www.platts.com [STEEL ] Issue 13 / March 2014 www.twitter.com/PlattsSBBSteel STEEL RAW MATERIALS MONTHLY Contents Iron Ore Market Focus 3 Iron Ore Data 5 Metallurgical Coal Market Focus 6 Scrap Market Focus 8 Alloys Market Focus 9 News 10 Special Report 17 Global Trade Highlights 19 Steel Raw Materials Monthly Averages 20 Key price assessment monthly averages, February 2014 Unit Average change % change Platts IODEX Iron ore fines 62% Fe CFR North China $/dmt 121.24 -6.91 -5.39 Platts Coking Coal, Premium low-vol FOB Australia $/mt 122.97 -5.45 -4.24 Platts Ferrous Scrap HMS CFR Turkey $/mt 357.00 -35.84 -9.12 TSI Iron Ore Fines 62% Fe $/dmt 121.37 -6.75 -5.27 Chinese imports (CFR North China port) TSI Coking Coal, Premium hard, $/mt 126.22 -4.49 -3.44 Australian exports (FOB port) TSI Ferrous Scrap HMS 1&2 80:20, $/mt 358.70 -36.57 -9.25 Turkish imports (CFR port) China’s steel sector must adjust to slower growth China’s steel market is bracing for another challenging year in 2014 after the central government set a conservative GDP target of 7.5% - down from last year’s 7.7% - which should translate into steel output growth of 3-4% compared with an increase of 7.5% in 2013. China’s soaring steel production has come off the back of strong economic growth which has slowed since 2011 when GDP fell below double-digit figures to 9.2% before sliding to 7.8% in 2012 and to 7.7% last year. GDP is expected to remain in the 7-8% range for the coming two decades, according to Zhu Baoliang, director of Economic Forecasting Department of State Information Center. Since its inauguration last March, China’s newly-elected central government has abandoned the decades-old strategy of maintaining high GDP growth and is instead aiming for more sustainable economic growth, Zhu told delegates at a recent iron ore conference in Wuxi in east China’s Jiangsu province. The change of strategy in Beijing has forced local governments to fine-tune their economic planning, Zhu said, relieving local governors of the need to meet aggressive growth targets to satisfy annual performance reviews. This had been one of the major drivers of high steel production. “Growth of 7-7.5% will be sufficient to keep inflation within 3.5% and to create 10 million new jobs annually, while at the same time battling pollution and overcapacity in industries such as steel,” Zhu said. Beijing has made it clear it will not inject any substantial investment into the economy during this or coming years, deciding at the annual parliament meeting in March that this year’s fixed asset investment will be trimmed to 17.5% from last year’s 19.6%. This will coincide with the trend towards lower foreign direct investment being seen in China. Importantly, there will be no repeat of the massive stimulus program rolled out over 2008- 2009. Moreover, half the stimulus was shouldered by local authorities, forcing them to seek bank funding at high interest rates as issuing local government bonds was banned. Consequently, many local governments today are saddled with huge debts dating from that time, incurring interest charges they cannot afford. The central government reiterated its commitment to eliminate 80 million mt/year of steel capacity nationwide by 2017, with 60 million mt/year to be removed from Hebei province alone. Indeed, the government’s determination to achieve this has surprised steel market watchers, and convinced sceptics who hitherto dismissed the various edicts made over recent months as platitudes to pacify citizens. The Ministry of Industry and Information is finalizing details on new steel industry standards, which will include criteria for power consumption and waste emissions. Once implemented, these could lead to closures of medium- and small-sized steel mills, particularly those which are unwilling or unable to upgrade their facilities at a time of weak steel prices and wafer thin margins. For larger and state- owned mills, additional investment will likely result in steeper financial losses, sources say. For steelmakers, chasing opportunities for expansions in steel capacity will be unwise. Rather, they will need to restructure their steel operations with a view to making higher value products. — Hongmei Li Editorial Marginal ton query Aside from a couple of price shocks in recent years, iron ore prices have rarely stayed below the $120/mt level for very long before recovering. Received wisdom has it that a significant tranche of Chinese domestic iron ore is unprofitable at these levels and as it is needed by the steel sector the price must inevitably rise. With a second major supply wave (following last year’s) due to hit seaborne markets in 2014 and displace a portion of domestic supply, the ‘marginal ton’ price theory will be put to the test. At this stage no one appears 100% sure where that cost support will kick in as the market has never experienced such a massive amount of new supply in such a short time frame. But with spot prices falling to around $115/mt in early March, the market may find out soon. Some inland mines and those owned by larger state-owned mills will continue to operate but grade depletion and the high cost of developing decent-sized mines in China means new capacity is unlikely to be material. Mines also need to meet certain environmental targets which will add to their production costs. Some analysts anticipate that roughly a third (more than 100 million mt/year on a 62% Fe basis) of domestic production will stop this year. Australian producers will have added almost double this amount over 2013 and 2014. — Paul Bartholomew
Transcript
www.platts.com
[STEEL ]
Issue 13 / March 2014www.twitter.com/PlattsSBBSteel
STEEL RAW MATERIALS MONTHLY
Contents
Iron Ore Market Focus 3
Iron Ore Data 5
Metallurgical Coal Market Focus 6
Scrap Market Focus 8
Alloys Market Focus 9
News 10
Special Report 17
Global Trade Highlights 19
Steel Raw Materials Monthly Averages 20
Key price assessment monthly averages, February 2014 Unit Average change % changePlatts IODEX Iron ore fines 62% Fe CFR North China $/dmt 121.24 -6.91 -5.39
TSI Ferrous Scrap HMS 1&2 80:20, $/mt 358.70 -36.57 -9.25Turkish imports (CFR port)
China’s steel sector must adjust to slower growthChina’s steel market is bracing for another challenging year in 2014 after the central government set a conservative GDP target of 7.5% - down from last year’s 7.7% - which should translate into steel output growth of 3-4% compared with an increase of 7.5% in 2013.
China’s soaring steel production has come off the back of strong economic growth which has slowed since 2011 when GDP fell below double-digit figures to 9.2% before sliding to 7.8% in 2012 and to 7.7% last year. GDP is expected to remain in the 7-8% range for the coming two decades, according to Zhu Baoliang, director of Economic Forecasting Department of State Information Center.
Since its inauguration last March, China’s newly-elected central government has abandoned the decades-old strategy of maintaining high GDP growth and is instead aiming for more sustainable economic growth, Zhu told delegates at a recent iron ore conference in Wuxi in east China’s Jiangsu province. The change of strategy in Beijing has forced local governments to fine-tune their economic planning, Zhu said, relieving local governors of the need to meet aggressive growth targets to satisfy annual performance reviews. This had been one of the major drivers of high steel production.
“Growth of 7-7.5% will be sufficient to keep inflation within 3.5% and to create 10 million new jobs annually, while at the same time battling pollution and overcapacity in industries such as steel,” Zhu said.
Beijing has made it clear it will not inject any substantial investment into the economy during this or coming years, deciding at the annual parliament meeting in March that this
year’s fixed asset investment will be trimmed to 17.5% from last year’s 19.6%. This will coincide with the trend towards lower foreign direct investment being seen in China.
Importantly, there will be no repeat of the massive stimulus program rolled out over 2008-2009. Moreover, half the stimulus was shouldered by local authorities, forcing them to seek bank funding at high interest rates as issuing local government bonds was banned. Consequently, many local governments today are saddled with huge debts dating from that time, incurring interest charges they cannot afford.
The central government reiterated its commitment to eliminate 80 million mt/year of steel capacity nationwide by 2017, with 60 million mt/year to be removed from Hebei province alone. Indeed, the government’s determination to achieve this has surprised steel market watchers, and convinced sceptics who hitherto dismissed the various edicts made over recent months as platitudes to pacify citizens.
The Ministry of Industry and Information is finalizing details on new steel industry standards, which will include criteria for power consumption and waste emissions. Once implemented, these could lead to closures of medium- and small-sized steel mills, particularly those which are unwilling or unable to upgrade their facilities at a time of weak steel prices and wafer thin margins. For larger and state-owned mills, additional investment will likely result in steeper financial losses, sources say.
For steelmakers, chasing opportunities for expansions in steel capacity will be unwise. Rather, they will need to restructure their steel operations with a view to making higher value products.
— Hongmei Li
Editorial
Marginal ton queryAside from a couple of price shocks in recent years, iron ore prices have rarely stayed below the $120/mt level for very long before recovering. Received wisdom has it that a significant tranche of Chinese domestic iron ore is unprofitable at these levels and as it is needed by the steel sector the price must inevitably rise. With a second major supply wave (following last year’s) due to hit seaborne markets in 2014 and displace a portion of domestic supply, the ‘marginal ton’ price theory will be put to the test. At this stage no one appears 100% sure where that cost support will kick in as the market has never experienced such a massive amount of new supply in such a short time frame. But with spot prices falling to around $115/mt in early March, the market may find out soon.
Some inland mines and those owned by larger state-owned mills will continue to operate but grade depletion and the high cost of developing decent-sized mines in China means new capacity is unlikely to be material. Mines also need to meet certain environmental targets which will add to their production costs. Some analysts anticipate that roughly a third (more than 100 million mt/year on a 62% Fe basis) of domestic production will stop this year. Australian producers will have added almost double this amount over 2013 and 2014.
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General Manager, MetalsAndrew Goodwin
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Steel RAW MAteRIAlS MONtHlY
Hancock Prospecting’s Roy Hill is possibly the last significant, low-phosphorous iron ore project in Western Australia and it is being taken increasingly seriously by analysts and other market observers. The Pilbara-based project could potentially reach long-term direct shipping ore production of 55 million mt/year over a 20-year mine life, output which many analysts are now including in their supply-demand models.
“We weren’t including production from Roy Hill twelve months ago but we are now – it’s obvious the project will go ahead,” a Sydney-based analyst said, noting it would add to the iron ore supply wave over the next 4-5 years.
In a research note late last year, JP Morgan analysts forecast that production at the project would start mid-2016 with capacity likely to be reached some 12-18 months later. Roy Hill continues to say first ore will be delivered in September 2015.
Massive new supply from Fortescue Metals Group and Rio Tinto in particular over 2013/14, along with a slowing China and investor antipathy towards the resources sector, meant many analysts doubted the viability of Roy Hill. With long-run iron ore prices forecast to dip to $75-85/mt, the project’s margins looked skinny if an all-in landed price of close to US$70/mt was accurate, they argued. The iron ore grade is expected to be 60-61% Fe, so there will be a discount to the 62% Fe index.
Most of the contractors have been engaged - the most recent of which
Roy Hill gaining market respectwas BCG Contracting who were awarded a A$60 million contract in late February to supply ballast at Roy Hill. Around half the A$7 billion finance needed to build the project is understood to be in place. And Hancock is run by the intrepid Gina Rinehart whose father Lang Hancock famously discovered iron ore in the Pilbara, and who is determined the project will be a success. This all provides a momentum that is now unlikely to be halted, sources believe.
Another factor that has provided investor comfort is the fact that 30% of the project is owned by Korea’s Posco (12.5%), Japan’s Marubeni (12.5%), Korean trader STX (2.5%) and Taiwan’s China Steel Corp (2.5%). The consortium is understood to have a combined iron ore offtake allocation of 16.5 million mt/year. Some offtake agreements are in place with Chinese mills.
However, like all new iron ore projects in Western Australia, infrastructure remains the challenging part. While mining is expected to be fairly straightforward with C1 cash costs predicted to be less than US$40/mt, a 340 km railway line needs to be built from the mine to Port Hedland to the north. Some analysts estimate it will cost $4 billion to build the rail and port facilities.
“Roy Hill will go ahead, but how do they get the ore to port?” a Perth-based analyst questioned. He suggested possible cooperation on rail between Hancock and one of the other larger miners in the region but
noted that “this has always been a tough ask in the Pilbara.” An agreement as a foundation customer of rail haulage company Aurizon was another possibility.
“We would be keen to know what they are planning in terms of rail; we know where the port is going to be built [next to Atlas Iron’s Utah Point facility], but almost nothing has been mentioned on the rail construction,” he said.
If production targets are met, the ramp up at Roy Hill will coincide with Rio’s capacity expansion from 290 million mt/year from the second-half of 2014 to 350 million mt/year in 2017. By that stage, fellow Australian miners BHP Billiton and Fortescue will likely only be adding incremental tons as they squeeze existing operations and infrastructure.
Brazil’s Vale may be producing at a significantly higher rate if its 90 million mt/year S11D project starts in 2016 as forecast. This means that while there may be an expansion lull around 2015, supply could step up again from the following year.
Platts monthly average iron ore prices, February 2014 ($/dmt)
Monthly $ % average change changeIODEX: Iron ore fines 62% Fe CFR North China 121.24 -6.91 -5.3963.5/63% Fe CFR North China 122.99 -6.92 -5.3265% Fe CFR North China 132.38 -8.44 -5.9958% Fe low Al CFR North China 110.16 -6.28 -5.3958% Fe CFR North China 104.88 -5.83 -5.2652% Fe CFR North China 78.23 -6.34 -7.49Per 1% Fe differential (Range 60-63.5% Fe) 2.20 -0.06 -2.74
tsI monthly average iron ore prices, February 2014 ($/dmt)
Monthly $ % average change change62% Fe fines, 3.5% Al, CFR Tianjin port 121.37 -6.75 -5.2758% Fe fines, 3.5% Al, CFR Tianjin port 110.98 -6.87 -5.8362% Fe fines, 2% Al, CFR Qingdao port 122.42 -6.72 -5.2063.5/63% Fe fines, 3.5% Al, CFR Qingdao port 123.90 -6.97 -5.3365% Fe fines, 1% Al, CFR Qingdao port 131.61 -6.53 -4.73
Platts 62% & 58% Fe iron ore monthly averages CFR China ($/dmt)
tepid market favors buyersMarch is shaping up to be a pivotal month for the iron ore market in 2014. The January-March quarter has been the strongest quarter for iron ore prices over the past three years, yet prices are currently at a 7-month low. Weak demand and steel prices, a lack of access to credit and plentiful supply of iron ore have all combined to take the heat out of what is currently a very tepid market. The post-Chinese New Year rebound did not occur, and the question now is at what point will prices rebound. Many consider the marginal ton in China to be around $100-110/mt these days, in which case there is potential for prices to fall further.
The monthly average for Platts 62% Fe iron ore fines in February was $121.24/dry metric ton CFR, down almost $7/mt on January’s monthly average, and on March 5 it was just $116/mt. TSI’s average monthly price for February was $121.37/dmt CFR, 5.3% lower than the January average.
Though steel production in China is typically weakest in the first quarter, constrained iron ore supply has historically supported prices (see January issue of Steel Raw Materials Monthly for some analysis on quarterly trends). Despite some heavy rain in Western Australia since the start of the year, the production capacity ramp-up from Fortescue Metals Group and Rio Tinto means the supply disruptions are less severe than normal. The latest Port Hedland data shows export levels have barely fallen over the weather-affected months.
Strong Australian production and the seasonal supply recovery from Brazil over the back half of 2013 contributed to record Chinese iron ore imports of 86.8 million mt in January, more than 23 million mt higher than a year earlier. Port stocks breached 100 million mt in February, up 30 million mt on last year. Reports that some of these stocks are being used as collateral are probably overstated. Mills can leave their ore sitting at ports when steel prices are weak to avoid having to pay for it, and the New Year holidays would also have played a role in the stocks growing.
A buyers market? Traders and mills in China know that plentiful supply means they can stock up whenever suits and manage their inventory more conservatively. The worry for iron ore producers is that traders and mills can
in effect carry out a ‘buyers’ strike’ and sit on the sidelines when they consider prices to be too high, which has the result of depressing prices. Abundant supply
appears to be transferring buying power to the mills. It also means that stocking cycles are now becoming harder to predict and may be driven by price as much as seasonal stocking/destocking activity.
no let-up in Indian ore stoushThe years-old tussle between Indian steelmakers and the country’s iron ore miners flared up again in February with accusations flying about monopolistic practices to protect vested interests. That New Delhi had just appeared to side with the mills to discourage exports of pellets didn’t help.
Behind the recent clash remains the Karnataka state government’s decision in 2010 to shut iron mines accused of undertaking illegal mining. In early February, industry groups representing steel and sponge iron makers in Karnataka issued a joint media statement decrying what they claimed was “rampant profiteering” by private iron ore miners selling ore via the state’s electronic auction process.
At a press conference on February 4, officials from the Karnataka Iron and Steel Manufacturers Association (KISMA) alleged that “certain private (mining) lease holders have formed a cartel” of the iron ore sold through the e-auctions. The ore consumers claimed that between April 2013 and January this year, base prices of 61% fines offered for e-auction by some private miners had increased from Rupees 2,250/metric ton ($35.9/mt) to Rupees 5,000/mt.
KISMA, together with the Indian Association of Mini-Blast Furnaces and the Karnataka Sponge Iron Manufacturers Association, accused the miners of capitalizing on the shortage of iron ore in India from the crackdown and mine closures. They called for the “immediate intervention (by government authorities) to regulate rampant profiteering and bring in a transparent and fair pricing mechanism to save the ailing iron and steel industry of Karnataka.”
Inevitably, the miners vigorously denied any hint of collusion, with their lobby group the Federation of Indian Mineral Industries (FIMI) dismissing the mills’ allegations.
The steelmakers were abusing the system by “their dominance in purchase of iron ore” which allows for maximum profiteering, a FIMI spokesperson told Platts. “For how much longer do they want domestic iron ore prices to be depressed?” he asked. “Compare our prices with those traded on the international market and you will see that we have been underselling our iron ore to these steelmakers for far too long. We can’t yield to their every demand.”
The miners’ group argued that Indian mills “should either pass on the benefits of cheap raw materials” in lower steel prices to domestic consumers, or at least pay import parity prices the same way that “non-ferrous metal users pay parity in India.”
This furore over Karnataka ore followed the Indian central government’s decision to slap a 5% export duty on iron ore pellets effective from January 27. Currently, Indian export duties on iron ore fines and lumps stand at 30%, unchanged since December 2011.
New Delhi’s decision was prompted by a rise in Indian pellet export volumes over April-November 2013, “causing
apprehension about a shortage of iron ore in the country,” India’s finance ministry said in a statement. Some 650,000-700,000 mt of pellet sailed from India last year, compared with almost none in 2012.
However, a source at state-owned pellet producer KIOCL said that even though pellet export volumes were growing, domestic production was still surplus to local steelmaker demand.
Steel Raw Materials Monthly now includes a number of new TSI metallurgical coal, iron ore and ferrous scrap price indices.
The new metallurgical coal prices are: Premium hard coking coal, FOB Australia; and Hard coking coal, FOB Australia. The new scrap prices are: Shredded, Turkish imports (CFR port); Plate and Structural, Turkish imports (CFR port); A3, short sea, Turkish imports (CFR port) and HMS 1&2 80:20, Taiwanese imports (CFR port).
There is one additional iron ore price: 65% Fe iron ore fines, 1% Al, CFR Qingdao port.
Coking coal prices have slumped almost 30% over the past twelve months and it is difficult to see what the catalyst might be to pull them out of their current malaise. Heavy rain across the Bowen Basin region of central Queensland constraining exports is often the major factor in propelling prices upwards. But that hasn’t occurred so far in 2014 and monsoon season across northern Australia is set to end soon. Indeed, Australian metallurgical coal producers have been taking advantage of dry conditions to push through as much material as possible, which has contributed to abundant supply.
The monthly average for Platt’s Premium low-vol hard coking coal in February last year was $171.81/mt FOB Australia, but that has fallen to $122.97/mt in February this year. Further, the price has come off another $5.45/mt or 4.2% since January. The Steel Index’s (TSI) February monthly average spot price index fell 3.4% for Premium HCC and 2.6% for Hard Coking Coal (HCC) to $126.22/mt and $113.93/mt FOB port respectively.
In early March Platts reported that market leader BHP Billiton-Mitsubishi Alliance was offering April-loading coking coal at $130-131/mt FOB Australia, below the March settlement price of $134/mt. This was the lowest contract settlement price since April 2009-March 2010.
Everyone is pointing to potential reasons for the weaker prices, but it most likely comes down to simple supply-demand fundamentals. The market for hard coking coal is oversupplied and demand is lacklustre due to weak steel prices and production in China. As a result, there has been little trading activity since the Lunar New Year holidays, and immediate needs have been met by competitively priced domestic coking coals and port stocks. Indeed, there were only two spot transactions in the last week of February compared with 15-20 the week before. Meanwhile, total Chinese port stocks fell
spot price slump shows no signs of abatingby 4.65% from January to 11.88 million mt at the end of February.
Bearish sentiment prevailed throughout the month in China as pollution woes – which
are always more pronounced in winter – along with credit tightening and weak exchange rates hampered trading activity. Tighter pollution controls in key steelmaking regions such as Hebei province in the country’s north saw some Chinese mills reducing production
Platts monthly metallurgical coal relativities table, February 2014 CSR VM TM Ash S P Fluidity Vit % February average Spread Spread ad ar ad ad ad ddpm CFR China $/mt vs PLV vs HCC 64Peak Downs 74 20.50 9.50 10.50 0.60 0.03 400 71 139.30 101.20%Saraji 72 18.50 10.00 10.50 0.60 0.03 160 66 137.93 100.20%
Platts monthly metallurgical coal assessments and relativities table provides previous month�s price assessments for various qualities of coking coal including Platts benchmark grades, premium low-vol and the mid-vol marker HCC 64 Mid Vol. The price information provided is determined from trans-actional data, spot market assessments and theoretical calculations using value-in-use (VIU).
Starting with the January 2014 analysis, the table shall represent relativities on a CFR China basis, rather than theoretical FOB Queensland basis. This is because discoverable relativities are more consistent CFR China, likely due to the fact that seaborne suppliers compete on a delivered basis. In addition, FOB Australia relativities have been observed to be less consistent, perhaps due to discriminatory pricing depending on the geographic destination.
Platts has developed a normalization tool based on VIU data to track the relative values of several coal qualities. In calculating a theoretical value-in-use, Platts may apply linear penalties and premia for coke strength after reaction (CSR), volatile matter, total moisture, ash and sulphur and non-linear adjustments for phosphorus, maximum fluidity and vitrinite percentage. For each of the latter, no adjustments are applied within a "normal range", but the penalties or premia for these important price determinants are applied when specifications fall outside of the normal range.
The theoretical VIU-based relativities are recalibrated by observing spot market data including bids, offers and trades for specific brands, and by observing the tradable or traded spreads between these brands.
The final assessed value is a combination of the observed market activity, the editorial evaluation of the coal attributes and the results offered by the calcula-tions. Particular market events and specific circumstances may also have an influence on the market for coking coal or individual grades. Platts observes and monitors all relevant market information for consideration in its assessments.
Source: Platts
capacities by approximately 20-30%. In addition, Chinese government policy to reduce some 8.2 million mt of steel production capacity weighed on buying interest. However, given China has crude steelmaking capacity of more than 1 billion mt/year – though current utilization rates are around 70-75% -– the planned loss of capacity has possibly more of an impact on market perception than actual loss of demand.
Second-tier coking coals fared a little better in late February in terms of liquidity though transaction prices were weaker. One large Chinese trader saw the spread between first and second-tier coals narrowing to $7-8/mt from the $10-15/mt levels seen last year.
In the Atlantic market low-vol HCC averaged 128.850/mt FOB US East Coast, down $5.059/mt on the previous month, and prices weakened from this
level in late February.Chinese met coke export prices hit a
seven-year low at the end of February due to an oversupply and Japanese buyers asking for lower prices. Platts assessed Chinese 62% coke strength after reaction (CSR) and 12.5% ash coke $6/mt lower on the week before at $227/mt FOB Tianjin on February 27.
Platts monthly average ferrous scrap prices, February 2014
Monthly $ % Unit average change changeHMS FOB Rotterdam $/mt 325.25 -32.95 -9.20A3, FOB Black Sea $/mt 326.25 -32.91 -9.16HMS CFR Turkey $/mt 357.00 -35.84 -9.12Shredded del Midwest US $/lt 406.18 -23.70 -5.51Shredded del dock East Coast $/lt 324.61 -5.99 -1.81HMS del dock East Coast $/lt 294.61 -18.84 -6.01HMS FAS US West Coast $/mt 312.68 -18.82 -5.68
tsI monthly average ferrous scrap prices, February 2014
Turkish ferrous scrap import activity slowed towards the end of February. US sellers were largely absent, waiting to see where their March domestic contracts settled, and for stronger prices in Turkey. In Asia, scrap prices weakened during the last week of February, with prices dropping in Japan and Korea. There was little optimism that conditions would improve in the near-term, though a pick-up in construction activity with the arrival of spring means Asian mini-mills will want to be well-stocked.
There has been some market concern around the situation in Ukraine. Constrained supply of billet from Ukraine is expected to help scrap suppliers, who in the last year have had to contend with arbitrage for steelmakers in Turkey buying billet rather than scrap.
Turkish scrap imports in February were quite volatile as the price weakness seen in late January continued, sending the price of HMS 1&2 80:20 deep-sea imports into free-fall. TSI’s daily benchmark index for deep-sea Turkish imports of HMS # 1 & 2 80:20 fell from $402/mt in the first week of January to $345/t on February 20, a steep $57/mt fall.
Though the market enjoyed a period of relative stability during November and December, the balance of power shifted to Turkish buyers who were able to achieve lower prices due to plentiful global supply in February. Inclement weather in the US did little to alter the view that there is abundant global supply, while political turmoil in Turkey was expected to reduce steel demand. As a result, suppliers had little reason to justify keeping prices at prevailing levels.
In the third week of February prices reached $345/mt, which suppliers viewed as the bottom of the price downturn and subsequently pushed hard for higher prices. Confirmation the bottom had been reached was evident the following week, when the index rose $5/mt, confirming reports that most available deep-sea cargoes had already been consumed. The final week of February was relatively quiet, with the market looking to the US domestic scrap situation for direction ahead of its imminent buy-week. Any firm movements in the US market could have a strong effect on sentiment for the major global scrap import markets.
Market looks to us for price directionAsian buyers lower offersIn Japan, Tokyo Steel Manufacturing clipped the buying price at its Utsunomiya works by Yen 500/mt ($5/mt) from February 28 arrivals. The reduction was the mini-mill’s sixth for the month and saw Yen 2,000-3,000/mt ($19.6-29.4/mt) pared from its prices. Meanwhile, Sanko Seiko in Kanagawa, near Tokyo, lowered its domestic scrap purchase prices by Yen 1,500/mt from March 1 on the basis that heavy snow the previous week had largely melted, allowing scrap deliveries again.
In Korea, Posco said it would cut its domestic scrap buying prices by Won 5,000/mt ($4.7/mt) for all grades at its
Gwangyang works from March 3. This followed similar moves by Posco Specialty Steel and SeAH Besteel, with the new prices set to take effect from February 26 and 27 respectively.
In Taiwan, containerized ferrous scrap export prices from the US West Coast inched up in late February, reversing a two-month slide, while bulk scrap deals were concluded at sideways price levels compared to mid-February. Container scrap sales were confirmed at $339/mt CFR Taiwan for HMS 1&2 80:20 from prior bookings as low as $335/mt. Before the price uptick in late February, container prices had fallen $37/mt from late December levels.
— Anna Low, Staff
Platts East Asia scrap imports / HMS 80:20 ($/mt CFR)
Similar to other steel-related raw materials markets, Chinese ferrosilicon exports failed to find any real momentum or demand once trading had resumed after the two-week long Chinese Lunar New Year holiday in the first half of February. Views were mixed on near-term price directions, with some market participants predicting that prices could drop further unless demand improves. But others believed prices had already reached production cost levels and were therefore unable to fall any further.
Spot prices of 75%-Si ferrosilicon in China fell over February on soft post-Lunar New Year demand. The Chinese export spot price of 75%-Si ferrosilicon was assessed at $1,410-1,430/mt FOB on February 27, down from $1,440-1,480/mt FOB on January 30. Domestic and overseas demand was weak after the holidays (January 31-February 6) and sellers lowered their offers in response. Ferrosilicon traded at Tianjin port at Yuan 6,600-6,700/mt ($1,077-1,093/mt) on February 27, compared to Yuan 6,700-6,900/mt in late January.
Chinese exporters continued to face price competition from Vietnamese ferrosilicon which was last heard sold to South Korea at $1,260-1,270/mt CIF South Korea in late-February. Market participants believe such low-priced offers or deals are due to the avoidance of export taxes. China imposes a 25% export tax on ferrosilicon but some material is sold from a third country without the tax payment.
Chinese domestic high carbon ferrochrome (50% basis Cr) prices were at Yuan 6,750-6,900/mt (equivalent to 83.5-85 cents/lb) on February 26, unchanged month-on-month. But prices came under pressure after major Chinese stainless steelmakers cut their March purchase prices by Yuan 50/mt.
Market participants had predicted a slight decline to spot market prices following the purchase price cuts. Domestic prices are supported by stable chrome ore prices and production costs levels of smelters.
Spot prices of India-origin high carbon ferrochrome (58-60% Cr) and South African charge chrome (48-52% Cr) were assessed at 84-86 cents/lb CIF China and 84-85 cents/lb CIF China respectively on February 28. The Indian ferrochrome price was unchanged but the charge chrome price had risen from 83-84 cents/lb CIF China on February 7.
Markets fail to pick up after Chinese new year However, buying interest for imports
thinned towards the end of February after the Chinese steelmakers set their March purchase prices. Chinese buyers became more cautious about procuring imports due to the outlook uncertainty, and also due to the Chinese Yuan weakening
against the US dollar.Most industry watchers did not expect
demand for domestic and imported ferrochrome to pick up significantly in the near-term as demand and prices in the stainless steel market remain weak. Both domestic and import prices are expected to remain stable at best in the near-term.
BHP Billiton to suspend output at Pilbara mineBHP Billiton is suspending production at its 2 million mt/year capacity Yarrie iron ore mine in Western Australia. Yarrie is part of BHP's Mt Goldsworthy joint venture, in which it holds 85% — Mitsui and Itochu own the balance. Mt Goldsworthy consists of the Area C mine, in the central Pilbara, and Yarrie in northern Pilbara, 218km from Port Hedland. Employees from the shuttered Yarrie deposit will be redeployed to manage Orebody 18 and "other areas of the business wherever possible," the company said. "As an additional productivity measure for the Iron Ore business, we have made the decision to suspend production at our Yarrie operation until further notice," Jimmy Wilson, president for iron ore, said.
MMX finalizes stake saleBrazilian iron ore miner MMX Mineracao e Metalicos has finalized the sale of a 65% stake in Porto Sudeste do Brasil SA to Trafigura unit Impala and Abu Dhabi's Mubadala Development Co. MMX subsidiary Porto Sudeste Participacoes SA will retain a 35% stake in the facility's operating company. The export port terminal is located in Itaguai, Rio de Janeiro state, and was designed to allow iron ore from Minas Gerais state without a direct export route to be shipped out. The port operator and MMX Sudeste executed a new services agreement to provide port operation services for 7 million mt/year of iron ore shipments, with the option to ship additional amounts based on certain conditions.
Vale pellet plant could produce DRIVale wants its new Tubarão VIII pellet plant to produce direct reduction iron feedstock as well as pellets, and is targeting the US market. The company hopes to have some offtake deals in place later this year. The Tubarão VIII pellet plant is scheduled to start operating this year, pending an operating license expected to be received in the first half. Vale considers the US a favorable market in upcoming years, due to the country’s shale gas development and abundance of natural gas. Vale
China’s steel industry does not appear to be expecting much from the Chinese central government’s annual National Committee meeting taking place in Beijing in early to mid-March. Compared to the huge anticipation ahead of the Third Plenum session late last year, interest has been subdued. And yet, these are the sessions where the Chinese government outlines its economic growth targets for 2014. It will also likely announce further measures addressing pollution, finance availability, housing reform and local government debt, among other issues, all of which will impact steel demand and production in China.
Perhaps the key reason for the lack of excitement is that the Xi-Li government, which is almost a year old, has already shown itself to be a ‘steady-as-it goes’ administration where economic growth is concerned. The massive stimulus package unveiled in late 2008/2009 during the height of the global financial crisis – and which almost singlehandedly rescued tanking iron ore
analysis: China showing signs of slowingprices – is now blamed by many Chinese commentators for overcooking parts of the economy, and contributing to the steel overcapacity problem.
However, the leadership in Beijing has shown it will stimulate the economy to achieve its growth targets, albeit in a much more modest way. In mid-2013 the government unveiled a mini-stimulus, loosening credit constraints and scrapping some taxes for smaller companies, which resulted in a pick-up in construction steel demand. Many in the steel and raw materials sectors believe another mini-stimulus may be necessary now to nudge the sector out of its current malaise. “The market certainly needs something; otherwise it’s difficult to see how the steel sector is going to improve and iron ore prices recover,” an analyst based in Sydney said.
Construction, manufacturing weakInternational steel companies with building and construction focused operations in China have commented
that Chinese growth is demonstrably slowing due to a lack of access to credit. Manufacturing is also faring badly with the official purchasing manufacturing index (PMI), published by the National Bureau of Statistics, falling to an eight month low of 50.2 in February from 50.5 in January. The smaller and private business focused HSBC China PMI fell to 48.5 in February from 49.5 the previous month. A reading below 50 indicates the sector is contracting.
International investment into China is slowing and Chinese state-owned enterprises are cutting back on their investment overseas. On the steel side this is not surprising given state-owned mills are barely profitable from their steel operations. Even Chinese SOEs cannot continue their loss-making operations indefinitely; meanwhile banks are increasingly reluctant to lend to steel and steel-related companies and alternative sources of finance are being progressively cut off.
Chinese domestic flat steel prices have fallen 22% over the past year. Hot rolled coil prices averaged Yuan 3427/mt ($557/mt) in February, down from
believes expanding production, along with additional capacity at its Samarco joint venture will prevent a supply shortage after the stoppage of Tubarão I and II and Sao Luis pellet plants.
shanghai Clearing close to ore swaps launchShanghai Clearing House plans to launch iron ore swaps by mid-2014. They will be priced in yuan and will likely settle against a formula based on the average of indices by China's Mysteel, Umetal and China Beijing Mining Exchange. The lot size for the ore swaps will be 100 wet mt, and SCH will offer 12 monthly, four quarterly and two annual contracts to facilitate the Chinese mills and trading houses' various needs. SCH has chosen indices from domestic companies as those published by Platts and TSI, for example, are all priced in US dollars, so are deemed unsuitable for SCH's yuan-based swaps.
glencore Xstrata gloomy on iron oreGlencore Xstrata sold 33.2 million mt of iron ore in 2013, a 68% annual rise in volume, but said the outlook for iron ore was not so good. "We believe long-term pricing momentum is potentially down, with large increases in supply currently expected from major producers in the next few years," it said. The company sold 4.7 million mt of metallurgical coal, which includes volumes sold via agency agreements, up from 4.1 million mt sold in 2012. Coke sales tripled to 600,000 mt from 200,000 mt.
Cliffs idles wabush mineNorth America’s largest iron ore producer, Cliffs Natural Resources, will idle its Wabush mine and freeze the expansion of its Bloom Lake mine, both in Canada, because of reduced iron ore prices. Cliffs said it expects total capex in 2014 to be in the range US$375-425 million, less than half its 2013 spend of $862 million. At Bloom Lake Cliffs said it will indefinitely suspend the phase II expansion and limit operations to phase I, which means output this year of 5.5 million-6.5 million mt. Phase II would have increased production capacity to 14 million mt/year by 2014. Wabush’s Scully mine in Newfoundland & Labrador will be idled by the end of 2014’s first quarter.
Monthly news Round-up
China steel sentiment Index*
Sentiment category March Change from February
Headline Index 74.05 +17.19Steel Production 50.00 +10.00New Domestic Orders 74.81 +18.08 New Export Orders 61.43 +2.34 Mill Inventories 53.13 -3.54 Trader Inventories 33.28 -54.86 Total Inventories 43.20 -29.20 Long Products Prices 72.73 +1.30 Flats Products Prices 56.25 +1.25Export Prices 45.71 -3.96
* a figure over 50 indicates expansion; under 50 indicates contraction
Source: Platts
China Purchasing Managers’ Index
Source: HSBC, NBS
47
48
49
50
51
52
53
Feb-14Oct-13Jun-13Feb-13Oct-12Jun-12
HSBC PMIOf�cial PMI
Yuan 4185/mt the year before, and slightly lower than Yuan 3465/mt in January this year, according to Platts’ assessment of the Shanghai market. HRC inventories have started falling since trading activity resumed after Chinese New Year, but sentiment remains weak and participants expected to report a loss for February sales.
Production slowChina’s crude steel output is normally at its softest in the January-March quarter and this has been the case to date in 2014. Over February 11-20 steel production fell 5% to 1.966 million mt/day from 2.066 million mt/day in the first ten days of February, according to China Iron & Steel Association data. Annualized this would amount to just 715 million mt, a long way from output of 779 million mt achieved in 2013 and also the 805 million mt Chinese officials expect to reach in 2014.
Crude steel output in 2014 is already forecast to grow at half the rate it did in 2013 (3.5% compared with 7.5%). With another 85-90 million mt of additional iron ore supply due to hit seaborne
Mount gibson's iron ore sales hit 5 million mtAustralia's Mount Gibson Iron posted an 111% rise in net profit to A$78.3 million (US$70.5 million) for July-December, attributed to a 15% rise in iron ore sales to 5.1 million mt. Mount Gibson CEO Jim Beyer said the company was continuing to see healthy demand from buyers in China and believed recent talk of a weak outlook for iron ore prices was overly pessimistic. "Long-term iron ore demand continues to grow at a healthy rate, though admittedly at a more modest pace than in the recent past," Beyer said. The company's cash costs for production over July-December averaged A$58/mt, down 13% from the same period of 2012.
markets this year, miners will grow concerned if steel production rates remain stubbornly slow. They need steel production to stay strong to absorb the next wave of supply growth. Iron ore prices are traditionally at their strongest in the March quarter but they fell to a 7-month low in February.
The Platts China Steel Sentiment Index (see results table) showed that steel mill operators expected production to remain at current levels over the rest of March; though they expected orders to improve in line with warmer weather which would allow them to lower inventories and potentially boost prices.
Most traders and producers of long steel products expected the resumption of construction activity to support higher prices this month, but traders and producers of flat
steel products were more pessimistic, expecting no meaningful increase in March.
The Index surveys steelmakers and traders on their outlook for prices, demand and inventories in the month ahead. Similar to a PMI, a figure greater than 50 indicates expansion and below 50 indicates a decline.
— Paul Bartholomew
Roughly a quarter of Australian metallurgical coal is currently sold on a spot basis, substantially more than in previous years. This trend is being driven by a significant increase in production and the fact that China, which is the primary destination for new tons, prefers shorter-term pricing.
Spot sales amount to an average of 25% of Australian coal majors' books, a figure calculated by adding up each major producer's observed spot deals and comparing this with their production volumes. The growing exposure to spot is a relatively new phenomenon in a market traditionally dominated by a longer-term approach
Met coal producers selling 25% on spotto pricing, and where the most common pricing period is quarterly.
Seaborne metallurgical coal supply from Australia has witnessed a sharp increase in recent years with new mining projects coming online and producers ramping up production. Market leader BHP Billiton saw a 28% increase in metallurgical coal production from around 54 million mt in 2012 to 69 million mt in 2013.
Long-term contract customers in Japan, Korea, India and Europe were unable to absorb these excess tonnages due to limited steel industry expansion. Miners were therefore obliged to look to the Chinese market
as the only possible destination for these cargoes. Though China is a major producer of metallurgical coal from its northern provinces, and this production has become more competitive on cost, the country is keen to purchase higher quality Australian coking coal when the price is right.
Weaker coking coal prices in 2013 saw China lift its imports by 40.7% on-year to 75.4 million mt from 53.6 million mt in 2012, China customs data shows. Australian seaborne exports to China more than doubled to 30.2 million mt in 2013 compared to 2012's 14 million mt.
Spot pricing is defined as cargoes whose price is bilaterally agreed at the time of trade. This
Australian quarterly metallurgical coal exports (million mt)
Source: Company reports*Contains some thermal coal
0
5
10
15
20
Q4 2013Q2 2013Q4 2012Q2 2012
Peabody Energy*
Anglo American
Wesfarmers
Glencore Xstrata
Rio Tinto
BHP Billiton
also include deals priced as spot but which are signed as part of a long-term agreement, as long as there are no volume restrictions or commitments on either side.
With this definition, four out of six Australian met coal majors already have more than a quarter of their coals sold on a spot basis. Leading the pack are Peabody Energy (33%), BHP Billiton (30%), Glencore Xstrata (29%) and Vale (29%). Anglo American and Rio Tinto were less exposed to spot, at under 20% each.
Platts estimates that Anglo American sold up to 18% on a spot basis in 2013, information corroborated by the company's own recent presentation to investors, up from just 9% in 2012.
In North America, Canada's Teck Resources, the world's second largest coking coal exporter, sold more than 40% of its metallurgical coal on short-term pricing in 2013, up from around 30% in 2012 and 15-20% prior to 2012, the company's Vice President of Coal Marketing Real Foley said at an earnings call. "There is more coal being priced on a spot basis in the market," Foley added.
Sources believe the trend towards spot purchase will increase as China imports more seaborne material. Chinese end-users are getting used to seaborne coals in their blends and wider availability of low sulfur and low ash coals from Australia, Russia and Canada will help steelmakers meet environmental targets.
China's growing dominance has resulted in a challenge to the FOB Australia price, which is used in most contract negotiations and some spot deals, and a move towards pricing coal on a CFR China basis.
— Julien Hall, Edwin Yeo
us coal exporters looking outside of asiaWhile acknowledging that an oversupplied hard coking coal market is making conditions very
tough, Australian producers are still better placed to capitalize on China’s growing demand for imported material than their North American competitors. The weaker Australian dollar has added to the benefits of geography and lower production costs, forcing North American miners to look to Europe and closer to home as an outlet for exports.
Alpha Natural Resources said recently it was able to “partially mitigate” the impact of lower quarterly benchmark and spot prices by selling more into North America. It noted that
its largest export market of Europe was showing signs of a recovery which could also support a lift in exports to that region.
St Louis-based Arch Coal said it expected to ship 7.5-8.5 million short tons into coking coal and pulverized coal injection (PCI) markets in 2014, a volume which reflected the production cutbacks in 2013. It expected weak seaborne metallurgical coal prices to remain “unsustainably low” which would deter any new capital investment.
“While new global metallurgical coal supply entered the market during 2013 and must be absorbed,
incremental production increases going forward should be largely offset by rationalization of higher-cost metallurgical supply. These trends should tighten metallurgical markets in the future,” Arch said.
Meanwhile, Peabody Energy, which owns coking coal assets in Queensland, said it expected export growth from Australia to slow in 2014. Combined with uncompetitive US exports to China, this should help improve the market balance, the company said. Peabody predicted seaborne metallurgical coal to grow 10-15% over the next three years, supported by urbanization in China and India.
Data from the US Energy Information Administration shows (see table) that US metallurgical coal exports to Asia fell 54% in July-September 2013 to 3.3 million short tons from 5.07 million short tons a year earlier.
Exports to China of 827,069 short tons were down on the previous June quarter but up slightly on a year earlier. Exports to Europe in July-
us metallurgical coal exports (st)
July – September 2013 April – June 2013 2013 2012
North America Total 2,556,109 1,503,162 4,823,972 4,068,216Canada 1,256,579 975,783 2,575,671 3,604,571Mexico 1,196,671 527,285 2,094,284 463,645South America Total 2,375,764 2,091,488 7,029,024 6,595,331Brazil 2,091,234 1,921,144 6,364,476 5,911,866Europe Total 7,380,521 7,627,893 22,758,060 24,981,973Asia Total 3,308,115 4,620,655 14,746,319 17,976,318China 827,069 1,885,196 5,819,135 5,900,390India 600,910 846,132 2,195,570 3,832,227Japan 836,559 833,849 3,093,473 4,027,354South Korea 1,043,577 1,055,478 3,126,079 3,864,143Total 15,937,919 16,142,150 50,258,178 54,677,129
Source: U.S. Department of Commerce, Bureau of the Census, ‘Monthly Report EM 545.’
September of 7.4 million short tons were flat on the previous quarter and also on a year earlier, while sales within North America jumped by an additional 1 million short tons in the September 2013 quarter to 2.5 million short tons.
Canada's Teck Resources sells around 75% of its coal into Asia, with
Chinese customers making up 30% of this total. The balance goes to Europe and the Americas. Teck said it expected to produce 26-27 million mt of coal this year, compared with 25.6 million mt last year, around half of which is likely to be sold on a spot or short-term contract basis.
— Paul Bartholomew
Rising costs, including those of crucial inputs such as scrap and electricity, were cited by two Japanese mini-mills last month for their sudden and surprising decisions to withdraw almost immediately from business.
The two mills – flat bar maker Daisan Steel, located in downtown Tokyo, and rebar maker Shin-Hokkai Steel in Otaru, Hokkaido – between them have a history of 143 years, and their announcements within two weeks of one another caused ripples in the sector.
“I’d say the decisions that Daisan and Shin-Hokkai took were very courageous,” a Tokyo-based scrap distributor observed. “Halting business is hard but if they decided to delay, their (financial) condition would only be worse,” he said.
The first shock came from Daisan on late February 5 when it sent a facsimile to business partners and creditors saying it would halt all production and sales at the end of February and wind up its affairs. In the fax, Daisan president Nobuaki Katori blamed increasingly tough competition and the recent rises in input costs including scrap, energy and industrial gases for battering its finances.
“We have been trying to improve our financial condition under these severe business conditions, but we
soaring costs force Japanese mills to closerealized that continuing our flat bar production and sales any further will be difficult," Katori said.
Scrap industry sources regularly supplying the firm told Platts that in recent months its purchases had declined markedly. Industry data showed the company’s raw steel output declined to 3,700 metric tons in December from 9,200 mt in November.
Located in Koto ward in downtown Tokyo, the unlisted family-run mini-mill began business in 1949 and produces 44-370 mm wide and 6-40mm thick flat bars. Daisan hosts a 50-metric ton EAF that produced about 80,000 mt of flat bars last calendar year for a market share of around 8%. Flat bars are chiefly used in construction as connector plates.
“There are about eight flat bar producers in Japan but we’re the smallest,” a Daisan official said. The
market leaders with a combined share of over 50% are Oji Steel in Gunma and Shinkansai Steel near Osaka, both of which are close to Nippon Steel & Sumitomo Metals Corp (NSSMC).
Then on February 19, exactly two weeks after Daisan opted for closure, the board of Shin-Hokkai Steel, a rebar producer based in Japan’s northern-most island of Hokkaido and affiliated with NSSMC, voted to cease business at the end of Japan’s current fiscal year on March 31. The company said it was considering allowing Shimizu Steel, another Hokkaido mini-mill located in Tomakomai about 100 kms south-east of Otaru, to sell rebar to Shin-Hokkai's existing customers.
Established in 1936 as a roller of billets, Shin-Hokkai hosts a 50-mt EAF installed in 1975 and produces 10-41 mm diameter rebars. A decade ago it claimed a rebar capacity of 150,000 mt/year but production during last calendar year was just 90,000 mt.
Australian flat steel producer BlueScope Steel was forced to close one of the two 2.5 million mt/year capacity blast furnaces at its Port Kembla works near Sydney in late 2011. The country’s booming resources sector had kept the Australian dollar persistently high, making exports sub-economic and encouraging cheaper imported steel. Steel margins were crushed by the high price of iron ore and coking coal, while the domestic manufacturing and
Back from the brink – Q&a with Bluescope steel chief executive Paul o’Malley
Unlike the Kanto area around Tokyo which hosts some 12 mini-mills, Hokkaido is home to just three and all are relatively small. Indeed, that their ranks will be slashed by one-third was lamented by industry watchers.
“Rebar prices have risen (for the mini-mills) but their costs are also rising,” a trader in west Japan observed. “The other producers may still be considering how to survive, and if this cost push continues, we may see other mills wind up their business in coming years.”
Shin-Hokkai, which boasts steelmaking capacity of 18,300 mt/month, produced an average of 7,000 mt/month during October-December last year, according to industry data. The company cited rising costs and increasing competition for its decision to withdraw.
According to Japan Iron & Steel Recycling Institute data, prices of H2 scrap in Hokkaido climbed by Yen 7,000/mt ($69/mt) between January 2013 and January 2014 to around Yen 35,000/mt, while those in the Kanto region rose by a far smaller margin or by Yen 4,500/mt.
JISRI notes that rebar prices over the same period climbed by Yen 11,400/mt to reach Yen 68,000/mt for base size rebars. “But the rise in rebar prices began only towards the end of last year, while scrap prices were increasing throughout the year,” a Tokyo-based scrap market watcher said.
Power costsHigher electricity charges are another pressure for the EAF producers, a director of a major Kanto-based mini-mill said, noting that power costs now account for about Yen 30,000/mt while H2 scrap in the Kanto area at the time of writing was around Yen 35,000/mt.
“We’re currently producing rebars that were ordered 2-3 months ago
when contract prices were around Yen 68,000-69,000/mt, so considering other input costs, it is really difficult to survive. And while Tokyo Electric Power’s (Tepco) power increase last April doesn’t seem so large, for us as a major power consumer it really impacted our business,” the mini-mill official said.
From last April Tepco, the electricity giant supplying Kanto-based mills, raised fees to heavy industrial users to offset higher fuel costs and a weaker yen. Though power tariffs are subject to individual negotiations, an indication of scale can be found from Tepco’s website where the corporate buyers consuming 20kV were previously paying a base fee of Yen 1,585.50/1kW but from April had to pay Yen 1,630.80/1kW.
Similarly, the usage charge for night time use (when most mini-mills do their melting) climbed to Yen 12.22/1kWh from Yen.11.88/1kWh. By comparison, the daytime, Monday-Saturday 8am-10pm usage charge for autumn/spring is Yen 15.57/1kWh, and Yen
Major Japanese mini-mill results (million yen)
Fiscal 2012 Fiscal 2013 Projected
Net sales Ordinary Net Profit/ Net sales Ordinary Net Profit/ Profit Loss Profit Loss
* unconsolidated; ** In fiscal 2012 Tokyo Steel recorded a special ‘impairment’ loss for its underper-forming Tahara flat product works in central Japan
Source: Company reports
16.70/1kWh during summer, which explains why the mini-mills generally choose summer for works stoppages for annual maintenance.
The withdrawal of the two mini-mills was a sobering warning to all in the industry, according to Hideichiro Takashima, head of Japan’s largest rebar maker Kyoei Steel. Addressing the ‘Kobo Kondankai’ grouping of rebar makers and distributors in late February in Tokyo, Takashima said the closure announcements from Daisan and Shin-Hokkai “clearly indicates the straits of various electric steelmakers putting out ordinary steel products.” Takashima is a Kondankai vice-chairman.
“Both companies are thought to have made their decisions out of the judgment that their operations are difficult to maintain under adverse circumstances” due to the long-term decline in bar prices against a “considerable” increase in energy costs, Takashima said. He added that the tough times are expected to continue.
— Russ McCulloch, Yoko Manabe
construction sectors were also impacted by the high Australian dollar. Something had to give; so the company took the tough decision to halve production and cease exporting steel. The Melbourne-headquartered company finally returned to profitability in the July-December 2013 half, it announced in February.
Outside Australia BlueScope owns 50% of the North Star mini-mill in Ohio in the United States, and subsidiary New Zealand Steel. It has several
building manufacturing plants in China and other operations in Southeast Asia and India. Last March it kicked-off its Singapore-based coated products joint venture with Nippon Steel & Sumitomo Metal Corporation.
BlueScope sources most of its iron ore and coking coal for its Port Kembla steelworks from BHP Billiton. But it has been expanding captive iron sands production at Taharoa in New Zealand and plans to invest A$50 million ($45 million) on lifting export capacity from 1.3 million mt/year to 4 million mt/year by 2016 by adding another slurry vessel to transport the material to Asian
customers. The iron sands, which grade around 57% Fe, also feed New Zealand Steel’s Glenbrook blast furnace. BlueScope has also recently agreed to acquire new steel rolling and distribution assets in Australia and New Zealand.
BlueScope chief executive officer Paul O’Malley sat down with Platts managing editor for Australia, Paul Bartholomew, after the steelmaker’s interim results announcement.
Are the recent acquisitions a case of better positioning the company for a persistently weak domestic market, or are you hoping steel demand will rebound at some point?We’re planning for a tough environment, so if it improves that’s a positive, but it’s out of our control. We had an industry across the breadth of steel in Australia that was set up for volumes that are substantially higher than what we’re currently seeing, so there’s a need for rationalization both inside our business and also across the industry.
These bolt-on acquisitions will allow us to take costs out of the value chain and be more competitive when supplying our customers, providing a better margin therefore through the supply chain. And potentially if the costs come down enough and the Aussie dollar comes down as well, then we might be able to get more market share relative to imports.
If there’s a big economic uptick – noting that unemployment is going up at the moment not down – then that’ll be something for the future. We’re seeing it in our buildings business in North America where profits were up 22% on 28% lower volumes; that’s the type of equation we’re trying to set up in Australia.
What are you seeing in terms of steel imports into Australia currently and are anti-dumping measures helping?Anti-dumping is now being made more available to downstream customers which I think is really good; it’s always been difficult for them to mount anti-dumping cases. Free and fair competition is important but there’s a lot of unfair competition at the moment.
Specifically for us, the Customs authority has agreed there has been dumping and appropriately responded. It’s sent a signal to international competitors that fair competition is fine but don’t go dumping product, so it’s probably helped us pick up a bit of share but there’s still a lot of active import competition.
How much steel do you still need to export from Port Kembla to keep the blast furnace running efficiently?We still plan to make about 2.5 million mt/year of steel and running as hard as we can is really good for conversion costs and offsets the incremental losses from exports.
Domestic market demand is about 1.9-2 million mt/year, so exports are about 4-500,000 mt/year. But it’s going to be a lot less than that for the next couple of years, probably half of that, as we go through the maintenance work. [BlueScope is replacing some copper staves in the BF over the next couple of years]. So we’ll have less export losses but slightly higher conversion costs. But we export nothing like as much as we used to; the more we exported the more money we lost so it was important for the company to get out of that.
Are you seeing any impact of the new Chinese leadership on your operations in that country?
There are two impacts. Whenever there’s a change of leadership we always underestimate how long it will take to get decisions or investment-making certainty after that. It’s because the change is a process that not only affects the top but goes all the way down through province, city, town, and village level, so there’s a lot of personnel change throughout the party bureaucracy. That’s a process that’s still in train to a certain extent.
The second thing is that there has absolutely been a reduction in liquidity available and that is slowing down investment decisions, and I think we’re seeing that flow through the economy
as a whole. It’s a good thing for the country to focus on as ultimately it will improve decision making and productivity, but whether it’s directly related to our building business segments or not we are seeing a slowdown in our business.
Are you still considering building a new DRI (direct reduced iron) plant at your US mini-mill?There is a decision point come August on that. We’re doing a thorough evaluation process with our joint venture partner (Cargill) at the moment and there are some scenarios where it makes a lot of sense and some scenarios which we have to test. But the technology works; it’s all about raw materials feed and whether that makes sense.
Lower raw material prices must have been helpful. But would you look to develop your Taharoa iron sands business beyond current targets if the opportunity arose?One of the positives has been some margin relief from raw materials prices and steel prices haven’t fallen as much so that has been a real positive.
At Taharoa, as we go to a three ship operation [in 2016, after a second ship will be added next year] we know that we’ve got many years of resource left. The question for us is can we find incremental resources in the area and maybe go to a four ship operation? It’s something that’s certainly being looked at but it has already grown dramatically over the last few years. We probably need to just deliver on what we said we would for the time being and maybe look to step up again later.
— Paul Bartholomew
BlueScope Steel CEO Paul O’Malley. Source: BlueScope
No one has yet succeeded in coining a term as popular as ‘BRIC’ (Brazil, Russia, India and China) when trying to identify the next group of developing economies with high-growth potential. Aside from the suggested acronyms being too awkward-sounding to catch on, there is less of a consensus on which countries the next wave will include. One country that does tend to make it onto most post-BRIC lists, however, is Southeast Asia’s largest economy, Indonesia.
In terms of steel and raw materials demand growth, most analysts and producers believe they have a reasonable view of where China’s economy and steel market are heading. Indian growth has disappointed, handicapped by in-fighting and a lack of infrastructure. This has left many looking to Southeast Asia - and to Indonesia in particular - as a long-term market that could pick up some of the demand slack from a slowing China.
Indonesia has a population of 240 million and contains a dozen cities of more than one million people (its capital city Jakarta has around 10 million people) spread across a vast archipelago. It offers huge domestic development potential, as well as geographic proximity to trading partners in eastern Asia. Jakarta is a bustling and gridlocked metropolis with sparkling shopping malls and new apartment blocks, but travel just beyond the outskirts of the city and it quickly becomes a landscape of rice paddies and water buffalo.
Between 2009 and 2012 Indonesia’s economy grew at above 6% on the back of urbanization and a growing middle class. But last year a severe depreciation of the Rupiah and soaring inflation pegged back GDP to 5.78%. The country has been fairly stable under the leadership of President Susilo Bambang Yudhoyono, but he is constitutionally barred from contesting the April 2014 elections, causing some uncertainty around what the next President might offer.
Indonesia’s apparent steel consumption in 2012 (full 2013 data is not yet available) was 12.5 million metric tons, up 14% year-on-year, at just 51kg per capita. By contrast, Thailand’s population is 66 million and its steel consumption that year was 16.6 million mt at 245kg per capita. Vietnam has 90 million people and consumed almost 11 million mt of steel in 2012 at 157kg, while Malaysia’s 30 million people consumed 8.9 million mt at 310kg. (China’s kg per capita is 477kg, while Japan’s is 506kg).
Can southeast asia become the next high-growth region for steel?
sPECIal REPoRt
Neighbouring Thailand - which has seen significant investment from international steel companies in recent years, notably Japanese auto-focused ventures - saw its GDP fall to 2.9% in 2013 from 6.5% in 2012. With political unrest continuing to rage in Bangkok, 2014 may be a difficult year for Southeast Asia’s second-largest economy and its steel sector.
Steel demandAccording to the South East Asia Iron & Steel Institute (SEASI, which represents the industry in Indonesia, Thailand, Malaysia, Vietnam, Philippines and Singapore), steel output in the region grew 12.2% y-o-y in January-June 2013 to 14.2 million mt. Of this total, 10.7 million mt were long steel products, up 17.2% on the previous year, with the balance hot rolled flat products, which were down 0.5%.
Indonesia’s booming construction sector saw demand for long steel products jump 73% y-o-y in H1 2013 to more than 3 million mt. Indonesian Iron & Steel Association chairman Fazwar Bujang said long steel products were the most in demand in Southeast Asia as “they are needed for construction.”
Steel consumption in the region grew 17% in the January-June 2013 half to 32.2 million mt. Indonesian steel consumption rose 35% on the same period in 2012 to 7.6 million mt, while Vietnam’s grew 29% to 6.2 million mt, Malaysia’s by 16% to 4.9 million mt, while Thailand’s was up just 1% to 8.1 million mt. The region’s smallest nation, Singapore, saw steel consumption rise 20% over the corresponding half in 2012 to 2.1 million mt, while the Philippines grew 4% to 3.2 million mt.
Full 2013 numbers were unavailable at the time of writing but SEASI predicted consumption growth of around 11% for that year, which would be down slightly on 2012.
Southeast Asia’s own steel production covers less than half of its steel requirements. Historically, domestic steel production has always been a sign of a country’s economic development, and most countries in Southeast Asia would like to grow their steel sectors. Indonesia has aspirations to one day achieve steelmaking capacity of 100 million mt/year but at the moment produces barely 6 million mt/year, mainly from state-owned PT Krakatau Steel. Currently, steel comprises around 6% of Indonesia’s gross imports.
But rather than the local industry expanding to meet rising appetite for steel, the gap is being filled by imports, causing capacity utilization at mills in the region to fall below 50%. The region’s steel imports reached 22.3 million mt in January-June 2013 from 19.5 million mt a year earlier. Strong demand for flat steel in Vietnam was met by imports rising 50% over the year before while its steel output stagnated at 2.6 million mt in the June 2013 half.
Steel imports come predominantly from China and frustrated Southeast Asian steel company executives argue that local companies can never compete with cheaper imports from China. Between January-July 2013, China exported 36 million mt of steel, of which 10 million mt (27%) were shipped to Southeast Asia. Not only are local steelmakers losing share of their own domestic markets to Chinese product, but the negative impact on their finances means banks are unwilling to lend to local steelmakers, thwarting their capacity expansion plans.
“Once customers are used to getting something cheap they don’t care about quality, they want the price,” Malaysia’s Melewar Industrial Group CEO Azlan Abdullah said.
Unable to raise capital, Southeast Asian steel companies have to consider entering into joint ventures with larger Asian or international steel companies or exploring consolidation opportunities with other local companies, which is never easy.
A large ‘bone of contention’ with steel companies in the region is that China is allegedly exploiting trade loopholes to swamp the markets with imported steel. They argue that much of the Chinese hot rolled coil is actually carbon steel “disguised” as alloy steel due to the addition of traces of boron.
Data compiled by World Trade Atlas bears this out, the steel companies say. China’s carbon HRC exports to Southeast Asia fell to just 22,611 mt in 2012 from 2.1 million mt in 2007. But alloy HRC exports from China increased to 1.7 million mt in 2012 from 37,505 mt in 2007.
There are a number of trade defence actions pending with various countries in the region and the ASEAN Iron & Steel Council has taken the issue up with the China Iron & Steel Association but as yet there has been little progress. Japan is also a major exporter of steel to the region, accounting for 37% of total cold rolled coil imports in the June 2013 half, and 33% of coated sheet imports.
Most steel produced via EAFThe steelmaking process of choice in Southeast Asia currently is the electric arc process because of the lower capital costs compared with other iron and steelmaking processes such as the blast furnace. This means there is a big demand for scrap, though this has wavered depending on the country. Total scrap demand for the region fell 8% y-o-y to 18 million mt in 2012, with imports dropping 13% to 7.5 million mt, as steel operating rates retreated. In Indonesia, scrap demand fell 22.5% to 2.5 million mt with domestic supply halving to just 850,000 mt in 2012 and imports declining 7% to 1.7 million mt.
Malaysia showed stronger demand for scrap in 2012, increasing almost 5% to 5 million mt on the back of domestic supply surging 17% to 3.2 million mt. In the Philippines, demand rose 13% to 1.5 million mt, with domestic supply rising 11% to 2 million mt. This surplus allowed the Philippines to lift exports that year by 11% to 500,000 mt. Meanwhile, Singapore exported 890,000 mt, a 47% increase on the year before.
Some of the newer steel projects in the region are going down the blast furnace route in a bid to increase capacity and produce higher quality steel. In Malaysia, a joint venture between local company Hiap Teck Venture Berhad and China’s Shougang Group is expected to produce 700,000 mt/year of steel slab in 2014. In Vietnam, Hoa Phat Group commissioned a mini-blast furnace with 450,000 mt/year capacity in September 2013.
Possibly the two most eye-catching projects in the region are the Krakatau-Posco steelworks JV in Indonesia, and
giant Taiwanese company Formosa Plastics Group’s first foray into steelmaking with its Ha Tinh steelworks in Vietnam.
The blast furnace at Krakatau-Posco’s venture was fired up in late 2013 and will produce 3 million mt/year of slab and plate in the first stage before doubling capacity under stage two of the project. Located close to Krakatau’s existing works in Cilegon, a two hour drive from Jakarta, the JV hopes to source up to 30% of its iron ore and metallurgical coal from within Indonesia, and expects to use 2.8 million mt of iron ore in 2014.
Formosa is constructing a 22 million mt/year steelworks in Vietnam, and the first blast furnace is due to be lit by May 2015. A Formosa official said in February that “everything was currently on track” to meet its deadline. To ensure the works has a reliable iron ore feed Formosa entered into an agreement with Australia’s Fortescue Metals Group to help develop the miner’s Iron Bridge magnetite project in Western Australia. The deal includes a purchase agreement for 3 million mt/year of iron ore when steel production starts at Ha Tinh in 2015.
Raw materialsIn 2005, Indonesia overtook Australia to become the world’s largest exporter of thermal coal, but the Southeast Asian country’s metallurgical coal sector is taking longer to develop and if anything has been going backwards. The country produced less than 6 million mt in 2013, most of which came from PT Borneo Lumbung Energi & Metal. China imported just 2.6 million mt of metallurgical coal from Indonesia in 2013, some 300,000 mt fewer than the year before. India has long been mooted by developers as the target for Indonesian met coal exports but expanded Australian hard coking coal production may make this ambition harder to achieve.
BHP Billiton owns 75% of the greenfield IndoMet Coal project in Kalimantan, which could potentially produce 15 million mt/year by 2025, but weak global prices and the miner’s emphasis on cutting capex spend and optimising existing operations mean IndoMet is unlikely to be a major priority. BHP told Platts in March that the project “won’t produce coal this calendar year.”
“We continue to evaluate the potential for larger scale developments in the region,” a company spokeswoman said.
Of the Southeast Asian countries, Indonesia and Malaysia are the only significant producers of iron ore. Indonesia exported 17.8 million mt of iron ore to China in 2013, up 70% on the previous year’s 10.5 million mt, while Malaysia exported 11.7 million mt of iron ore to China in 2013, double the amount it achieved in 2011.
“Iron ore from Indonesia is always discounted heavily, in part due to the quality and in part due to the reliability and logistics,” a Singapore-based trader said.
For several years, Indonesia’s government has been mulling over its minerals exports policy with a view to retaining unprocessed raw materials for domestic use and placing greater emphasis on value-added exports. It has also sought to retain greater ownership of its resources, leaving some foreign companies uncertain about the status of their Indonesian assets and deterring prospective investors. Developers and miners have argued that in principle they are not against selling to local companies if that demand existed, but in the case of metallurgical coal, it patently doesn't at the moment.
A January 12 announcement from Jakarta provided a bit more clarity. For steel market participants, the biggest impact will be the ban on nickel ore as Indonesia produces 13% of the world’s mined nickel. Exports of iron ore and manganese concentrate can continue until 2017.
Whether Indonesia or any other country in Southeast Asia can take its place at the post-BRICs table remains to be seen.
— Paul Bartholomew
sE asia’s steel dynamics
Indonesia Malaysia Thailand Vietnam
Population 240 million 30 million 66 million 90 millionApparent steel consumption (2012) 12.5 mil mt/y 8.85 mil mt/y 16.6 mil mt/y 10.9 mil mt/yASC per capita (2012) 51kg 310kg 245kg 157kg
Source: Country reports, Melewar Industrial Group
asEan region – apparent steel consumption (million mt)
IndiaIndian steelmakers want the government to lift the tariff on iron ore pellet exports to 30%, up from the recently introduced 5% export duty.
BrazilBrazil’s merchant pig iron exports fell 45% in January from the same month last year to 229,447 mt and were down 27% on 313,962 mt in December.
AustraliaRain in the Pilbara region of Western Australia is likely to see softer iron ore exports in the January-March quarter but could be offset this year by capacity ramp-ups from FMG and Rio.
USThe US imported 29.2 million mt of steel in 2013, down about 4% from 30.4 million mt in 2012, according to finalized US Department of Commerce data.
ChinaChina’s finished steel exports of 6.77 million mt in January reached their highest monthly level since October 2008, and were up 25% from December 2013’s 5.37 million mt.
KoreaKorea’s heavy plate imports hit 239,800 mt in January, up 22% from a year ago. China contributed 131,200 mt, up 23% y-o-y and Japan 106,600 mt, up 23% y-o-y.
Platts raw materials reference prices, February 2014
Unit Price Change % ChgCoke and coal
Met coke 62% CSR DDP, North China Yuan/mt 1355.00 -77.00 -5.38Met coke 62% CSR, FOB North China $/mt 234.13 -13.87 -5.59Charcoal – Brazil domestic R$/mt 545.00 30.00 5.83
Iron
Iron ore concentrate 66% Fe Dry – China domestic Yuan/mt 1010.00 77.00 8.25Pig iron – FOB – Black sea export $/mt 372.50 -13.90 -3.60Pig iron – FOB Ponta da Madeira – Brazil export $/mt 392.50 0.00 0.00Pig iron – Hebei – China domestic Yuan/mt 2485.00 -40.00 -1.58HBI – Venezuela export $/mt 300.00 -5.00 -1.64
Platts ferrous scrap reference prices, February 2014
Unit Price Change % ChgScrap, Europe
OA (plate & structural) – UK domestic, delivered $/mt 359.85 -4.43 -1.22Shredded – delivered – N. Europe domestic, delivered $/mt 391.09 7.35 1.92Shredded – delivered – S. Europe domestic, delivered $/mt 391.02 -16.32 -4.01
Scrap, Asia
H2 – del Okayama – Tokyo Steel purchase price, at works gate $/mt 339.27 -22.69 -6.27H2 – del Utsunomiya – Tokyo Steel purchase price, at works gate $/mt 334.35 -27.61 -7.63Heavy – Shanghai – China domestic $/mt 398.60 -4.76 -1.18HMS 1/2 80:20 CFR – East Asia import $/mt 369.13 -23.37 -5.95Shindachi Bara – del Okayama – Tokyo Steel purchase (list) price $/mt 358.93 -22.60 -5.92Shindachi Bara – del Utsunomiya – Tokyo Steel purchase (list) price $/mt 349.10 -27.54 -7.31Shredded scrap A (auto) – del Okayama – Tokyo Steel purchase (list) price $/mt 347.13 -22.66 -6.13Shredded scrap A (auto) – del Utsunomiya – Tokyo Steel purchase (list) price $/mt 342.22 -27.57 -7.46
Scrap, Americas
#1 Busheling – N. America domestic, del, Midwest US $/lt 412.50 -20.83 -4.81HMS 1/2 – N. America domestic, del Midwest US $/lt 382.50 -23.33 -5.75Plate & Structural – N. America domestic, del Midwest US $/lt 395.00 -32.50 -7.60HMS 1/2 – Brazil S.E. domestic R$/mt 450.00 0.00 0.00
steel Mill Economics: global spreads Monthly averages
Change % Feb-14 on month changeChina Flat Steel Spread (CFSS using IODEX)* 298.25 $/mt 7.17 2.46China Flat Steel Spread (CFSS using TSI)* 298.01 $/mt 6.86 2.35China Long Steel Spread (CLSS using IODEX) 264.10 $/mt 15.43 6.21China Long Steel Spread (CLSS using TSI) 263.87 $/mt 15.12 6.08China Hot Metal Spread (CHMS using IODEX)* 281.17 $/mt 11.30 4.19China Hot Metal Spread (CHMS using TSI)* 280.94 $/mt 10.99 4.07China Coking Margin (CCM)** 428.95 RMB/mt -33.78 -7.30China Billet-Rebar Spread (CBRS) 373.95 RMB/mt 56.90 17.95Turkey Scrap-Rebar Spread (TSRS: Platts) 200.16 $/mt 19.61 10.86Turkey Scrap-Rebar Spread (TSRS: TSI) 198.53 $/mt 20.41 11.46Turkey Scrap-Black Sea Billet Spread (TSBS: Platts) 129.34 $/mt 24.32 23.16Turkey Scrap-Black Sea Billet Spread (TSBS: TSI) 127.71 $/mt 25.12 24.49US Scrap-HRC Spread (US SHRC) 293.41 $/st -4.91 -1.65US Scrap-HRC Futures Spread (US SHRCF) 291.62 $/st 3.08 1.07US Scrap-Rebar Spread (US SRS) 276.57 $/st 15.98 6.13*Weekly, assessed on Mondays. **Weekly, assessed on Fridays.
For spreads calculation and assessment methodology, please go to:http://platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/steel.pdf
sME Comment
Platts has introduced a suite of price spreads called Steel Mill Economics, aimed at assisting margin modeling and steel industry analysis.
Steel Raw Materials Monthly will carry the spreads in the table on the left each month, presented as monthly averages and start to build up some commentary. The spreads represent the differences between the prices of downstream steel products and upstream raw materials that are needed to produce them. For example, the spreads allow a comparison of the margins of US versus Chinese longs producers once the prices of certain raw materials have been calculated.
