4 furnaces have a total production capacity of 160,000 mt per annum.

YILDIRIM GROUP acquired Swedish ferrochrome and ferrosilicon producer, Vargön Alloys AB, in February 2008. Vargön Alloys has 4 furnaces with total annual production capacity of 240,000 mt. Therefore, YILDIRIM GROUP has a consolidated annual production capacity of high carbon (HC) ferrochrome of 400,000 mt. It makes YILDIRIM GROUP the 2nd biggest High Quality HC ferrochrome producer in the World after ENRC.

This capacity of large quantity, high quality, and unmatched sustainable production makes ETI KROM a respected worldwide leader in the chromium industry. ETI KROM`s quality and punctual service provide excellence competitiveness in European, American, Chinese and other Asian markets, making it a choice provider for top stainless steel producers, alloy steel plants and foundries.

Asian Metal: Would you please summarise the 2012 market briefly?

Yasar: Chrome ore prices started to decrease after March 2011 and this decline continued until January 2012. After January, a slight increase in prices continued until the end of May 2012. Prices fell down to USD240/mt (for 40-42% grade Turkish lumpy) from USD280/mt, and this trend was effective until early December 2012. Due to UG2 pressure on chrome ore prices, chrome ore prices stayed at the lowest level since 2007 (except 2009). Ferrochrome prices have a similar story and were disappointing due to oversupply.

Asian Metal: What is your expectation for the chrome ore market in 2013 and what are the challenges ahead?

Yasar: We expect a stable market in 2013. In 2010 and 2011, there was a big gap between the highest and lowest prices (around USD150/mt). Last year this gap decreased to USD30-40/mt levels and this year we expect a narrower gap between the highest and lowest prices of chrome ore. That refers to a stable market where both producers and consumers can have a longer term vision.

Since December 2012, ore prices have been increasing due to tight ferrochrome supply from Kazakhstan and South Africa to China. It caused chrome ore prices to go up due to the unexpected increase in demand from Chinese ferrochrome producers, even though UG2 was still a threat.

Asian Metal: With the expectation of increasing supply of chrome ore from South Africa, especially from UG2 producers, how will it affect Turkish miners and the Turkish export market?

Yasar: South Africa is the biggest chrome ore producer and reserve-owner of the World. Any development there may affect the market dramatically. The power buy-back campaign of Eskom and possible export tax-levy on UG2 will be followed closely by market players. UG2 is actually not the substitute of Turkish lumpy ore because there is a significant difference in quality between these chrome ore types. Once the Chinese end users consume more low grade South African ore, they need to also buy more high grade concentrate, mainly from Turkey. Only Turkey can supply a large quantity of high grade chrome ore to China, roughly around 2 million mt, which is more than 20% of what China needs.

We believe that UG2 will put a big pressure on the lumpy chrome ore export from Turkey, Pakistan, Oman, Albania and increase demand on high grade concentrate mainly from Turkey. Thus, the lumpy ore will try to find new markets in India, Oman and the Middle East.

Asian Metal: India has become a very important alternative market for Turkish chrome ore in the past year due to weak Chinese figures, do you believe that this market will continue to grow and how is Eti Krom/Yildirim Group looking to capitalise on this growing market?

Yasar: As per 2012 figures, India is the 3rd largest stainless steel producer of the World, following China and Japan. In terms of growth rate, India has the 2nd largest stainless steel production increase with around 9%, following China. We expect India to be the 2nd largest stainless steel producer from 2015/2016 after China. We believe that India will continue to buy more chrome ore and ferrochrome from 2014. It seems that in the coming future, India will become an alternative market for chrome ore producers from Turkey, Oman and Pakistan. ETI KROM is planning to capitalise on this growing market by exporting lower grade lumpy chrome ores.

Asian Metal: What about other new developing markets such as the Middle East?

Yasar: We hear of several on-going ferrochrome projects in the region, especially in Oman. It is not clear if Oman has enough good quality chrome ore to produce ferrochrome in all of those plants. Oman may become an important higher quality lumpy chrome ore importer when all of those projects finish and start production from 2014/2015. In addition, we hear of several other ferrochrome projects in the Gulf countries and the Middle East.

Asian Metal: Late last year, Eti Krom urges visibility in the industry and leads by example by releasing prices for Q1, is Eti Krom going to continue this act and if so, when can we expect prices for Q2 to be released?

Yasr: Starting from 2013, we will continue to release quarterly chrome ore prices for China. Therefore, we plan to release our quarterly ore prices to China before each quarter starts. Hence, we will try to make our position as one of market makers in chrome ore business, especially in China.

Asian Metal: Mr Yildirim has mentioned that he is looking for opportunities and is considering investment in the South African chromium industry last year, would you be able to update us on that front.

Yasar: YILDIRIM GROUP is one of the largest Turkish investors and looking for new investment opportunities in metals and mining, ports, energy and fertilizer all around the World. YILDIRIM GROUP is always interested in chrome ore and ferrochrome assets all around the World, including South Africa, as long as investment prices are feasible and attractive. Therefore, we are waiting for the right time to invest in the South African chromium industry.

Asian Metal: Apart from South Africa and Europe, would Yildirim Group be interested in investing in Chinese ferrochrome industry?

Yasar: The idea of investment in the Chinese ferrochrome industry is not new to YILDIRIM GROUP. We considered such an investment before the global financial crisis of 2008. After that we put this idea on the shelf until investment opportunities in China became more attractive and profitable. China is always our largest chrome ore market and we would like to be there not only as a chrome ore supplier but also as a local ferrochrome producer. We are closely watching the new ferrochrome investments in China. Once Chinese ferrochrome investments are completed and the market is more visible and stable, we will start talking to potential partners in China.

Asian Metal: Anything you would like to add?

Yasar: I wish happy and prosperous Chinese New Year for all our partners, customers and friends in China.