Steelmaking Raw Materials: Market and Policy Developments

01-Jun-2012

Steelmaking raw materials: market and policy developments

DSTI/SU/SC(2012)1 72nd Steel Committee Meeting Paris 31 May-1 June 2012

Structure of the report

A. Market issues 1. Importance of raw materials for steel 2. Production and resources of key raw materials 3. Trade in raw materials 4. Price and market developments 5. How companies are addressing the challenge B. Government policies 1. Mineral policy trends 2. Examples of raw material policies 3. Export restrictions

1 01-Jun-2012

Raw materials availability challenge

• Strong increases in demand for raw materials driven by steelmaking capacity increase from 1,079 mmt in 2000 to 1,963 mmt in 2011 (+82%) • Iron ore demand went up from 954 mmt to 1,805 mmt (+89%) between 2000 and 2010 • Coking coal demand rose from 475 mmt to 880 mmt (+85%) between 2000 and 2010. • More limited increase in ferrous scrap demand, from 367 mmt to 560 mmt (52%) from 2000-2010, as capacity expansion centered in the iron ore/coking coal intensive BF/BOF production process.

Raw materials availability challenge

• Supply side response lagged:

– The surge in demand was unexpected – 5-10 years to bring a mine into operation, but mining investments are now increasing rapidly – Significant imbalances in markets – As competition for raw materials increased, so did the number of policy measures to restrict the export of raw materials in some resource-rich economies. – Significant increases in raw material prices and concerns about supply availability

2 01-Jun-2012

Steelmaking raw material prices

Steelmaking Raw Material Prices Quarterly Indices, 2004=100 900 Scrap(USA) 800 Iron ore(contract) 700 Coking coal(contract) 600

500

400

300

200

100

0 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1

Supply availability issues are important for steel

• Huge requirements of raw materials by the steel industry (more than 3,000 mmt/year) – One tonne of steel produced in a BOF requires: • 1.6 tonnes of iron ore, 0.6 tonnes of coking coal and 0.21 tonnes of steel scrap – A tonne of steel produced via EAF requires: • 0.85 tonnes of steel scrap, and some combination of liquid hot metal and steel scrap supplements amounting to approximately 0.31 tonnes • High share of intermediate inputs in the steel industry’s gross output ≈80% • High trade dependency amongst steel-producing countries for raw materials • => The steel industry dependent on well- functioning and open markets for raw materials

3 01-Jun-2012

Reactions of steel industry stakeholders to the challenges

• Miners are now investing heavily – Capital expenditures in mining near record highs – New supplies of iron ore will emerge in Oceania, Latin America and Africa – Coal projects in North America and Australia • Steelmakers are reacting by: – Investing upstream into raw materials; – Increased efficiency in raw materials use and substitution; – Establishing stronger relationships with suppliers. • Policy makers: – Many economies, who used to rely on low-cost resources from abroad, are adopting new strategies focused on raising their own sources of supply, securing access from abroad, and an increased focus on recycling – Some resource-rich economies also focusing on maintaining their own stocks of raw materials and greater access from abroad, as well as measures to restrict exports in some instances.

Export restrictions on steel raw materials • Recent developments related to export restrictions over the past several months: – Iron ore: In India, tax on exports of lump and fines were raised to 30% in Dec.2011. – Coke: China’s export quota on coke, was lowered to 4.24 mmt for the first half of 2012 from 4.6 mmt allowed for the first half of 2011. – Scrap: planned export arrangements which may effectively lead to reduced exports from St. Petersburg and far east Russia.

4 01-Jun-2012

Price and market developments

550

500

450

400 Iron Ore(Fe63.5%) IN CIF 350 China $/MT

300 Prime Coking Coal CH CIF U$/MT Aust 250

200 Scrap / HMS 1/2 80:20 / Turkey import CFR Turkish port $/t 150

100

Sources: Datastream, SBB

Share of global mining

0 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030 Europe USA China USSR/CIS Australia/Canada 6 resource rich developing countries

Source: RMG

5 01-Jun-2012

Iron ore Iron ore production and reserves* by country, 2010 Million metric tonnes

Rank Economy Production Rank Economy Reserves*

1 Australia 432.8 1 Australia 17,000

2 Brazil 375.0 2 Brazil 16,000

3 China 315.4 3 Russia 14,000

4 India 212.0 4 China 7,200

5 Russia 101.0 5 India 4,500

Rest of the Rest of the world 390.9 world 21,300

Total world 1,827.1 Total world 80,000

Note: * Reserves in terms of iron content. Sources: UNCTAD and USGS.

Coking coal

Coking coal production and reserves*, 2010 Million metric tonnes

Rank Economy Production Rank Economy Reserves

1 China 454.8 1 United States 108,501

2 Australia 152.1 2 China 62,200

3 Russia 71.1 3 Russia 49,088

4 United States 68.6 4 India 56,100

5 India 35.4 5 Australia 37,100

Rest of the world 109.1 Rest of the world 91.773

Total world 891.1 Total world 404,762

* Proved reserves of anthracite and bituminous coal. Coking coals are premium-grade bituminous coals Sources: IEA (2011) and BP Statistical Review of World Energy.

6 01-Jun-2012

Ferrous scrap

Steel scrap generation, 2010 Million metric tonnes

Rank Economy Generation Generation 2010/09, 2010 2009 2010 % change

1 China 65.2 92.9 42.5

1 EU 27 90.0 92.9 3.2

3 United States 62.0 75.1 21.1

4 Japan 38.9 43.9 12.9

5 Korea 18.1 20.5 13.3

n.a. Russia 23.3 n.a. n.a.

Rest of the world 77.6 n.a. n.a.

World total 375.1 n.a. n.a.

Source: Japanese Ferrous Raw Materials Association.

Iron ore

Iron ore exports and imports, 2010 Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 Australia 402.9 1 China 618.6

2 Brazil 310.9 2 Europe 134.4

3 India 95.9 3 Japan 134.3

4 South Africa 48.0 4 Korea 56.3

5 Ukraine 32.6 5 Chinese Taipei 18.9

Rest of world 180.3 Rest of world 90.4

World total 1070.7 World total 1052.9

Source: UNCTAD.

7 01-Jun-2012

Coking coal

Coking coal exports and imports, 2010 Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 Australia 154.5 1 Japan 57.7

2 US 50.9 2 China 48.4

3 Canada 27.5 3 India 30.4

4 Russia 13.7 4 Korea 27.7

5 Mongolia 10.9 5 Brazil 12.5

Rest of the world 13.4 Rest of the world 79.5

World total 270.9 World total 256.2

Source: IEA.

Ferrous scrap

Ferrous scrap exports and imports including intra-EU trade, 2010 Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 United States 20.6 1 Turkey 19.2

2 Germany 9.2 2 Korea 8.1

3 United Kingdom 7.5 3 China 5.9

4 Japan 6.5 4 Spain 5.7

5 Russia 2.4 5 Germany 5.6

Rest of the world 55.9 Rest of the world 73.2

World total 102.1 World total 117.7

Source: World Steel Association

8 01-Jun-2012

Trade in raw materials: interdependency

• China is the world’s largest producer of iron ore and a significant exporter of coke, but still depends on imports of iron ore from Australia, Brazil and India, coking coal from Australia, and ferrous scrap from the United States. • Brazil and India are large exporters of iron ore, but lack sufficient domestic coking coal resources. • The European Union and Japan are global scrap exporters, but rely on imports of iron ore and coking coal from Australia, Brazil and the United States. • The United States and Canada, for example, both import and export significant volumes of iron ore.

Production/resources of steel RM

• Mining activity increasingly difficult, due to: – Distance between mines and demand – Location in more extreme climates – Non-existent or weak infrastructure – Deposits often in regions that are politically unstable – Deposits being found at deeper levels – More complex chemical and mineralogical composition of the mined ores is getting – Longer process for permits – Bottlenecks (lack of trained staff, suppliers’ lead time)

9 01-Jun-2012

Production/resources of steel RM

• Raw materials are not scarce in the physical sense. – Reserves of most steelmaking raw materials are sufficient to ensure tens of years of supply at current production rates. – Should raw materials become in short supply, higher prices would encourage the increase of reserves. – But, their extraction is not always desirable, e.g. for environmental reasons. • But market factors and restrictive policies can cause significant supply disturbances for steelmakers in the short term.