With flagship smelter in Samalaju, OMH all set to diversify customer base

This year, the company is pressing ahead with plans to produce silicon metal and it plans to expand its manganese alloy production capacity by 2023 


DUAL-LISTED ferroalloy smelting group OM Holdings Ltd (OMH), with a flagship smelter in Samalaju, Sarawak, is already working on plans to diversify away from the steelmaking industry. 

This year, the company — listed on the Australian Securities Exchange (ASX) and Bursa Malaysia — is pressing ahead with plans to produce silicon metal. Come 2023, it plans to expand its manganese alloy production capacity. 

“The conversion will enable the group to diversify its end customer base away from the steelmaking industry, and into sectors such as aluminium, chemicals and ultimately into the renewable energy industry (solar) via polysilicon production. The aim is to produce the highest grade possible as margins are higher for marginal changes at these purities,” the company said in an email response to The Malaysian Reserve. 

OMH made its first foray in Malaysia via OM Materials (Sarawak) Sdn Bhd (OM Sarawak), with the construction of a flagship ferroalloy smelter complex in Samalaju, Sarawak. OM Sarawak is a 75/25 joint venture between the group and Cahya Mata Sarawak Bhd (CMSB), a listed industrial conglomerate on Bursa Malaysia. 

Construction commenced in 2013, and the first production was tapped in 2014. The plant consists of eight main workshops with a total of 16 units of 25.5 mega-volt-amperes (MVA) furnaces, of which six units are allocated for the production of ferrosilicon (FeSi), eight units for manganese alloys and two units for silicon metal. OMH gained the Malaysian listing in June 2021. 

It has been chalking healthy numbers. For the first half ended June 30, 2022 (1H22), the manganese and silicon smelting company posted a net profit of US$60 million (RM264 million), more than three times the US$18.1 million in the same period in 2021. Revenue from operating activities for 1H22 was US$466.7 million, up 35% from the year before due to higher average selling prices (ASPs) for manganese ores, ferrosilicon and silicomanganese (SiMn) despite lower total product volumes traded. 

In October, Kenanga Research said it expects OMH’s financial year 2022 forecast (FY22F) net profit to jump 53% year-on-year attributable to better ASP mix and operation efficiency, despite a 10% contraction in revenue due to the cessation of OM Qinzhou and Bootu Creek Mine. The report said its main ferroalloy smelting plant in Samalaju, powered by Bakun hydroelectric plant, has the lowest cost structure in the region and is highly environmentally friendly. 

The company’s aim is to produce the highest grade possible as margins are higher for marginal changes at these purities

When asked about its forecast for 2023, OMH said it aims to ramp up production in phases, following the completion of major maintenance works. However, it was unable to comment on ASPs in any particular year as these are largely market driven. 

“As energy costs are a substantial share of smelting costs, OM Sarawak’s access to clean and renewable energy, contracted at fixed prices over a long tenure, means that our average margins over a longer horizon will be more resilient compared to other producers. Given the unprecedented increase in power prices around the world, we believe that OM Sarawak’s strong long-term average margins are what makes the company attractive, instead of focusing on ASPs in any particular year,” it said. 

Last year, OMH had benefitted from a surge in FeSi prices. However, in response to a local media report, OMH executive chairman and CEO Low Ngee Tong had said that prices were likely to have peaked. 

Quoting S&P Global Platts numbers, the company said that FeSi prices have decreased after it hit an unprecedented record high of US$4,150 per metric tonne (MT) at the end of September 2021. Prices trended down before stabilising in the third quarter of 2022 (3Q22) in the range of US$1,600/ MT-US$1,900/MT, driven by inventory destocking. 

“China is the main exporter of FeSi in the region, and despite unprecedented currency weakness, prices have not fallen to pre-Covid levels. This is because of elevated power prices in China, supported by a policy change since October 2021 requiring industrial power pricing to be free-floating. We believe that current prices are near or at cost for most producers in the world,” it said in its email response. 

Below are excerpts from the interview. 

Last year, OMH had benefitted from a surge in FeSi prices. However, in response to a local media report, Low says that prices are likely to have peaked

What kind of presence do you now have in Malaysia? 

Our key asset in Malaysia is notably our flagship smelter at Samalaju, Sarawak. We also have smaller subsidiaries in Malaysia, a logistics and engineering solutions company, both supporting the smelting operation at OM Sarawak. 

OM Sarawak is the largest ferroalloy smelter in the region. OM Sarawak is located in the Sarawak Corridor of Renewable Energy, Sarawak, Malaysia and it is in the centre of South East Asia, well positioned along global trade routes. 

All steel production requires ferroalloys that we produce at our Sarawak plant. We distribute our products (FeSi and SiMn) to these key markets — Japan, South Korea, Taiwan and Asean region. These are the main consuming markets in Asia outside of China and India where we enjoy significant logistical advantages while supplying to these markets, and between 2017 to 2020, we generally supplied 20%-40% of Asean ferroalloys for FeSi and Mn alloys depending on the year and product. We also extend our presence with intermittent sales into Europe and North America although these markets are considered to be secondary export markets due to geography. 

What is the contribution of the Malaysian operation to OMH’s overall business? 

Taking FY21 as a benchmark, the group recorded a consolidated revenue of A$1,040.8 million (RM3.12 billion) for FY21, of which A$582.4 million (representing approximately 55.9% of the total group consolidated revenue) was contributed by our Malaysia operations. As we execute expansion plans for our Sarawak plant and move towards 100% ownership, we foresee the contributions from Malaysia for the group will continue to increase, particularly as Australian mining activities ceased in 2021. 

What is the next major development in Malaysia? 

In 2022, we are looking to further diversify our product offering by producing silicon metal via the conversion of two exist- ing ferrosilicon furnaces for the production of silicon metal. Silicon metal, a higher value-added product of strategic interest to many industries, has a 98-99% purity level and is classified for use in different industries depending on the level of contaminants. 

Beyond 2023, we are planning to expand our manganese alloys production capacity by building two new 33 MVA furnaces (larger furnaces for improved efficiencies). This capacity expansion plan will yield an additional 150,000 tonnes of silicomanganese (the most common type of manganese alloy) per annum. Our current manganese alloy design production capacity stands at 250,000 to 300,000 tonnes per annum (depending on the type of manganese alloy produced). The expansion will be contingent on funding options availability, and once completed our total manganese alloy output will be 10%-20% of the global annual trade volume. 

How is the journey for your company (25 years) in this industry?

OM Holdings is a vertically integrated manganese ore and ferroalloy producer founded in 1994 and listed on the ASX in 1998. We started off as a trading company, before venturing into production assets with a manganese ore mine in Australia, and a smelter in China. For over 25 years, we have focused on the same commodities, manganese ore and ferroalloys, and our goal has been to create sustainable value for our shareholders and stakeholders by developing assets, and managing them successfully and safely in order to realise their full potential. Today, that core asset is OM Sarawak, and we seek to be a key supply partner to major steel mills and other industries.

Since the commissioning of our Sarawak Plant in 2014, we have seen an increase in crude steel capacity come online in the Asean region and we expect this capacity to continue growing. We believe that crude steel demand in this region will continue to grow over the next decade, supported by urbanisation and economic growth in emerging economies. To meet this expected demand, we also have expansion plans in place for both our upstream and downstream business activities to capture the growth opportunities in the region. 

What is the impact of the Russia-Ukraine conflict on the ferroalloy market? 

Russia is the second-largest exporter of FeSi in the world after China while Ukraine is a major producer of SiMn and the second-largest exporter after India. 

The conflict between Ukraine and Russia has created uncertainty in the global supply of ferroalloys and has led to a temporary rise in prices in the first half of 2022, however, it has not impacted the market substantially thereafter as global demand slowed amidst poor economic conditions. As and when demand recovers, the disruption of Ukranian ferroalloys output may potentially cause some market shortages. 

What is the regional growth outlook? 

The growth of steel in South-East Asia remains positive in the long run with expected long-term growth prospects spurred by urbanisation growth in the region via infrastructure investment and construction sectors. This will benefit us as FeSi and SiMn (both are ferroalloys produced at our Sarawak plant) are part of the essential alloying elements required for steel production, with no known substitute and cannot be recycled.

  • This article first appeared in The Malaysian Reserve weekly print edition