Best in Class: Australia's Bulk Commodity Giants
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Best in Class: Australia’s Bulk Commodity Giants AUSTRALIAN IRONMETALLURGICAL ORE: COAL: QualityWhen Quality Sought Meets Around Opportunity the World minerals.org.au Author: Anthony Le Bas Disclaimer Anthony is a retired metallurgist with an extensive career In preparing this report, the author has sourced and relied upon starting at BHP Steel Port Kembla steelworks where he held third party information. This information has been assumed to be operational roles in ironmaking (blast furnaces, sinter plant and correct by the author and has not been independently verified. coke ovens). In the late 1990s, he joined BHP Minerals marketing While the author has used best endeavours in preparing this report, and subsequently led BHP’s coking coal research team at the conclusions which are dependent on the third party information are company’s Newcastle Laboratories. After leaving BHP in 2016, not warranted or guaranteed. Tony joined Felix Resources and then Yancoal after its takeover This report was commissioned by the Minerals Council of Australia of Felix. In recent years he has consulted to a number of (MCA). The fee payable by the MCA was not contingent on the Australian coal companies. outcome of the report. The author accepts no liability or responsibility whatsoever in respect of any use of, or reliance upon this report by any third party. 2 Best in Class: Australia’s Bulk Commodity Giants Australia is the largest seaborne exporter of metallurgical coal with exports of 184 million tonnes (Mt) valued at AUD$41.3 billion in 2019.1 Many of the metallurgical coals produced in Australia are Unlike some other bulk commodities, with markets integral components in coal blends of major steel mills dominated by geographically close customers, the quality of around the world due to specific properties that ensure Australia’s metallurgical coal attracts customers from around the coke produced from these blends optimises blast the world and underpins its value. furnace (BF) performance. By using Australian metallurgical coals, BF operators can By using Australian metallurgical maximise productivity, enhance the quality of hot metal, coals, blast furnace operators can minimise the amount of coke needed to produce a tonne of hot metal and reduce the amount of CO2 produced in maximise productivity and reduce the the ironmaking process. amount of CO2 produced 1 Australian Government, Department of Industry, Science, Energy & Resources Historical Data, June 2020. Best in Class: Australia’s Bulk Commodity Giants 3 What is metallurgical coal and what is it used for? Metallurgical coal encompasses coking coal and pulverised PCI coal is injected into the bottom of the BF replacing a coal injection (PCI) coal (Figure 1) and is primarily used in the proportion of the coke required to maintain the hot metal production of steel. at the desired temperature. PCI coal is less expensive than coke, hence its attractiveness to iron makers. Coking coal is ‘coked’ (heated in the absence of oxygen) in a coke oven (Figure 2 & Figure 3) to produce coke. While it is About 70 per cent of worldwide steel production relies used in a variety of metallurgical processes, the vast majority on metallurgical coal via the BF/BOF route (Figure 4) and of all coke produced globally is consumed in BFs which 30 per cent is via the electric arc furnace (EAF) route produce molten iron, or ‘hot metal’. The hot metal is then (which melts scrap and does not require the use of refined into steel in a Basic Oxygen Furnace (BOF). metallurgical coal).2 FIGURE 1: METALLURGICAL COAL IS PRIMARILY USED IN THE PRODUCTION OF STEEL FIGURE 2: INSIDE AN EMPTY COKE OVEN AFTER COKE HAS BEEN DISCHARGED etallurial oal Cokin oal C oal ultile oals lended Coked in oke oens Coke Blast urnae arge nee ino ino ot metal Basi oyen urnae teel Source: BlueScope Steel. 2 World Steel Association, World Steel in Figures, 2020. 4 Best in Class: Australia’s Bulk Commodity Giants FIGURE 3: A NUMBER OF INDIVIDUAL OVENS MAKE UP A COKE BATTERY Source: BlueScope Steel. FIGURE 4: STEEL PRODUCTION VIA THE BLAST FURNACE/BASIC OXYGEN FURNACE ROUTE Blast urnae inere las furnae re gas ron re inter lant o olen eal eel oe Basi yen urnae B oing oal Coke ens lag ulerise oal neion Best in Class: Australia’s Bulk Commodity Giants 5 Differences between coking coal, PCI coal and thermal coal Coking coal, during the coking process, softens (exhibits Thermal coal is primarily used in the generation of electricity. plasticity) at about 400°C. As heating continues the coking PCI coal is basically high quality thermal coal. Thermal/PCI coal agglomerates, then swells and re-solidifies at about coals do not possess plastic properties and if heated in a 500°C. Heating continues to about 1200°C until coking is coke oven the coal particles would remain in essentially the complete, which takes at least 18 hours. same state and would not agglomerate into lumps as does coking coal. The size of coking coal charged into the coke oven is quite fine at <3mm whereas the product coke is lumpy in nature with an average size of about 50mm, as shown in Figure 5. Coking coal and PCI coal are used in Coke is generally 85-90 per cent carbon and steel production, thermal coal is used 10-15 per cent ash. in electricity generation FIGURE 5: CRUSHED COKING COAL (LEFT) PRIOR TO COKING AND A LUMP OF COKE (RIGHT) AFTER COKING 6 Best in Class: Australia’s Bulk Commodity Giants Australian exports of metallurgical coal In the early years of the Australian coal industry As shown in Table 1, Australia supplied 183 Mt or 61 per cent (1791-1950s), production was concentrated in the of the global seaborne metallurgical coal trade of 302Mt in Illawarra and Hunter regions of New South Wales. 2019 comprising: The impetus for the growth of metallurgical coal • 123Mt Hard Coking Coal (HCC) and Semi-Hard Coking production was exports from New South Wales to Coal (SHCC) or 60 per cent of the global seaborne the burgeoning Japanese steel industry in the 1950s market for HCC/SHCC and the development of mining in the Bowen Basin in • 29Mt Semi-Soft Coking Coal (SSCC) or 62 per cent of the Queensland in the 1960s. global seaborne market for SSCC Currently more than 96 per cent of Australia’s • 31Mt PCI coal or 63 per cent of the global seaborne metallurgical coal production is exported with the market for PCI coal. balance used domestically.3 Total metallurgical coal trade flows, which include land-based Exports have steadily increased over the last three flows, are shown in Figures 8 and 9. China is the largest decades commensurate with growing worldwide demand importer of metallurgical coal, primarily from Australia for high quality metallurgical coal, as shown in Figure 6. and Mongolia. High quality metallurgical coal is mined (Figure 7) in the: Australia exports enough metallurgical coal to produce, • Illawarra and is exported from Port Kembla, without blending with international coals, about 100 million New South Wales tonnes per annum (Mtpa) of coke and 290Mtpa of crude steel 5 • Hunter Valley, Gloucester Basin and Gunnedah Basin and or approximately 15 per cent of total global steel production. is exported from the Port of Newcastle, New South Wales • Bowen Basin and is exported from Gladstone, Hay Point and Abbot Point ports in Queensland. FIGURE 6: AUSTRALIAN METALLURGICAL COAL EXPORTS 1991-2019 200 180 160 140 120 100 a 80 60 40 20 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Australian Govt, Department of Industry, Science, Energy & Resources Historical Data, June 2020. Best in Class: Australia’s Bulk Commodity Giants 7 FIGURE 7: METALLURGICAL COAL REGIONS IN AUSTRALIA arin airns Boen Basin aa oamon AAA lasone risane er unter alley ne elaie llaarra elourne anerra oar TABLE 1: SEABORNE METALLURGICAL COAL TRADE IN 20194 Seaborne Mt 302 Aust US Canada Russia Moz Other Mt 183 46 34 28 5 6 HCC/SHCC SSCC PCI Mt 123 29 31 Australia's market share 60% 62% 63% in each category 3 Commodity Insights, Market Demand Study: Australian Metallurgical Coal, 12 October 2018, p8. 4 CRU Group, CRU Metallurgical Coal Cost Model, 2020. 5 Calculations based on: • 123Mt (HCC + SHCC) of VM 23.6 per cent and 29Mt SSCC of VM 31 per cent equating to 152Mt at 25.7 per cent VM, and 31Mt PCI coal (wet) • 10 per cent Total Moisture for all coals • Coke/coal ratio 0.64 meaning 152Mt coal produces 98Mt coke • Assume coke rate of 390kg/thm and PCI rate of 110kg/thm. Hot metal produced from 98Mt coke is 251Mt • PCI required at 110kg/thm is 251 x 0.110 or 28Mt (dry) • Assume hot metal ratio of 90 per cent in BOF so total crude steel produced is 251/0.9 or 279Mt 8 Best in Class: Australia’s Bulk Commodity Giants FIGURE 8: TOTAL IMPORTS OF METALLURGICAL COAL IN 2019 (MT) kraine out orea 12Mt 34Mt uroe aan 59Mt 58Mt ort Cina Ameria 75Mt 6Mt aian Aria 12Mt 2Mt out ast out Asia Ameria 8Mt 15Mt ndia 61Mt Source: CRU Group. FIGURE 9: TOTAL EXPORTS OF METALLURGICAL COAL IN 2019 (MT) ussia 39Mt Canada onolia 35Mt 24Mt ort Ameria 50Mt oamiue 5Mt ter Australia 12Mt 183Mt Source: CRU Group. Best in Class: Australia’s Bulk Commodity Giants 9 Companies producing metallurgical coal in Australia As shown in Figure 10, there is a diverse range of companies producing metallurgical coal in Australia. FIGURE 10: COMPANIES PRODUCING METALLURGICAL COAL IN AUSTRALIA - 2019 70 60 50 40 Mt 30 20 10 0 BMA nglo merian Australia supplied 183Mt or 61 per cent lenore of the global seaborne metallurgical coal trade in 2019 ellina rou anoal isui eao oronao ou oal ieaen oal eo esrel oal es.