Within the space of a few short years, the face of the global niobium industry, particularly ferroniobium, has changed almost out of recognition. As recently as 2011, the Brazilian niobium and ferroniobium giant CBMM was wholly owned by the Salles family, with Anglo American providing the balance of the country’s ferroniobium output. The only other significant ferroniobium producer, Canada’s Niobec, was in the hands of the Toronto-listed miner IAMGOLD.
Things look very different today. During 2011, CBMM sold 30% of itself for US$3.9Bn to two consortia of Asian investors, one Japanese/Korean, the other Chinese. Both groups include steelmakers (i.e., CBMM’s own clients). In 2015, IAMGOLD sold Niobec to the Toronto-based private-equity firm Magris Resources, which is backed to a large extent by investors in Singapore and Hong Kong. That deal was worth US$0.5Bn. Not to be left out, Anglo American offloaded its Brazilian niobium and phosphate business in 2016 to China Molybdenum (CMOC) for US$1.7Bn, an earnings multiple that surprised most in the industry, and quite possibly even Anglo American.
For a metal that many people have never even heard of, US$6.1Bn of investment in less than five years is pretty impressive. Equally remarkable is that, from a standing start, Asian investors have gained control of, Roskill estimates, at least a third of global ferroniobium production capacity.
The reasons why the three ferroniobium producers divested are fairly clear. CBMM certainly didn’t need the money; it wanted to lock-in some of its largest customers. IAMGOLD had acquired Niobec as part of a purchase of another gold miner. It did not really see Niobec as a core business, and it definitely needed the money to plug a gaping gold-related hole in its balance sheet. Anglo American simply wanted to get rid of non-core businesses, not to mention a large pile of debt.
Why other companies would have wanted to invest in this industry is somewhat less obvious. Demand for ferroniobium went through a growth spurt during the 2000s, more than doubling during the first half of the decade and continuing to grow until the global financial crisis kicked in. There are two main reasons for the growth. One is that consumers gained better understanding of the benefits of using ferroniobium in steel. When added to steel in fractions of a percent of the weight of steel, ferroniobium results in much-higher strengths. Less steel overall is needed, which offers major cost savings in large steel structures. The other driver was the explosive growth in global steel production, particularly in China.
The global financial crisis caused a huge fall in demand for steel and for ferroniobium but it recovered quickly and in recent years has remained within a fairly narrow range close to the peak level of the late 2000s. The outlook for global steel production now seems starkly different to what it was just a few years ago, especially in China. Overall growth in steel production is not going to be the main future driver of demand for ferroniobium, Roskill contends.
So why are people still investing very large sums of money in the industry, when growth prospects for steel are not stellar and even the current ferroniobium production capacity is far bigger than demand and will remain so?
One reason is that there is good potential for the incidence and intensity of ferroniobium use to increase. Ferroniobium is not being used in all the steel applications it could be, and some countries/regions lag far behind others in terms of usage. Ferroniobium usage is currently lowest in countries where it has the greatest potential to grow, either through higher steel production or just because of a move to making higher-quality steel. Another reason, and one that applies mainly to CMOC, is the desire on the part of China to gain greater influence over its raw materials’ supply chain (and CMOC is part-controlled by the Chinese government).
An enduring characteristic of the niobium market in general, and ferroniobium in particular, is the role of CBMM and its behaviour. CBMM largely created the niobium industry as we know it today and has long been the dominant player and price setter. Its production cost is not reported but is believed to be much lower than its competitors’. It could, in theory, have priced the competition out of the market a long time ago but has never done so. Roskill considers that there are several reasons for this. For one thing, it is important to CBMM that price and supply are seen as stable and secure. Getting steelmakers to switch to niobium-containing steels was not a rapid process and it would probably not have happened had CBMM been a monopoly producer. Trying to become a monopoly supplier by slashing prices would be a PR nightmare, unsettle consumers in the steel industry and could actually cost CBMM money – Roskill calculates that CBMM would make a lot less if it tried to corner the market at price levels designed to drive the competition out of the game.
There is a further twist. Although the ferroniobium market is already comfortably met by existing (huge) surplus production capacity, and will remain so, new producers are trying to enter the market. There are several projects in the pipeline and at least two of them are at, or near, the financing stage. They would not be large in tonnage terms by CBMM standards, but is there even a place for them? It all boils down to the market’s desire for diversity of supply of what is, essentially, a commodity product and made using similar and well-understood processes by existing producers; processes that would also be used by any new producer. For any project these days, securing offtake agreements is key to securing project finance, particularly debt finance (which makes getting equity finance rather easier, too).
The niobium industry in its current form is really only a few decades old. It has seen big changes over the last decade or so, and there may well be more to come.
Patrick Stratton, Roskill
Niobium: Global Industry, Markets & Outlook is available to pre-order:
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