AME Group
Engineering Economics

Steel raw materials: Supply-demand trends and upcoming projects

London,

New York,

Hong...
Engineering Trends and Projects

• Demand: Steel Market Outlook

• Supply: Metallurgical Coal

• Supply: Iron Ore
Steel Market Outlook

Aluminium
(Additional Slides)
Steel margins sustainable in China and production
holding up

• Demand at the moment OK for Iron Ore and Coal – Global gro...
Margins remain thin but the regional outlook
differs
US HRC vs. Cash Costs and Utilisation
rates, 2007 - 2013
$1,000

Stee...
India is significant but not China

• The Indian Ministry of Steel plans to nearly double national crude
steel production ...
India – Steel production and slag

Indian Crude Steel Production (Mt)

80

Mt

Slag rate and flux consumption

500
450

70...
Coal demand impact of larger Blast Furnaces
in Asia
• Current average Chinese BF capacity around 1.1Mtpa, average
PCI cons...
Semi-soft to be squeezed in the future in
favour of PCI
Coke blend/PCI scenario for a Chinese
based BF

Coke blend/PCI sce...
The competition from mini-mills and the EAF route
is not a medium term threat to coal and iron ore

• Historically, EAF pr...
EAF uptake is limited by the availability of
scrap and installed BOF capacity
Historical Steel Production in China

Modell...
Metallurgical Coal Outlook
Chinese steel production technology will impact
coal demand in varying ways
• China now commands 45% of world steel produc...
Coke volumes are down but quality lifting

Furnace size vs. fuel rates
600

500
India
Germany
Japan

Fuel Rate (kg/t HM)

...
Chinese coking coal imports will grow faster
than total coking coal demand
• Only a small portion of Chinese coking coal c...
Chinese coking coal imports will grow faster
than total coking coal demand
Chinese Coking Coal Sources

Chinese Steel Prod...
Despite productivity gains in recent quarters,
there is still significant strain in the industry
• Despite the recent high...
Around 20% of the Metallurgical seaborne
market is under water on a cash cost basis

Source: AME
Growing appetite for lower quality coking coal
in Asia
• In 2013, Chinese appetite for SHCC has grown.
• BMA now produces ...
AME introduces Semi Hard Coking Coal Costs
to reflect changes in the coking coal market
SHCC FOB cost curve, 2012

Source:...
At current coal prices, the largest scale
operations will have growing cost advantage
Mining Truck Fuel Consumption vs. Pa...
Iron Ore Outlook
Chinese steel mills shun pellet in favour of lump

• Pellet is the highest value-in-use product due to its high iron grade...
Pellet demand in Europe and China has fallen
amid weaker steel prices
Average Chinese Blast Furnace Burden

Global crude s...
A large proportion of Chinese Iron Ore mines are
uncompetitive
• Increasing strip ratios are forcing many Chinese iron ore...
China’s iron ore industry remains fragmented,
comprising numerous small high cost mines
China’s ROM Ore Production by
Prov...
Declining grade necessitates higher processing
cost for production
• Low ore grade in China necessitates additional benefi...
Falling Chinese domestic iron ore production will
provide opportunities to seaborne producers

Total Iron Ore Consumption ...
Projects delays to support prices over the
medium term
•

Supply continues to be dominated by majors despite scale back in...
Traditional sources of supply will continue to
dominate

Share of Global Iron Ore Exports for
the Major Producers

Forecas...
The ‘Mid-West’ supply story has missed this
price cycle
Mid-West Supply Forecast, Mt

Pilbara Juniors Supply Forecast, Mt
...
Emerging and established regions will face
significant supply risk over the forecast
West African Iron Ore Supply, Mt

Can...
Contact Details and Important Information

For further details, please visit our website at www.amegroup.com
Hong Kong

Sy...
Upcoming SlideShare
Loading in...5
×

Steel raw materials: Supply and demand trends and upcoming projects, Shaun Browne, Chairman, AME Group

378

Published on

Steel raw materials: Supply and demand trends and upcoming projects, presented by Shaun Browne, Chairman, AME Group at Mines and Money Australia 2013, Oct 29 – Nov 1, 2013, Melbourne Convention and Exhibition Centre

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total Views
378
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
20
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

Steel raw materials: Supply and demand trends and upcoming projects, Shaun Browne, Chairman, AME Group

  1. 1. AME Group Engineering Economics Steel raw materials: Supply-demand trends and upcoming projects London, New York, Hong Kong, Beijing, Sydney
  2. 2. Engineering Trends and Projects • Demand: Steel Market Outlook • Supply: Metallurgical Coal • Supply: Iron Ore
  3. 3. Steel Market Outlook Aluminium (Additional Slides)
  4. 4. Steel margins sustainable in China and production holding up • Demand at the moment OK for Iron Ore and Coal – Global growth at 3.1 – 3.8% over next 24 months • Demand is not going to be the challenge over the medium term. • Competition for coal producer ramping up in China – more production and possible lower power prices. • Economic backdrop improving – the focus now shifts to supply and project analysis. Source: AME
  5. 5. Margins remain thin but the regional outlook differs US HRC vs. Cash Costs and Utilisation rates, 2007 - 2013 $1,000 Steel production costs and margins, 1991 - 2012 100% AME Cash Cost Average Coil P rice Utilisation Rate (RHS) $900 90% $800 80% $700 70% $600 60% $500 50% $400 40% $300 30% $200 20% $100 10% $0 0% 2007 2008 2009 2010 2011 2012 2013 Source: AME
  6. 6. India is significant but not China • The Indian Ministry of Steel plans to nearly double national crude steel production capacity by the March 2015-April 2016 fiscal year. • Currently 4th largest steel producing country, forecast to be 2nd as early as 2015/16. • Indian ore quality poor, especially Alumina, leading to additional process costs.
  7. 7. India – Steel production and slag Indian Crude Steel Production (Mt) 80 Mt Slag rate and flux consumption 500 450 70 140 Slag Rate (kg/t HM) Burnt Lime (kg/t HM - seconday Axis) Burnt Dol omite (kg/t HM - secondary axis) 120 400 60 100 350 50 300 80 250 40 60 200 30 150 20 40 100 20 10 50 0 0 0 2 005 20 06 200 7 200 8 2009 2010 2 011 2012 2013F Source: AME
  8. 8. Coal demand impact of larger Blast Furnaces in Asia • Current average Chinese BF capacity around 1.1Mtpa, average PCI consumption rate 140kg/t hot metal (HM). • Indian BF capacity around 1Mtpa, average PCI consumption rate PCI 59kg/t HM • Chinese PCI rate is significantly above Indian and world averages, hence starts from a different split compared to India. • As furnace size increases PCI usage also increases – South Korea average BF capacity of 3.2Mtpa utilising 225kg PCI/t HM • If however, PCI usage trends to a Japanese Model the pressure on semi-soft usage is expected to be much lower
  9. 9. Semi-soft to be squeezed in the future in favour of PCI Coke blend/PCI scenario for a Chinese based BF Coke blend/PCI scenario for an Indian based BF 100% 100% 90% 90% 80% 80% 70% 70% 60% 60% 50% 50% 40% 40% 30% 30% 20% 20% 10% 10% 0% 0% 1200 1600 2000 2400 2800 Blast Furnace Capacity (Kt/yr) PCI Semi-Soft HCC 3200 1200 1600 2000 2400 2800 3200 Blast Furnace Capacity (Kt/yr) PCI Semi -soft H CC Source: AME
  10. 10. The competition from mini-mills and the EAF route is not a medium term threat to coal and iron ore • Historically, EAF production in China averaged around 30% of production until the early 1990’s. • When steel production boomed from the early 90’s until the present the share of EAF production declined to less than 10%. • The current share of scrap utilisation will be maintained over the next two decades. • The dominance of the BOF steelmaking route over EAF means Chinese steel producers can only use a limited portion of scrap in their feed. • Steelmaking in China will remain largely blast furnace based as there is a structural shift towards higher quality steels, mandated by Government policy.
  11. 11. EAF uptake is limited by the availability of scrap and installed BOF capacity Historical Steel Production in China Modelled Scrap Steel Utilisation 700 35 Mt % (%) (Mt) 70% % 600 30 500 25 60% 50% 400 20 300 15 200 10 100 5 0 0 40% 30% 20% 2012 2010 0% 1935 1940 1945 1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 Chinese EAF Produc tion Chinese BOF Production LHS: E AF Share of Total Steel Production % 2008 2006 2004 2002 2000 1998 1996 1994 1992 1990 1988 1986 1984 1982 1980 10% B ase Ca se Scrap Sha re -H igh Ca se S cra p Share - Lo w C ase Source: AME, WSA
  12. 12. Metallurgical Coal Outlook
  13. 13. Chinese steel production technology will impact coal demand in varying ways • China now commands 45% of world steel production. Moderating growth will see this market share stabilise. • Major new growth markets will be Brazil and especially India, forecast to produce around 40Mt and 130Mt, respectively, in 2020. • The Chinese Steel Industry will continue to have the most important impact on iron ore and metallurgical coal markets for the foreseeable future through the production technology it will employ. • We need to consider not only production volumes, but also technology
  14. 14. Coke volumes are down but quality lifting Furnace size vs. fuel rates 600 500 India Germany Japan Fuel Rate (kg/t HM) 400 USA PR China 300 France 200 South Korea PR C hina U SA Japan 100 India Germany 0 0 500 10 00 1 500 2000 2500 300 0 Blast Furnace Capacity (Kt/yr) 35 00 Coke Rate 4 000 P CI Rate Source: AME
  15. 15. Chinese coking coal imports will grow faster than total coking coal demand • Only a small portion of Chinese coking coal consumption is sourced from export markets – currently around 10%. • Chinese domestic coking coal production has increased rapidly from less than 200 Mt in 2003 to close to 500Mt in 2012. • Chinese coal imports are price sensitive • However this will not impact China’s steel production, which has and will continue to grow independently of coking coal imports. • On the supply side, the professionalization of the Chinese coal sector a risk to seaborne coal exporters.
  16. 16. Chinese coking coal imports will grow faster than total coking coal demand Chinese Coking Coal Sources Chinese Steel Production vs Imports 700 Mt Mt 80 70 600 60 500 50 400 40 300 30 200 20 100 10 0 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Chi na Steel Demand (Mt) Chi na Cok ing Coal Consumption (Mt) Chi na Cok ing Coal Imports (Mt) - RHS Source: AME, Custom Data s
  17. 17. Despite productivity gains in recent quarters, there is still significant strain in the industry • Despite the recent higher December quarter contract price of US$152/t FOB, current Premium HCC spot price is still trading around the US$146/t FOB mark. • Fewer operations again are covering depreciation and earning a return on capital • Gujarat has stopped paying miners at its two operations for the last 6 weeks. Market is currently unsure as to what will happen to these two operations. • So far in 2013 operations that have been cut include Anglo American’s 0.5 Mtpa Aquila operation, Yancoal’s 1.3 Mtpa Stratford, and Glencore Xstrata’s 4 Mtpa Collinsville. 150 pit have been closed in the US Appalachian region in the last 18 months.
  18. 18. Around 20% of the Metallurgical seaborne market is under water on a cash cost basis Source: AME
  19. 19. Growing appetite for lower quality coking coal in Asia • In 2013, Chinese appetite for SHCC has grown. • BMA now produces three blended coal products aimed at this market, Woodlands, Iffram and Windsor. • BMA’s Gregory is a well known supplier of SHCC, sets benchmark price for SHCC. • Most Australian SHCC comes from the Rangal coal measures in the Bowen Basin. • Vale’s Integra coal markets its Liddel seam as a semi hard product.
  20. 20. AME introduces Semi Hard Coking Coal Costs to reflect changes in the coking coal market SHCC FOB cost curve, 2012 Source: AME Basin Hunte r Valle y Brand Integra Semi Hard VM CSN Fluid ity CSR Bowe n 37-39 Gregory Curragh Kes trel 33 21 Millennium 32.5 23.5 5 9 5.5 7.5 7.5 3000 7500 20 1500 250 40 57 50 - 50
  21. 21. At current coal prices, the largest scale operations will have growing cost advantage Mining Truck Fuel Consumption vs. Payload 350 L/hr • More mines are replacing their current fleet with a larger fleet.. 300 • Efficiency dividend of larger volume and improved volume of material moved per haul cycle more valuable at lower prices. 250 200 Mining Truck Fuel Intensity vs. Payload 150 100 Payload (tonne) 0 - 100 100 - 200 200 - 300 300 - 400 50 0 0 50 100 150 200 Payload (t) 250 300 350 Fuel Fuel Consumption Consumption per tonne (L/hr) (L/hr per t) 52 1.02 125 0.85 202 0.83 279 0.81 400 Source: AME
  22. 22. Iron Ore Outlook
  23. 23. Chinese steel mills shun pellet in favour of lump • Pellet is the highest value-in-use product due to its high iron grade and low impurities and commands the highest premium. • Lower steel margins and mill utilisation has decreased pellet premiums as steel producers replace pellet with cheaper feed. • Pellet premiums close to cost of production in some regions • Pellet premiums not excepted to lift materially in the short term as steel overcapacity continues to erode steel margins
  24. 24. Pellet demand in Europe and China has fallen amid weaker steel prices Average Chinese Blast Furnace Burden Global crude steel capacity utilisation 100% 95% 90% 85% 80% 75% 70% 65% 2005 2006 2007 2008 2009 2010 2011 2012 2013F2014F2015F Sinter Lump Pellets Source: AME
  25. 25. A large proportion of Chinese Iron Ore mines are uncompetitive • Increasing strip ratios are forcing many Chinese iron ore mines to go underground • The majority of Chinese supply sits in the fourth quartile of the cash cost curve. • In 2013, 10-15% of Chinese capacity operating at $110/t-$140/t. • Higher cost Chinese production will be displaced by additional tonnes from Brazil, Australia and India
  26. 26. China’s iron ore industry remains fragmented, comprising numerous small high cost mines China’s ROM Ore Production by Province, 2012 Major Iron Ore Operations in China Source: AME, NBS
  27. 27. Declining grade necessitates higher processing cost for production • Low ore grade in China necessitates additional beneficiation such as multiple stage grinding and screening and magnetic separation, which drives production costs higher. • Iron ore deposits in China are generally low grade deposits with high impurities, with deposit grade of as low as 5-15% Fe being mined. • The aggressive decline of China’s domestic ore grades will mean Chinese seaborne demand will outpace China’s total consumption over the short term.
  28. 28. Falling Chinese domestic iron ore production will provide opportunities to seaborne producers Total Iron Ore Consumption and Seaborne Iron Ore Demand The Decline of China’s Ore Grades 3,000 Mt 2,500 2,000 1,500 1,000 500 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 0 Chin a Iron Ore De ma nd W orld Seab orn e Iron Ore De ma nd Re st of Wo rld De ma nd
  29. 29. Projects delays to support prices over the medium term • Supply continues to be dominated by majors despite scale back in expansion plans. • More projects delays or scale backs to support prices over the medium terms, preventing it from a steep fall as the market goes into oversupply. • Producers shifting expansion focus from large Greenfield project development to smaller Brownfield expansions or greater productivity to cut cost.
  30. 30. Traditional sources of supply will continue to dominate Share of Global Iron Ore Exports for the Major Producers Forecast Incremental Production from the Four Majors, Mt
  31. 31. The ‘Mid-West’ supply story has missed this price cycle Mid-West Supply Forecast, Mt Pilbara Juniors Supply Forecast, Mt • More projects will be shelved or scaled back • Project delays will support prices over the medium term Source: AME
  32. 32. Emerging and established regions will face significant supply risk over the forecast West African Iron Ore Supply, Mt Canadian Iron Ore Supply, Mt Source: AME • West African production faces substantial risks. Rio Tinto’s Simandou (95Mtpa) delayed due to disagreement on infrastructure financing • There is 300Mtpa of potential supply capacity in West Africa, although the large majority of this won’t commission given a lack of available infrastructure and high political risk. • Proposed West African projects need around 11 ports and 5,000km of new rail
  33. 33. Contact Details and Important Information For further details, please visit our website at www.amegroup.com Hong Kong Sydney London New York Lucky Building 39 Wellington Street Central, Hong Kong AME House 342 Kent Street Sydney NSW 2000 4 Lombard Street London EC3V 9HD United Kingdom Level 15, 733 3rd Avenue New York NY 10017 United States T: +85 2 2846 8220 F: +85 2 2801 5337 E: hk@amegroup.com T: +61 2 9262 2264 F: +61 2 9262 2587 E: ame@amegroup.com T: +44 207 933 8732 E: uk@amegroup.com T: +44 207 933 8732 E: usa@amegroup.com Forward looking information Certain statements and graphics contained in this presentation may contain forward-looking information within the meaning of various securities laws. Such forward-looking information are identified by words such as "estimates", "intends", "expects", "believes", "may", "will" and included, without limitation, statements regarding the company's plan of business operations, production levels and costs, potential contractual arrangements and the delivery of equipment, receipt of working capital, anticipated revenues, mineral reserve and mineral resource estimates, and projected expenditures. There can be no assurance that such statements will prove to be accurate; actual results and future events could differ materially from such statements. Factors that could cause actual results to differ materially include, among others, metal prices, risks inherent in the mining industry, financing risks, labour risks, uncertainty of mineral reserve and resource estimates, equipment and supply risks, regulatory risks and environmental concerns. Most of these factors are outside the control of the company. Investors are cautioned not to put undue reliance on forward-looking information. Except as otherwise required by applicable securities statutes or regulation, the company expressly disclaims any intent or obligation to update publicly forward-looking information, whether as a result of new information, future events or otherwise. Copy right @ AME Group 2013
  1. A particular slide catching your eye?

    Clipping is a handy way to collect important slides you want to go back to later.

×