Brief update on iron ore, scrap and coking coal at Platts' LME week seminar

1. Steel Raw materials Update
LME Week
8th October 2013
Jarek Mlodziejewski
Senior Analyst

2. Coking Coal Update
Revival of the spot market Q3 2013
•
The global spot market saw a revival in early August with the
return of European and Japanese steel mills.
•
Together with the Chinese, the surge in demand for spot
cargoes sent spot average prices for PHCC and HCC
soaring 5.0% and 7.1% in August as compared to July.
•
September spot averages for PHCC and HCC rose 7.4% and
5.6% month-on-month.
•
Supply disruptions in Australia, Indonesia, Mongolia and
Russia also lent support to higher spot prices in during this
period

3. Coking Coal Update
Unfortunately short-lived
•
•
•
•
Chinese mills quickly bid hasty retreat from spot market after inventories
requirements fulfilled in mid September
Spot demand from Europe weakened towards end of August, non-existent in
September
Japan, Korea, Taiwan locked in Q4 benchmark discussions, no appetite for spot
cargoes
Spot prices falls towards end of September after peaking in early September
$180
$170
$160
$150
$140
$130
$120
$110
$100
18/01/2013
Q2
Q1
18/02/2013
18/03/2013
18/04/2013
18/05/2013
TSI Premium Hard Coking Coal FOB East Coast Australia US$/mt
Negotiated benchmark Premium coking coal
Q3
18/06/2013
18/07/2013
18/08/2013
TSI Hard Coking Coal FOB East Coast Australia US$/mt
Q4
18/09/2013

4. Coking Coal Update
Bear market to continue into October
•
Outlook for Steel markets expected to remain
bearish till end of year
•
Some support for coking coal demand after
Chinese National holidays in October
•
Chinese buyers expected to be largely absent
from spot market in November-December
•
Indian buyers not likely to be able to match
Chinese spot appetite for seaborne coal

5. Coking Coal Update
Quality adjustments below are applied to normalisation factors to equalise prices.
Premium Coking Coal
Volatile Matter (ad) %
Ash (ad) %
Total Moisture (ar) %
Sulphur (ad) %
Rvmax %
Fluidity (ddpm)
Free Swelling Index (FSI)
CSR %
Total Dilatation %
Vitrinite %
Spec
21.0
10.0
10%
0.45
1.35
600
8
71
80
68
Hard Coking Coal
Min
18
Max
25
11
12%
0.80
1.15
1200
7
67
• Pricing Point: FOB East Coast Australia
• Minimum Lot Size: 20,000 metric tonnes
• Particle Size: Particle size below 55mm for at least 90%
of the cargo
• Transport: Bulk Shipment
• Timing: Loading within 4 weeks of transaction
• Payment: At Sight
• Currency/Units: US$ per metric tonne
Price Quality Adjustment Base FOB
Premium Δ %
price
Hard Δ %
Volatile Matter per 1%
Min
16
Volatile Matter (ad) %
Ash (ad) %
Total Moisture (ar) %
Sulphur (ad) %
Rvmax %
Fluidity (ddpm)
1100
Free Swelling Index (FSI)
7
6
CSR %
65
57
Total Dilatation %
Vitrinite %
100
60
40
Max
28
11
12%
0.80
1
7500
67
0.975%
0.975%%
Total Moisture 1%
Spec
24.0
7.5
10%
0.60
1.15
0.650%
Ash per 1%
50
0.650%
1%
1%
Sulphur per 0.1%
US$1/dmt
US$1/dmt
Rvmax per 1 unit
0.500%
0.500%
FSI per 1 unit
0.600%
0.600%
Total Dilatation per 1 unit
0.010%
0.010%
In addition to the normalisations carried out above, TSI has
developed a separate, proprietary adjustment that takes
into account the interplay of fluidity, vitrinite and the
expected coke strength (CSR) of a particular coal, together
indicative of cokeability and blendability. TSI will continue to
develop and refine this normalisation, in line with evolving
market dynamics.

6. Iron Ore Update
Changing spot market dynamics
 India no longer a major exporter to China. Mainstream Australian and Brazilian
products the most widely traded.
 More iron ore coming from places like Iran, South Africa and Canada
Australia
20%
60
50
15%
40
10%
30
20
5%
10
-
Source: China Customs
Jul-13
Apr-13
Jan-13
Oct-12
Jul-12
Apr-12
Jan-12
Oct-11
Jul-11
Apr-11
Jan-11
0%
Oct-10
 TSI’s iron ore index includes trades from
globalORE, CBMX where information
can be verified.
India (% share)
70
Jul-10
 Tenders less frequent. More material
being sold via trading platforms such as
globalORE.
Others
25%
Apr-10
 Index-linking now widespread, meaning
a decline in fixed-price spot business.
India
80
Jan-10
 More iron ore coming from places like
Iran, South Africa and Canada.
Brazil

7. 27-Sep-13
13-Sep-13
30-Aug-13
16-Aug-13
02-Aug-13
19-Jul-13
05-Jul-13
21-Jun-13
07-Jun-13
24-May-13
10-May-13
26-Apr-13
12-Apr-13
29-Mar-13
15-Mar-13
01-Mar-13
15-Feb-13
01-Feb-13
18-Jan-13
04-Jan-13
CBMX
21-Dec-12
07-Dec-12
1,600,000
23-Nov-12
09-Nov-12
26-Oct-12
12-Oct-12
28-Sep-12
14-Sep-12
31-Aug-12
17-Aug-12
03-Aug-12
20-Jul-12
06-Jul-12
22-Jun-12
08-Jun-12
25-May-12
11-May-12
tonnes
Iron Ore Update
Iron ore starts trading on screen from 2012
Weekly traded volumes (metric tonnes)
GlobalOre
1,400,000
1,200,000
1,000,000
800,000
600,000
400,000
200,000
-

8. Iron Ore Update
 Chinese mills’ restocking cycle now a key driver of iron
ore prices
 Mills can run down inventory when the market is weak, shunning
seaborne iron ore and exacerbating price declines.
Iron ore inventory at small & medium Chinese mills
mmt
45
200
40
180
35
160
140
30
120
25
100
20
80
15
60
10
40
5
20
-
0
Sep-13
Aug-13
TSI 62% Fe (US$/dmt) - RHS
Jul-13
Jun-13
May-13
Apr-13
Mar-13
Feb-13
Jan-13
Dec-12
Nov-12
Oct-12
Sep-12
Aug-12
Jul-12
Jun-12
Jun-12
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Imported Iron Ore (days of inventory)
Source: TSI, Mysteel

9. Ferrous Scrap Update
Falling import volumes impacting Turkish scrap prices
$600
2,500,000
$500
2,000,000
$400
1,500,000
$300
Turkish scrap import volumes
CFR Turkey HMS #1&2 80:20 (RHS)
1,000,000
$200
500,000
$100
Aug-13
Jun-13
Apr-13
Feb-13
Dec-12
Oct-12
Aug-12
Apr-12
Jun-12
Feb-12
Dec-11
Oct-11
Aug-11
Jun-11
Apr-11
Feb-11
Oct-10
Dec-10
Aug-10
Jun-10
Apr-10
0
$0

10. Ferrous Scrap Update
Low gas prices and the potential impact of DRI looms over the US
scrap market
$420
$400
$380
$360
$340
$320
$300
US Domestic Midwest shredded
(del. ex-mill) US$/long ton

11. Ferrous Scrap Update
India and Taiwan trending down over 2013
$440
$420
$420
$400
$400
$380
$380
$360
$360
$340
$340
$320
$320
$300
CFR India containerised shredded US$/tonne
CFR Taiwan containerised HMS #1&2 80:20