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South Korea ferroalloy producers in talks with traders for 2019 deals: sources

Tokyo — South Korean ferrovanadium and ferromolybdenum producers have entered negotiations with international traders for 2019 conversion contracts, market sources said Friday.

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Conversion is processing vanadium pentoxide, molybdenum oxide and other raw materials, into ferrovanadium, ferromoly and other ferroalloys, on a fee. There is spot as well as conversion on a term basis. A term tolling is also used.

International traders active in Europe and the US are seeking increased conversion opportunities with the South Korean plants, wanting to take advantage of South Korea's free trade agreements with the EU, the US and India, the three key markets, as well as Turkey and Malaysia, sources said.

The EU, one of the most active spot markets, levies a 2.7% import duty on both ferrovanadium and ferromoly. The US levies a 4.2% import duty on ferrovanadium and 4.5% on ferromoly.

One international trader who had a term conversion deal with a South Korean plant this year, said he was seeking to renew. In addition to duty-free advantages, South Korean conversion terms for ferromoly in particular have become more competitive, with six plants in the country. Ferromoly production facilities in Europe also have less room for conversion.

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South Korea has six smelters with a total capacity of 4,500 mt/month of ferrovanadium and ferromoly combined. Two plants with a combined capacity of around 2,000 mt/month are capable of producing both ferrovanadium and ferromoly, while four others are focused on ferromoly, sources said.

The South Korean ferroalloy industry has been export-driven, with domestic ferrovanadium demand at roughly 200 mt/month and ferromoly demand around 1,000 mt/month. The country exported 220 mt of ferrovanadium and 1,800 mt of ferromoly in September, according to Korean customs data.

But South Korea has limited raw material supplies -- vanadium pentoxide and moly oxide -- of its own. The traders in conversion schemes supply the raw material, which may be of Chinese, Chilean or other origin.

This year, around 1,000-2,000 mt/month of ferrovanadium and ferromoly has been produced under the conversion agreements, mostly on a spot basis, sources estimated. Spot conversion requests came mostly from trading business units of Chinese producers, who have customers in Europe and the US, while a few European traders had term conversion agreements.

There are several types of conversion deals. In some cases, plants receive a processing fee. The trader and the plant may also have contracts with two parts: one specifying conditions for plants to receive raw material, and the other for the plant to sell ferroalloy products back to the trader. This considers possible changes in market conditions during conversion.

"We are negotiating a [ferromoly] term conversion deal, to receive the raw material and sell products basis Platts moly oxide benchmark price. We have not decided details of the formula," the plant source said.

Another source said ferrovanadium conversion fees are linked to the London Metal Exchange high-grade aluminum price, as aluminum is added to vanadium pentoxide to produce ferrovanadium.

South Korea's Busan has emerged as the spot moly market center of Asia in the last decade. More international players doing conversion business with South Korean plants will encourage more spot moly oxide trading in Busan, and spot volumes in Busan may grow to the size of volumes in Rotterdam, a Korean trader said.

--Mayumi Watanabe, mayumi.watanabe@spglobal.com

--Edited by Jonathan Loades-Carter, newsdesk@spglobal.com