Progress and Outlook for OM Sarawak Ferroalloy Project

OM Holdings is now pushing forward with the ferroalloy project on the premises of Samalaju Industrial Park (SIP) in Sarawak, and made an initial firing for No.1 Electric Furnace for ferro-silicon last September.

Ferro-silicon produced here is now exported not only to Japan and Taiwan but also to Europe and Brazil, and the shipping quantity is anticipated to be up also from now owing to the increase in the production facilities to be operated and ramp-up thereof. The following questions are made to the person in charge with regard to the progress and outlook for this project.

Q1. We like to know the current progress situation and schedule from now onwards:

A1. At the present moment (beginning April 2015), 6 electric furnaces for ferro-silicon have already had an initial firing, 2 furnaces out of which had an initial firing in April. From now, the remaining 10 electric furnaces will have an initial firing one after another in increments of 2 furnaces, and all the electric furnaces are scheduled to start operation within 2015.

Q2. We understand the construction of production facilities for silico manganese and high-carbon ferro-manga-

nese is scheduled for commencement in the second phase, and like to know when this construction work will

be commenced:

A2. Regarding this, the production is scheduled to be commenced during second half of 2016.

Q3. What was the reason why the construction of production facilities for ferro-silicon in the first phase has been

behind the plan originally announced:

A3. This was due to a delayed construction work, and as the land preparation is affected by the weather, the rainy season caused a delay. Besides, the shortage of workforce was also one of the reasons for a delay, but eliminated by increasing the number of workforce to 2,000 in the end of 2013.

Q4. Japanese users are waiting in anticipation of increased shipping quantity of products with Si being 75%, which

we like to know when:

A4. As far as the consumption of ferro-silicon throughout the world is concerned, the main item is a product with Si being 72%, and the product with Si being 75% is in a minority. Excluding Japan and South Korea, the countries like China, India and other European countries can use the product with Si being less than 72%. At the present moment (beginning April 2015), the production of Si 72% product is more because the demand for Si 72% product is more, but the future demand is expected to increase the ratio of Si 75% product.

Q5. Which countries are you shipping to at the present moment:

A5. Ferro-silicon used in Taiwan and India is the product with Si being 72%, and the shipment started to Taiwan from the end of last year. We accept orders meant for India as well. Besides, the first shipment of the products meant for Europe also was made from the plant in January.

Q6. Ferro-silicon producers in China think their production cost is more competitive than that in Malaysia. What

do you think about this:

A6. As for the fundamental competitive power, we think our Sarawak is superior. Firstly, as to the electricity rate, we have concluded a contract for 20 years, but in China, it has shown an increasing trend for these few years, and how it is going to be in the future is unclear. As for the running cost, it is at a high level at the present moment, but will come down from now onwards. Furthermore, the production cost will be reduced by using quartzite as raw materials purchased from the domestic state of Perak.

As to the export, there is a far distance from the main producing areas in China to the shipping port, and the logistics cost is high. For that reason, a shipping port within the premises of SIP in Sarawak is under construction.

Q7. Albeit roundabout products of Chinese origin are being distributed at a cheap price in Japan, South Korea and

Taiwan, do you think you can compete with these in terms of the price:

A7. It is obvious the price varies according to the type of product like regularly exported products and roundabout products in the Asian market. But, we never like to change our price to suit the price of roundabout products. Among the users, there are some users which value long term, reliable supply source buy only regularly exported products, and we tenaciously keep exporting ours and do not consider roundabout products as our competitors.

Q8. Although one ferro-silicon production and two silico manganese productions are planned to take place within

SIP in addition to OM Sarawak, do you think there won't be a competition against each other:

A8. We think there won't be any competition because we will produce in accordance with demand.

Q9. Albeit China Steel Corporation, Taiwan has an investment in SAKURA project of Assmang Limited, don't

you think large-lot users meant for Taiwan have already been secured by them:

A9. Since high carbon ferro-manganese produced at OM Holdings' plant in China was shipped to China Steel before 2007, we remain optimistic on this sales channel.

• [Editor:Sophie]