Future Steel and Coke Industry Trends

Future steel and coke industry trends

Dr Neil J. Bristow Chief Analyst, Carbon Steel Materials

Intertec European Coke Conference, Düsseldorf Tuesday, 11th April 2006 Disclaimer The views expressed here contain information derived from publicly available sources that have not been independently verified. No representation or warranty is made as to the accuracy, completeness or reliability of the information. Any forward looking information in this presentation has been prepared on the basis of a number of assumptions which may prove to be incorrect. This presentation should not be relied upon as a recommendation or forecast by BHP Billiton. Nothing in this release should be construed as either an offer to sell or a solicitation of an offer to buy or sell shares in any jurisdiction. Presentation outline • Background - steel industry trends • Critical issues for the global steel industry – Future structure of China’s steel industry – Consolidation – Future Blast furnace trends • Implications for coke • Recent studies to understand coke its reactions & performance • Summary and Conclusions Key theme

The world has changed

But the need for coke and hard coking coal remains Areas where the world has changed……. • Industry structure – consolidation; the new wave • Regional consolidation moves global • Price volatility – industry consensus; potential to be lower • Increased market “power” re customers (flat products) • Current high profitability in the steel industry continues • Raw materials – too early to be definite, but potential move to higher quality seaborne raw materials Areas where the world has not changed • New phase of strong demand growth - BRICS • China driving major uplifts • Technology trends - BF still king • Planned new capacity SE Asia, Brazil, India etc • Drive for higher productivity = high quality RM’s esp coke • Environmental conditions • Raw materials – the benefits of high quality esp coke BackgroundBackground The global steel industry continues to power on Mt 1200 New golden Fall of Berlin Wall age? The golden age Oil Shocks Berlin Wall 1000 1945 – 1973 6.2%pa The China 800 Rise of Effect Japan 600 The China Rebuilding The efficiency age? of Europe 400 age 1996 + The emerging age >4.6%pa 1974 – 1995 pre 1945 2.8%pa 0.2%pa Privatisations 200 Consolidation Source: IISI 0 1920 1930 1940 1950 1960 1970 1980 1990 2000 BackgroundBackground Global steel growth rates have picked up a gear

CAGR (%) Comments 1970 – 1975 1.6 First oil shock, ending of Japan steel boom

1975 – 1980 2.2 Steady global recovery from oil shock

1980 – 1985 0.1 Second oil shock, recession, reduction in steel intensity 1985 – 1990 1.4 Strong steel efficiency drive

1990 – 1995 -0.5 Fall of Berlin wall, collapse of USSR, continued steel efficiency gains 1995 – 2000 2.4 Slow CIS recovery, signs of emerging China

2000 - 2005 5.9 China takeoff, US/EU recession then recovery, emerging steel demand SE Asia

Source: IISI BackgroundBackground China remains the main driver of this growth

First steel producer over 300 million tonnes per 400 annum in 2005: >3.5x production in USA 31%

350 First and only steel producer over 200 million tonnes per annum in 2003: ~double production in Japan 23% 300 Crude Steel The largest world steel Trend 250 Pig Iron producer since 1996 Break Japan CS 13% 200 US CS

150 Japan 100 U.S.A

9 6 8 2 4 57 60 63 6 69 72 75 7 81 84 87 90 93 96 99 0 05 9 9 9 0 19 19 19 1 19 19 19 1 19 19 19 19 1 19 19 19 2 20 1985~2000, CAGR: 7% 2000~2005, CAGR: 22% Source: CISA and other industry sources BackgroundBackground Steel 2005; 2 worlds – balanced & uncontrolled growth

80 Production Change 2005 70 60 Crude Steel 50 Pig Iron 40

Mt 30 20

10 Source: IISI 0

-10 EU 25 Other N. America S. America CIS China Japan Asia Global Europe -20 • Market sentiment roller coaster – strong, weak and strengthening again • China responsible for global increase – world ex China –ve growth in 2005 • Demand led by China, contribution from SE Asia: growing +ve signs US, Europe later • Chinese production remains buoyant strong steel and stronger pig iron growth BackgroundBackground The China effect

20% Global YOY change World YOY change ex China 15%

10%

0% l l l l l l r r r r r r r r r r r r h h h h h h st st st st st st ri ri ri ri ri ri ry ry ry ry ry ry ry e e e e e e c c c c c c u u u u u u a a a a a a a be be be be be be b b b b b b r r r r r r ber ber ber ber ber ber ber May May May May May May July July July July July July u u u u u u u o o o o o o Ap Ap Ap Ap Ap Ap June June June June June June m m m m m m t t t t t t Ma Ma Ma Ma Ma Ma e e e e e e t t t t t t Aug Aug Aug Aug Aug Aug January January January January January January January Oc Oc Oc Oc Oc Oc p p p p p p Febr Febr Febr Febr Febr Febr Febr Decem Decem Decem Decem Decem Decem Decem November November November November November November Se Se Se -5% Se Se Se 1999 2000 2001 2002 2003 2004 2005 2006

-10%

Source: IISI, BHP Billiton BackgroundBackground Changing trends emerged during the year Monthly YOY % Change Crude Steel Crude Steel 12 month running totals 40 1150 100 32 1100 95 1050 90 24 1000 85 950 80 16 Global EU(25) China Japan US 900 75 8 850 70 800 65 0 750 y il e t y 60 r h y ly s r er er r r a rc pr u be b b e a uary u A Ma Jun Ju g to uary u r em mb r 700 -8 b Ma Au t ce b 55 Jan Fe p Oc ovem Jan Fe Se N De 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 -16 12 months running total actual monthly data de-seasonalised monthly data Monthly YOY % Change Pig Iron Pig Iron 12 month running totals 48 800 70

36 750 65

24 700 60

650 55 12 600 50 0 550 45 y y il y ly st r r r y y r u er e e e ar ar rch une u g b b b ar ar u a Ap Ma J J o m u ru em ct ru an eb M Au t cemb an eb -12 J F p O ove e J F 500 40 Se N D 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: IISI Global EU(25) China Japan US 12 months running total actual monthly data de-seasonalised monthly data -24 BackgroundBackground Annualised steel and pig iron production trends Production 840 Production 1170 cuts to Annualised pig iron production cuts to Annualised crude steel production lower inventories lower 1150 820 inventories Totals Totals 1130 2004 1066Mt 2004 724Mt 800 2005 1129Mt 2005 785Mt 1110

780 1090 Chinese Government 1070 )

) actions t 760 t Seasonal (M Seasonal (M 1050 Trends Trends 740 Chinese 1030 Government actions 1010 720 Seasonal Seasonal Trends Seasonal Seasonal 990 Trends Trends Trends 700 China 970 reacceleration China Seasonal reacceleration reacceleration Trends 680 950

h y y r r h y y r r ry c l e e ry c l e e ry y h y y r r y h y y r r y a r u b b a r u b b a r c a l e e r c a l e e r u Ma J u Ma J u a r M u b b a r M u b b a n m m n m m n u J u a J u a Ma e e a Ma e e a n Ma m m n M m m n J t v J t v J a te e a te e a p o p o J p v J p v J e N e N e o e o S S S N S N 2004 2005 2004 2005

Source: IISI BackgroundBackground Massive steel de-stocking during 2005

Inventories (Jan ‘99 = 100) 150

140

130 Germany

120 x e d In 110 Nth America 100

90 Far East

80 1999 2000 2001 2002 2003 2004 2005 2006 Source: CRU BackgroundBackground Successful price stabilisation – current prices turning up Recent lows substantially higher Hot Rolled Coil Price 800 than historical lows: • Good demand • Consolidation (production cuts) USA Domestic • Raw material prices 600

2005 price trough t / China $ 400 EU Export US

200

0 1986 1990 1994 1998 2002 2006

Source: CRU, China – Shanghai spot BackgroundBackground Profitability remained very strong PROFITABILITY EBITDA Margin % Pre-Tax Margin % ROIC (EBIT) % 2004 2005 2006E 2004 2005 2006E 2004 2005 2006E BlueScope* 18.0 18.9 11.5 14.0 17.1 8.2 24.3 34.3 14.6 OneSteel†* 9.7 9.5 10.7 5.8 5.2 6.9 13.9 14.8 15.6 Australasia (Mkt cap wgtd ave) 15.0 16.2 11.0 10.7 13.4 7.4 20.4 28.6 14.7 JFE Holdings 17.8 23.1 23.0 7.5 10.8 16.1 12.7 24.8 25.0 Nippon Steel* 13.9 18.0 19.0 2.5 10.9 13.6 8.6 17.1 21.2 Sumitomo Met Ind. 15.4 21.2 23.9 3.6 13.7 18.9 6.4 13.8 23.5 Tokyo Steel 13.0 34.2 30.7 8.2 31.6 26.8 18.9 136.4 100.5 Japan (Mkt cap wgtd ave) 15.2 20.5 20.7 5.0 11.9 14.8 10.3 25.1 24.8 Baosteel (G) 38.6 22.2 15.9 23.2 13.9 8.2 33.6 28.1 15.8 Maanshan I&S 22.7 17.2 13.2 15.2 11.8 7.0 22.2 18.4 9.6 Wuhan Steel 30.6 25.3 25.0 22.1 19.4 19.2 48.1 38.7 39.8 China Steel 40.6 36.8 25.5 38.6 35.4 24.4 55.2 57.4 31.7 POSCO 32.8 34.1 25.8 26.4 24.7 17.6 45.3 48.7 25.1 Asia (Mkt cap wgtd ave) 34.4 28.9 22.7 26.7 23.0 16.5 42.3 41.5 24.7 CSN* 47.0 46.5 45.7 28.6 28.9 27.3 30.0 33.3 29.2 Usiminas 45.2 42.4 34.4 36.2 38.2 28.2 49.2 46.1 25.3 Mechel* 24.4 19.3 20.1 42.5 14.1 14.7 52.4 28.9 25.0 Severstal* 32.3 27.0 21.8 28.4 22.0 15.2 59.6 40.7 23.8 Novolipetsk* 54.3 46.8 41.1 52.1 41.3 44.9 106.2 67.6 51.2 Evraz* 33.6 28.4 23.6 28.1 24.6 19.9 86.4 48.4 35.0 Tata Steel 25.6 35.5 35.5 23.5 34.7 32.6 25.5 48.9 42.9 Emerging markets (Mkt cap wgtd ave) 37.3 35.4 30.7 32.9 29.3 25.7 54.4 47.6 33.5 Arcelor* 15.2 17.3 13.3 10.5 13.3 9.9 23.3 25.1 18.8 Corus 10.0 10.1 8.6 6.1 5.7 4.9 16.7 17.7 14.5 SSAB 20.6 23.7 19.9 19.4 20.4 16.4 28.4 38.5 31.6 ThyssenKrupp Group* 8.18.27.8 4.04.44.2 7.69.07.5 Europe (Mkt cap wgtd ave) 12.6 15.8 12.1 8.3 11.8 8.6 17.4 23.1 17.2 Nucor 19.5 19.7 18.7 15.9 16.7 15.9 55.1 60.8 61.1 US Steel 14.1 12.8 11.4 10.5 9.4 8.1 91.6 64.9 40.6 North America (Mkt cap wgtd ave) 19.3 19.5 19.1 15.4 16.0 16.0 63.0 56.6 52.3 Carbon Steel Sector (Mkt cap wgtd ave) 24.7 24.8 21.5 18.2 19.0 16.5 34.2 36.7 28.1 Source: UBS *: Company report from full year Summary – background steel industry trends • Strong steel growth phase continues led by China

• Industry highly successful, current steel prices maintained at historically high levels

• Industry profitability currently very strong

• Consolidation benefits

• Widening differentials between global and Chinese steel prices Future critical issues for the steel industry

1. Future structure of China’s steel industry

2. Consolidation

3. Future blast furnace trends FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Demand driven by construction, infrastructure & machinery CAGR % China Steel Demand by End Use Sectors 00~05 350,000 Total 19

300,000 Others 40

Container 13 250,000 Container Others

l Shipbuilding Shipping 21 e e t Consumer Automobile s 200,000 Cons. Durables 16 d

e durables h s i

n Automobile 20 150,000 Machinery Kt, fi Machinery 19 Infrastructure 100,000 Infrastructure 16

Construction 14 50,000 Construction 2005 0 Total kg/capita 233 2000 2001 2002 2003 2004 2005 Source: CISA FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry China per capita steel consumption still below Asian standards

Per Capita Steel Consumption Comparision Between China's Tier I Cities in 2005 & Global Major developed Countries Kg/Capita S.Korea Taiwan 2004 Japan 1990 USA 1973 Shanghai Beijing Canada Italy 2004 Zhejiang Spain 2003 Germany Jiangsu Tianjin France 1976 Ukraine Guangdong Liaoning Shangdong Fujian Hebei

0 200 400 600 800 1000 1200

Source: China Metallurgical Planning and Research Institute, IISI, BHPBilliton FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Coastal provinces are the key steel consumers in China

China's Per Capita Steel Consumption by Provinces in 2005e Kg/Capita Shanghai 688 Beijing Zhejiang Jiangsu Tier I Tianjin Guangdong Liaoning Shangdong Fujian Hebei Chongqing 268 Hubei Heilongjiang Jilin Hunan Tier II Henan Shaanxi Anhui Sichuan Shanxi Jiangxi Guizhou Yunnan Guangxi Hainan Xi nj i ang 212 Qinghai Inner Tier III Ningxia Gansu Tibet 0 100 200 300 400 500 600 700 800

Source: China Metallurgical Industry Planning & Research Institute, BHPBilliton FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry China steel industry is very fragmented

Top 1 0 Crude Steel Production Provinces in 2005

80 80% 73.9 73.0% 70 Cumulative share 70% 69.8% of China total 66.7% 60 63.2% 60% 58.7% 50 53.9% 50% 39.7% 48.4% 40 40% MT 32.8 31.8 30.6 30 30.5% 30%

21.1% 19.3 20 16.5 15.7 20% 12.3 11.1 10.9 10 10%

0 0% Hebei Jiangs u Shandong Liaoni ng Shanghai Shanxi Hubei Henan Anhui Sichuan

Source: CISA FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Top 10 steel mills only account for 35.4% of total in 2005

Top 18 Steel Mills With Crude Steel Production of 5+ MT in 2005

25 60% 22.7 Cumulative share of total 50% 20 China

16.1 40% 15 13.0 11.9 30% MT 10.5 10.4 10.4 10.3 9.6 10 8.5 7.3 20% 7.0 6.5 6.2 5.8 5.7 5.4 5.0 5 10%

0 0% i n u O li ou w eel eel hua C uan han ong nan t t enx i y shan yang s S Va i J B aot n n Lai uquan a andan a anl i B aos A hagang A WI Ji T H M angs J hougang anzhi B S T S P

Source: CISA FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry China’s new steel policy 2005 • Objective – Competitiveness of China Iron & Steel Industry to be improved significantly – Top 10 steel mills should account for > 50% of total by 2010, and 70% by 2020 • Technology & equipment upgrade policy – Outdated processes, equipments and techniques; highly pollutant, raw material & energy consumption and low efficiency to be phased out – Pollutant discharge and efficiency standards raised • Foreign investment policy – In general, foreign companies are not allowed to acquire a controlling stake in Chinese steel makers, especially medium and large ones – No greenfield project is allowed – Advanced technology with intellectual property is needed

Source: NDRC FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Plans and Implications • Industry structure optimization policy – Steel mills, especially big ones, are supported to grow through M&A • Industry layout improvement policy – Steel mills encouraged to relocate or build greenfield plant in coastal or along Yangtze River areas to take advantage of markets and overseas raw materials – Inland steel mills should cap the capacity based on the available ores in line with the local markets and the mineral resources – Those steel mills locate in provincial capital and tourism cities are not allowed to expand capacity of iron-making & steel-making • Raw materials policy – International cooperation with the overseas mineral resources should be enhanced

Source: NDRC FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Consolidation targets

The Weight of China's Top 10 Steel Mills

80 70 70 60 47.6 50 50 42.3 42.2 37.1

% 40 34.7 35 30 20 10 0 2000 2001 2002 2003 2004 2005 2010F 2020F

Source: CISA FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Target 100Mt pig iron closed…….but will take time

Sintering Iron-Making Steel-Making

≤ 30 M2 BF ≤ 300 M3 BOF ≤ 20 Mt Out Phase EAF ≤ 20 Mt

B0F ≥ 120 Mt ≥ 180 M2 BF ≥ 1000 M3 EAF ≥ 70 Mt Brownfield

ld B0F ≥ 200 Mt

nfie 2 3 e ≥ 180 M BF ≥ 3000 M Crude steel Deep Port Gre Capacity ≥ 8 Mt Mln Source: NDRC FutureFuture structurestructure ofof China’sChina’s steelsteel industryindustry Consolidation increased in 2005 more underway

Jianlong Anshan take over Tangshan- Tonghua (36.19%) Fushun Benxi Arcelor- Xuanhua Laiwu (38.41%) Chengde Capital take over Shuicheng (34.56%)

Nanjing/Arcelor take over Tieben

CITIC Pacific: Xingcheng (79%) Daye (58%) Shijiazhuang (65%)

Done deal Hangzhou 44.39% Ningbo Jianlong

Source: Public Media WISCO Mittal 36.67% Echeng (51%) (2nd largest shareholder) Liuzhou (51%) Valin Implications of future structure of Chinese steel industry • Consolidated more profitable industry • Larger capacity, more efficient BF production • Rising higher quality flat product production

Overall implications likely to see rising demand for higher quality coke made with increasing quantities of higher quality hard coking coals SteelSteel industryindustry consolidationconsolidation Consolidation will improve market conditions and profitability

• Worldwide move to privatisation • Ending “Social/national” business • Shareholder demand for value creation • Capital & opex constraints • Government support/interference • Withdrawing of Bank supports • Shareholder value destruction • M&A/Alliances, regional consolidation • Inability to retain cost reductions Financial • Inability to raise capital Performance

• SOx, NOx, Dioxins • Emerging regions • CO2 building own capacity • Effluent discharge Environmental Consolidated Fragmentation • Technology diffusion • Hazardous chemicals & Overcapacity • Capacity creep • Waste management Concerns Steel • Low entry/high exit • Poor public perception Industry barriers • Economies of scale

• Opening of import/distribution channels Globalisation of • Global sourcing/rapid information flow Steel Markets • Global customer sourcing and specifications • Consolidated supplier and customers • Convergence of product standards • Increased JV’s

Page 30 SteelSteel industryindustry consolidationconsolidation The steel industry remains fragmented, despite M&A activity

Market share 2000 Current Consolidation: (% global steel output) • has increased slightly (+3 and +5 Top 5 16% 19% percentage points for the top 5 and 10 Top 10 23% 28% steel producers respectively from 2000 to 2005) 2005 Crude Steel Production (mt)

Mittal* 68 5.1% • favoured by strong cash flows and

Arcelor 47 3.5% increasing desire to escape sluggish and expensive home markets (Europe, POSCO 36 2.7% US) Nippon 33 2.5%

JFE 33 2.4% • ‘hot spots’ in the US, E. Europe, CIS

Baosteel 28 2.1% and China ThyssenKrupp 23 1.7% • currently appears to be enabling US Steel 21 1.6% improved production control - aligning Nucor 20 1.5% demand with supply

Corus 19 1.4%

Source: IISI, Metal Bulletin, BHP Billiton

* Mittal data includes ISG (16.1mt) and Kryvorozhstal (7.7 mt) SteelSteel industryindustry consolidationconsolidation Further consolidation directions: Regional consolidation: • China, with government support but low foreign involvement (ownership limited to minority stakes) • CIS: further consolidation, especially as focus shifts from raw material acquisitions • Smaller acquisitions between second tier producers in Europe and North America

Global / Cross-regional consolidation: • Mergers between groups (competition issues?): catalyst for rapid consolidation • Russian mills going global • Acquisitions in Latin America, Middle East, Ukraine (partly driven by captive raw materials)

Product consolidation: • Focus on flat products • Limited in long products: Ample opportunity but disincentives SteelSteel industryindustry consolidationconsolidation Regional consolidation: CIS, China and Brazil; Europe and N. America

Strong Regional Consolidation CIS: Regional Second Tier Firm Consolidation consolidation between CIS countries EU, Eastern US / Canada Europe Japan: consolidate to two companies

? China: government supports consolidation, but not foreign majority stakes Brazil

Regional consolidation: likely to result in more benefits than global consolidation: • Operations are strongly linked (both customer and supply side) to regional markets • Most products sourced regionally with some global support, even though ~20% of steel production is aimed at global customers Source: Company reports and news coverage; World Steel Dynamics SteelSteel industryindustry consolidationconsolidation Fragmented industry now consolidating – regional impact Total Crude Steel Production 20 750Mt 799Mt 777Mt 788Mt 847Mt 850Mt 902Mt 934Mt 1069Mt 1129Mt

n 17.4 17.7

o 18 Share of top 5 i 17.1 t 17 16.9 c

u producers d o

r 16 15.5 p l 14.7 a t o t f 14 13.1 13.3 12.5 are o

sh 12 %

10 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Source: IISI, Metal Bulletin, BHPBilliton Note growth in Chinese steel has countered global consolidation impacts – although regional consolidation has occurred SteelSteel industryindustry consolidationconsolidation Even after recent mergers, industry concentration is low

Global market share of top 3 producers, 2005e

80% 70% 60% 50% 40% 30% 20% 10% 0%

l s r l s er e o re tee al p p Oi t ic p O S Pa Au n em Co o h Ir C Source: CRU Analysis, Deutsche Bank SteelSteel industryindustry consolidationconsolidation Flat products is relatively consolidated, unlike long products

Flat Products Plate Hot rolled Cold rolled Galvanised • High regional consolidation in W. Europe, USA, 80% 70% Japan 60% • Scope for consolidation in: – China: flat product consolidation has fallen 40% – North America (limited scope) – Western European plate capacity 20% West Europe North America Japan China of Top 3 Producers: Long Products • Significant consolidation is unlikely: the rationale Rebar Wire rod Merchant bar Beams is less compelling: 80% 70% – local markets, 60% – low barriers to entry – low economies of scale 40% • Consolidation isolated: Regional Market Share Regional Market Share – Beams and structural products 20% – Gerdau, CELSA, Nucor and Mittal West Europe North America Japan China

Source: CRU SteelSteel industryindustry consolidationconsolidation Arcelor & Mittal Steel Plant Locations Mittal Steel Plants Arcelor Plants • Major player in NAFTA market, Eastern Europe, Africa • Major player in Western Europe, South America and Kazakhstan • Minor operations in North America, Eastern Europe, Asia • Limited in Western Europe in production and • Arcelor has decided to turn their external growth efforts to distribution, no presence in South America countries such as Brazil, Russia, India, China, Eastern • Annual production capacity of Steel of 70 Mtpa Europe and Turkey. • Production of 47 Mtpa of steel in 2005

Atlantic share ~20%

Global share 10-11%

Source: Public sources, BHP Billiton SteelSteel industryindustry consolidationconsolidation Mittal is vertically integrated using high levels of domestic coal IRON ORE COKING COAL MITTAL ARCELOR MITTAL ARCELOR

Brazil (Fines) 20% 54% Brazil (Pellets) 10% Australia 6% 10% 49% CIS 9% 13% Canadian 13% 12% Mauritania 11% Sweden 5% Own/ Dom Mines / Strategic LT Contr 54% 3% 76% USA 24% South Africa 6% Poland 5% Others 4% 10% 1% 4% Source: Mittal, Public sources, BHP Billiton About 50% of iron ore and 70% of coking coal consumed by Mittal are supplied by own resources or sources outside the “seaborne” markets generally lower quality than seaborne supplied materials SteelSteel industryindustry consolidationconsolidation Mittal Mining Operations:

Bosnia Ukraine Prod.: 1.5 Mt USA Algeria Prod.: 9.4 Mt Expan.: 1,0 Mt Prod.: 8.2 Mt Prod.: 2.0 Mt Expan.: 6.0 Mt Res: 100 Mt Contr.: 13.0 Mt Res: 100 Mt Res: 1Bt Res.: 500 Mt

Kazakhstan Liberia Prod.: 6.0 Mt Under Develop. Expan.: 2.5 Mt Prod.: 15 Mt by 2010 Res: 2.3Bt Res.: 1Bt

Mexico Kazakhstan Prod.: 2.3 Mt Coking Coal Expan.:3.5 Mt Prod.: 5.5 Mt Res.: 250 Mt Res: 1.5Bt S Africa Prod.: 10.2 Mt

Prod: Production Contr.: Contract USA: captive supply contract Expan.: Expansion S Africa: cost plus contract Res.: Resources Iron Ore: 50 Mtpa of Curr. Prod. / Add. 28 Mtpa by 2010 / Res.of 5Bt Coking Coal Curr. Prod. of 5.5 Mtpa / Res. of 1.5 Bt Source: Mittal Summary steel consolidation - implications • Steel industry will continue to consolidate • Moving from regional to global industry players • Flat product will continue to lead consolidation

Overall implications likely to see more profitable steel industry operating more efficiently requiring high quality coke likely to be made with increasing quantities of higher quality hard coking coals FutureFuture BFBF trendstrends Blast furnace – trends in operating philosophy/practice Most modern EU-15 Blast Furnaces operate at less than design productivity of 2.5 t/d/m3, further improvements will be made

European Survey 2003 Blast Furnace Productivity

3.5 Design = 2.5 3.0

2.5

2.0

1.5

1.0

0.5 Productivity (t/m3 24h - WV basis) Productivity (t/m3

0.0 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 Blast Furnace Source: European BF committee, Hatch FutureFuture BFBF trendstrends BF technology changes will be delayed to well after 2013.

Blast Furnace will remain the mainstay of steelmaking processes This group offers opportunity for new technology implementation

100 90 Mid-life BF ~2005 80 Need Reline +20 year life 70 60 50 New BFs +20 year life 40 30 BFs t Blast Furnace Reline / New 20 Need +20 year life 10 Reline Percen 0 2005 2010 2015 2020 2025 FutureFuture BFBF trendstrends The BF’s domination of virgin iron unit production will remain

Blast Furnace Hot Metal as a Source of Virgin Iron Trend to 2025

92%

90%

88%

86%

Production (%) 84%

82%

Global Blast Furnace Hot Metal 2000 2005 2015 2020 2025

Yr 2000 Yr 2015 Yr 2025 Virgin Iron Units (Mt) 450 870 1300 Blast Furnace (Mt) 400 800 1120 Other (MT) 50 70 180

Source: Hatch FutureFuture BFBF trendstrends

ULCOS (Ultra Low CO2 Steelmaking) program likely impact after 2025 • Step 1 (2005–10) exploring wide range of steelmaking concepts

• Including future BF concepts

–O2 blast – Biomass/plastics injection

– Top gas recycling with CO2 removal

–CO2 sequestration FutureFuture BFBF trendstrends Blast Furnace - future evolution Top Gas • Outlook for the BF Recycling – Decline in no = higher productivity Scrap/Metallic DRI Pre-Heated – Expanded campaign life >20 years Burden – Shorter down periods Mid-Furnace – Higher PCI, O2, lower fuel rates Fine IO Injection (Oxy) – More stable operations – Enhanced computer models and control, value-in-use Plastics – Enlargement during relines – New hearth designs New hearth for high liquids drainage Summary future BF trends and implications • BF will remain the main source of iron for steelmaking • Longer lived, high productivity & efficiency future for the BF • Size will increase as MBF’s move to larger >3000m3

Overall implications likely to see more productive, efficient BF operations requiring high quality coke likely to be made with increasing quantities of higher quality hard coking coals What happens if you use poor quality………… Blast Furnaces must be looked after! Overall implications for coke in the new world • Current trends:- – China’s future, growth and structure – Industry consolidation – Future BF trends

• All lead to the conclusion that – Coke will remain vitally important to steelmaking – Coke quality trends are likely to be for higher quality – Coke ovens are a valuable asset – Implications are for continue requirements for HQHCC RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance Understanding coke reactions and performance • Are traditional methods for assessing coke still relevant • BF operations have changed and will continue • Coke characterisation tests developed 20 years ago!! – Cold strength probably OK – Hot strength(CSR) generally useful

• New techniques/evaluations for the new world???? • Role of coking coals in making coke RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance Simulating coke conditions in the blast furnace

Does CSR adequately account for high temperature coke properties?

1600 0.8 1200 120 1400 0.7 ) ) 1000 100 C

% 1200 0.6 (

t e ( 800 80 n ur e ) 1000 0.5 t CSR represents one at n

600 60 e (C o r er

Temperature u t p

a 800 0.4 C s er m 400 40 reaction, under one %CO2 p e m e T Ga 600 0.3 200 20 set of conditions T 0 0 400 0.2 0 50 100 150 200 250 200 0.1 Time (Minutes) 0 0 0 100 200 300 400 500 Time (min) CSR/CRI Temperature CO CO2 H2 H2O N2 1600 0.8

1400 0.7 1400 50% Conditions vary 1200 0.6 1200 40% through (gas, temp) ) 1000 0.5 ) ) 1000 C C % e ( (

Temp r

but are also different u e ( e 30% t 800 CO a 800 0.4 ur er t atur p x CO2 i m

600 in various parts of a e per M 600 0.3 20% T

H2 s m a e

H2O G T 400 blast furnace. 10% 400 0.2 200 200 0.1 0 0%

0 50 100 150 200 250 0 0 Time (min) 0 100 200 300 400 500 Time (min) European BF Temperature CO CO2 H2 H2O N2 Australia BF conditions RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance High temperature coke reaction furnace (HTCRF)

Heating 99.8% Elements alumina Control TC worktube

Figure 2. High Temperature Coke Reaction Furnace (HTCRF)

1. Up to 200g coke 2. 1600°C Sample temperatures

3. N2, CO2, CO, H2 controlled atmospheres 4. Programmable gas-temperature regimes RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance More realistic BF Conditions vs CSR and CRI

81.00 80 16.0 50 80.00 70 14.0 ile 79.00 s f

60 s 40 o 12.0 r e

78.00 Lo u 50 . l t e ll p a 10.0 77.00 30 u l a W 40 a e R V l

8.0 V i W 76.00 of m 30 CS

r 20 75.00 6.0 CRI

m BF Wall P

0 BF Wall 74.00 20 ll 4.0 CRI +1 MV/LV CSR 10 10 Wa MV/LV 73.00 2.0 72.00 Blends 0 0.0 Blends 0 0.9 1.1 1.3 1.5 1.7 0.9 1.1 1.3 1.5 1.7 Coal Rank Coal Rank Key Findings 1. CRI/CSR indices similar, but there is less differentiation between cokes under the blast furnace profile. CSR and CRI overestimate the differences in cokes 2. Strength indices show different behaviour between CSR and BF profile. The drop at high rank is likely due to thermal damage (as shown in nitrogen data) 3. High rank coals increase fines when 100% of battery feed, but do not appear generate increased fines when present in blends.

Source: BHP Billiton RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance Different parts of the blast furnace

30.0 88.0 80 evs

25.0 e 70 l

i 86.0 600r of 60 r 20.0 te e

pr 84.0 u

e 50 l af r a m

15.0 nt 82.0 40 V m e R 2 BF Wall c -

30 CS

g 10.0

m 80.0 n

i BF Centre

BF Centre m s 20 0 CSR 5.0 1 78.0 + Pas Nitrogen 10 % 0.0 76.0 0 0.9 1.15 1.4 1.65 0.9 1.1 1.3 1.5 1.7 Coal Rank Coal Rank

Key Findings 1. Coke behaviour depends on where you are in the BF. 2. At the centre, thermal effects predominate.

3. At the walls (and most likely the mid radial locations, chemical attack via CO2 becomes much more significant). 4. Similar, non-additive behaviour MV/LV blend.

Source: BHP Billiton RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance New methods for looking at coke structure X-ray computer tomography (CT) is a non-destructive imaging technique that has been applied extensively in medical and engineering fields to visualise internal features of humans and objects

X-ray micro-tomography (XRMT) is based on the same essential principles of X-ray absorption as standard X-ray CT but differs in sample transport and in size of the X-ray source RecentRecent studiesstudies ofof cokecoke itsits reactions & performance X-Ray Micro Tomography (XRMT)- reactions & performance Effect of gasification on coke structure Use High Temperature Coke Reaction (HTCR) furnace & XRMT to study the change in coke microstructure through the BF. Coke microstructures showed significant difference between the effects of • CSR conditions & • a typical BF gas-temperature profile

• CSR reaction penetrated deep into the coke lump for all cokes studied • BF profile resulted in reaction confined to lump surface.

Coke made from higher rank coals showed a more limited change in coke microstructure. RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance US LV v Aust LV Coals – Effect on coke strength

80 25% USLV 75 25% Aust LV 70 )

(% 65

50 CSR ASTM Stab ASTM Hard M40

Source: BHP Billiton RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance Measurement of oven wall pressure (OWP) • Moveable wall pilot coke ovens provide a direct measurement of OWP – Research Coke Oven at Newcastle completed over 750 experiments since 1994 Standard Conditions Moisture 5% Bulk density 825kgm-3 (db) box charge Grind 85% minus 3.35mm Heating Simulation of Australian slot ovens RecentRecent studiesstudies ofof cokecoke itsits reactionsreactions && performanceperformance Oven wall pressure studies 8

Base containing 25% US low vol

Aus LV replacing US low vol 4 Oven Wall Pressure / kPa 2

0 0 5 10 15 20 Elapsed Time / hours

Source: BHP Billiton Oven wall failure And the end of the road Summary • The global steel industry remains firmly in the “new world” led by China • Future trends in China, industry consolidation and changing BF practices all suggest the need for higher coke quality • Traditional techniques to characterise coke lack the precision to provide superior BF performance • OWP remains an important parameter esp. with aging ovens • High quality Australian hard coking coals esp. low vols will remain a core part of current and future coke blends