Steel Raw Materials Monthly

STEEL RAW MATERIALS MONTHLY

www.twitter.com/PlattsSBBSteel Issue 1 / March 2013

Giant leap forward for Australian Contents iron ore in 2013 Iron Ore Market Focus 4

Australia will cement its position as the Australia are among the highest in the world. Metallurgical Coal Market Focus 5 world’s major iron ore producing nation this However, the major mining houses know it is Scrap Market Focus 7 year, potentially lifting installed capacity by as easier and cheaper per tonne of iron ore much as 30% over 2012 if all projects and produced to lift capacity at existing operations Alloys Market Focus 8 expansion programs meet their timelines. The rather than embark on building large new News 9 big jump in seaborne tonnages will occur as projects. Furthermore, given the nature of long- Brazilian production – namely Vale – stays flat term supply relationships with steel mills – Special Feature 12 again and Indian exports continue to fall away even if a larger proportion of this supply is sold because of various mining bans. on shorter-term agreements – it is harder for Global Trade Highlights 15 Australia’s major producers, Rio Tinto, newcomers to shift incumbents to take a piece Steel Raw Materials Monthly Averages 16 BHP Billiton and Fortescue Metals Group, are of a pie that is not getting significantly larger. all committed to significant expansion programs, while juniors such as Atlas Iron, Production plans Arrium Ltd (formerly OneSteel) and Mount The Australian government’s commodity unit, Gibson Iron will also lift their export tonnages Bureau of Resources and Energy Economics in 2013. Magnetite concentrate from (BREE), predicts the country’s iron ore Editorial greenfield projects in Western Australia, which exports will rise 13% this year, to 543 million finally began producing at the end of last metric tons, from 481 million mt in 2012. A changing of the guard in 2013 year, will ramp up over the next twelve This compares with Indian exports falling to months and start to ship meaningful volumes 38 million mt this year, compared with 51 Welcome to the first issue of Steel Raw into China. Platts calculates that capacity million mt in 2012 and down from 96 million Materials Monthly. This new publication will could potentially reach 720 million mt/year by mt in 2010 when India was the major swing complement and add to the information the end of 2013 compared with around 550 supplier into China. BREE predicts Brazilian found in Steel Markets Daily by providing million mt/year by the end of last year. exports of 327 million mt this year, indicating the kind of content that is better suited to The miners are aware that Chinese crude the South American’s country’s inability to a monthly. This will include longer features steel production will not continue to grow at lift production and exports over recent years. exploring industry trends, market analysis rates seen in previous years and will start to Analysts expect around 120 million mt/year and commentary, Q&As with senior plateau, but believe demand for imported iron of new capacity will be added in Australia this industry figures, and a monthly view of ore will remain strong. Competing supply has year, a jump from around 80 million mt of steel raw materials and metals prices. failed to come on line as planned and looking new capacity in 2012. around the globe there are few signs that BHP is likely to reach total capacity of Though we’re only in March, 2013 Australian market share dominance – along 220 million mt/year at its Pilbara operations already seems to be about the ‘changing with Vale’s – will be threatened. This has over the course of this year from around 188 of the guard’, with the new incumbents provided the impetus for the large producers million mt/year currently as it increases set to wield enormous influence on our to forge ahead, and in some cases fast-track output at its Jimblebar mine and lifts industry. The world’s major mining their production capacity ramp-up to take throughput at Port Hedland. Platts companies, such as BHP Billiton and Rio advantage of the tight supply scenario which understands the miner is exploring ways of Tinto, have new leaders, and after what has supported iron ore prices. lifting capacity beyond this figure by optimizing seems an interminable build-up, the new The challenge is to increase market share its operations. BHP produced 157.2 million Chinese leadership finally takes its place cost-effectively at a time when capex costs in (continued on page 14) this month.

Incoming mining heads have already Key price assessment monthly averages, February 2013 signaled their intention to focus on costs, Unit Average change % change and will quietly work to meet their expansion program timelines. As we Platts IODEX Iron ore fines 62% Fe CFR North China $/dmt 154.79 3.93 2.61 discuss in this issue, huge new supply of Platts Coking Coal, Premium low-vol FOB Australia $/mt 171.81 5.97 3.60 iron ore is set to come online this year, Platts Ferrous Scrap HMS CFR Turkey $/mt 393.78 -9.72 -2.41 while other less-advanced and more challenging projects could be slowed until TSI Iron Ore Fines 62% Fe $/dmt 154.64 4.15 2.76 market conditions improve. Chinese imports (CFR North China port) TSI Ferrous Scrap HMS 1&2 80:20, $/mt 393.60 -10.13 -2.51 — Paul Bartholomew Turkish imports (CFR port)

The McGraw-Hill Companies Steel Raw Materials Monthly Issue 1 / March 2013

Higher power rates complicate scrap sales in Japan equivalent to about a 17.5% increase for heavy industrial users, while Osaka-based Dealers supplying ferrous scrap to the Shimbun paper. The mini-mills and their Kansai Electric Power plans to raise power Japanese electric furnace steelmakers cousins in the special steel sector also rates to corporate buyers by a huge have another issue to complicate their using electric furnaces have had a torrid 19.23%. Shikoku Power’s increases will sales negotiations – higher power costs few months and could do without these kick in from July but Kansai Power’s will be that their buyers will need to bear in extra costs. applied from April. coming months. The problem is that in coming months, Estimates of how the mills’ finances “The rise in power charges is very eight of Japan’s ten major power will be impacted vary widely, with some severe for the mini mills,” a Tokyo-based companies will raise their electricity rates putting the pain at an additional ¥3 billion scrap trader admitted. “In the worst case to household and industrial users. The this year and slashing operating profit scenario they may begin considering power firms face higher costs for imported margins by 2-3%. whether it’s better not to produce at all!” crude oil and steaming coal, now that The steelmakers are resisting to rises, Indeed, Katsutoshi Kurikawa – head many have idled their nuclear plants. asking Ministry of Economy, Trade & of the country’s Non-integrated Steel For mini-mills melting steel for Industry minister Toshimitsu Mogi in a Producers’ Association and chief H-beams for example, every increase in meeting February 22 to allow the early executive of Godo Steel, a Nippon Steel power rates of ¥2.5/1kwh means their re-start of the idled nuclear plants pending & Sumitomo Metal Corp mini-mill – said production costs will rise by thorough safety inspections. as much recently. ¥1500~2000/metric ton ($16~21/mt). Godo Steel’s Kurikawa and Daido EAF producers “might as well close up On February 20, Shikoku Power sought Steel president Tadashi Shimao – shop now for the sake of their approval from the Japanese government to chairman of Japan’s special steel employees”, he told the Nihon Keizai add ¥2.3/kwh to its power rates, association – both highlighted the challenges EAF makers face through higher Japan’s special steelmakers struggle (Yen million) power charges, according to Japanese industry sources. Apr-Dec 2012 results Yet the power firms have considerable Company Pre-tax profits Year-on-year % change leverage and most electric steel producers Aichi Steel 6,465 17.60% acknowledge that some tariff increase is Sanyo Special Steel 1,067 -88.40% inevitable. And this, in turn, is what is Daido Steel 12,301 -47.80% worrying the scrap suppliers. Nippon Koshuha -236 0% “Mini-mills are trying to lift product Hitachi Metals 16,521 -48.90% prices but the speed at which higher Mitsubishi Steel 2,506 -69.50% prices are penetrating is slower than the speed at which scrap prices have risen,” Mini mills (selected) the scrap trader noted. From mid- Asahi Industries -1,005 0% November until February 23, Tokyo Steel Tokyo Kohtetsu 1,033 -8.40% Manufacturing felt obliged to raise its Osaka Steel 3,833 -24.10% scrap buying prices by ¥9000/mt. Kyoei Steel 3,502 19.50% “In the worst case, with higher power Godo Steel 1,424 -24.20% charges, the mini-mills may reduce scrap Chubu Plate -564 0% buying volume and clip production,” the Source: Company reports trader warned. — Russ McCulloch and Yoko Manabe

Steel RAW MATERIALS MONTHLY Issue 1 / March 2013 ISSN: 2052-3572

Managing Editor Platts Steel Raw Materials Monthly is published monthly by Platts, a division of The McGraw-Hill Companies. Paul Bartholomew; Australia Registered office: 20 Canada Sqaure, Canary Wharf, London, UK, E14 5LH. To reach Platts (+613-9631-2096) Officers of the Corporation: Harold McGraw III, Chairman, President and Chief Executive Officer; Kenneth Vittor, E-mail:[email protected] Senior Managing Editor Executive Vice President and General Counsel; Jack F. Callahan Jr., Executive Vice President and Chief Financial Officer; John Weisenseel, Senior Vice President, Treasury Operations. North America Russ McCulloch; Singapore Tel:800-PLATTS-8 (+65-6227-7811) Prices, indexes, assessments and other price information published herein are based on material collected from actual market participants. Platts makes no warranties, express or implied, as to the accuracy, adequacy Latin America Editorial Director or completeness of the data and other information set forth in this publication (‘data’) or as to the merchant- Tel:+54-11-4121-4810 Joe Innace ability or fitness for a particular use of the data. Platts assumes no liability in connection with any party’s use (+1-212-904-3484) of the data. Corporate policy prohibits editorial personnel from holding any financial interest in companies they Europe & Middle East cover and from disclosing information prior to the publication date of an issue. Tel:+44-20-7176-6111 Vice President, Editorial Copyright © 2013 by Platts, The McGraw-Hill Companies, Inc. Asia Pacific Dan Tanz Permission is granted for those registered with the Copyright Clearance Center (CCC) to photocopy material Tel:+65-6530-6430 herein for internal reference or personal use only, provided that appropriate payment is made to the CCC, 222 Platts President Rosewood Drive, Danvers, MA 01923, phone (978) 750-8400. Reproduction in any other form, or for any other Larry Neal purpose, is forbidden without express permission of The McGraw-Hill Companies, Inc. For article reprints con- Advertising tact: The YGS Group, phone +1-717-505-9701 x105 Text-only archives available on Dialog File 624, Data Star, Tel : +1-720-548-5508 General Manager, Metals Factiva, LexisNexis, and Westlaw. Platts is a trademark of The McGraw-Hill Companies, Inc. Andrew Goodwin All rights reserved. No portion of this publication may be photocopied, reproduced, retransmitted, put into a computer system or otherwise redistributed without prior authorization from Platts. Manager, Advertisement Sales Kacey Comstock

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Iron Ore Market Focus

Tight supply supports prices ahead of month-on-month. However, open interest, which is a key measure of market expected fall over 2013 liquidity, continued to expand. The TSI 62% Fe reference price for If proof were needed of the importance of prompt spot ore – compounded by iron ore fines imported into China, against sentiment in China’s steel market then it operational disruptions in Western which most derivatives are settled, was provided by weaker Shanghai rebar Australia caused by the most recent remained firm through February, holding futures and iron ore spot prices on the tropical cyclone - the paper trade in iron above the $150/dmt mark and reaching a back of comments from outgoing Chinese ore derivatives enjoyed another month of 15-month high of $158.9/dmt mid-month. premier Wen Jiabao in February. growing liquidity on uncertainty over post- The outlook for coming months Following remarks that control of the Chinese New Year demand. remains uncertain, meaning swap country’s property market would be Overall, the volume of iron ore swaps contracts tied to the nearby months of tightened further, the Platts 62% Fe Iron and options cleared in February dipped March and April, and the spread between Ore Index was assessed $3/dry mt lower slightly from the previous month – the two, were highly volatile through at $157/dmt CFR North China on unsurprising given the week-long festivities February. “Many are expecting a sell-off February 21 than the day before. Sources in main market China, as well as the at some point, but the timing is complained that Wen’s comments had shorter month. Singapore Exchange’s uncertain,” explains one trader. Volatility “dashed hopes” the Chinese government (SGX) aggregate of the daily volume of on the March contract was estimated at would stimulate the economy ahead of swaps and options in February traded 40% by FIS. the leadership change in March and spur came in at 17.6 million mt, down 4% — Paul Bartholomew steel production. Property construction accounts for around 60% of Chinese steel usage. The comments also took the wind out of the Platts monthly average iron ore prices, February 2013 ($/dmt) sails of the post Lunar New Year Monthly $ % holidays restocking that saw the IODEX average change change peak at $160/dmt CFR for the month on IODEX: Iron ore fines 62% Fe CFR North China 154.79 3.93 2.61 February 20. The Steel Index (TSI) 63.5/63% Fe CFR North China 156.04 3.93 2.58 assessed the same material at 65% Fe CFR North China 163.26 5.25 3.32 $158.90/dmt CFR on this date. 58% Fe CFR North China 136.47 1.64 1.22 The market response also calls into 52% Fe CFR North China 109.97 1.64 1.52 question the view of some mining companies that the leadership transition is Per 1% Fe differential (Range 60-63.5% Fe) 2.57 0.14 5.64 already having a positive effect on China’s steelmakers. However, some traders remain optimistic and expect a strong TSI monthly average iron ore prices, February 2013 ($/dmt) month ahead if mills return to restock and Monthly $ % China’s new leaders unveil policies average change change supportive of steel production when they 62% Fe fines, 3.5% Al, CFR Tianjin port 154.64 4.15 2.76 gather on March 5. 58% Fe fines, 3.5% Al, CFR Tianjin port 142.62 1.91 1.36 Despite the generally bearish 62% Fe fines, 2% Al, CFR Qingdao port 155.74 4.15 2.74 sentiment towards the end of February, 63.5/63% Fe fines, 3.5% Al, CFR Qingdao port 157.44 4.33 2.83 the Platts IODEX on the final day of the month was $150.75/dmt, a price level that few market participants anticipate will endure over the rest of this year. Market participants and watchers are tipping Platts 62% & 58% Fe iron ore monthly averages CFR China ($/dmt) weaker prices over the second half of 2013 as new supply comes onto the 170 market, while miner FMG – likely to be the biggest contributor of this new supply – 150 said in February that it sees prices averaging $120/dmt this year. “I think iron ore prices have peaked 130 and we’ll see prices soften as domestic iron ore production, spurred by high 62% Fe seaborne prices, returns,” FIS broker Rory 110 58% Fe Macdonald says.

90 Swaps look for direction Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 While prices in the spot market have been supported by limited availability of Source: Platts

Iron Ore Market Focus

China domestic concentrate prices stable, during the month for the New Year holidays, which could explain the rise in stocks. Port inventories rise stocks have fallen dramatically over the past six months or so from usual levels of China’s domestic concentrate market is increase in actual use may not be that 90-95 million mt, as mills have been wary likely to remain stable in the near-term as drastic in January,” the analysts pointed out. of buying new cargoes and supply has been production at both large and small iron ore Iron ore inventories at the 30 major tight. Sources close to the market question mines – most of which are located in the ports in China rose around 1.7 million mt whether port stocks can fall much further, colder northern parts of China - is currently over the course of February, from just under believing much of the existing stocks curtailed because of the winter weather. 68 million mt at the start of the month to belong to major mills. Mining operators have been told not to 69.5 million at end-February. Activity slowed — Staff cause embarrassment during the People’s Congress meeting in Beijing in March by SGX iron ore forward curve ($/dmt CFR) causing pollution or having accidents, which may also have some impact on output. 160 Chinese traders and mill procurement 01-Feb 14-Feb 28-Feb officials are expecting prices of domestic 150 finished steel and imported iron ore to stay 140 around current levels in March, which should support domestic concentrate prices. 130 At the end of February, ex-works concentrate 120 prices – with an average grade of 66% Fe – in northern China’s Hebei province were 110 Yuan 1,000-1,050/wet metric ton ($159- 100 167/wmt) including 17% VAT, largely unchanged from a month earlier. 90 Apr-13 Aug-13 Dec-13 Apr-14 Aug-14 Dec-14 Apr-15 Aug-15 Dec-15 Apr-16 Aug-16 Dec-16 Steel prices have come under pressure, with Chinese domestic hot rolled Source: SGX, TSI coil prices dropping at the end of February, as market sentiment was battered by high Port Hedland iron ore exports (million mt) crude steel output, rising inventories and slow trading. Chinese mills remain 30 unprofitable. China Rest of world China imported 65.5 million mt of iron 25 ore in January, down 7.8% on the previous month, and back to November levels of 20 65.7 million mt. Australia’s Pilbara region 15 in Western Australia was hit by a tropical cyclone in January which caused closures 10 at Port Hedland and Dampier ports affecting exports. 5 Total iron ore exports from Port Hedland, used by BHP Billiton, FMG and 0 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 Atlas Iron, fell around 4 million mt in January to 22.1 million mt, from 26 million Source: Port Hedland Port Authority mt in December. But the January export figure was still almost 5 million mt higher China iron ore imports (million mt) than January 2012 due to a significant lift in iron ore production capacity by local 80 miners over the past twelve months. Platts analysts in Shanghai note that 70 local mills turned to domestic supply to 60 make up for the import shortfall. Indeed, 50 they estimate that domestic concentrate usage jumped four-fold in January 40 compared to December, reaching 24.4 30 million mt. Record iron ore imports and 20 lower pig iron output in December resulted in very low apparent use in December. 10 “Actual use would probably be higher 0 Jan-12 Mar-12 May-12 Jul-12 Sep-12 Nov-12 Jan-13 that month as much of the imports went into restocking and not production, so the Source: China customs

Metallurgical Coal Market Focus

HCC prices go sideways, await China direction East Coast, down from $151.25/mt the week before. and Q2 settlement Meanwhile, analysts at Standard & Poor’s believe coking coal prices Similar to the situation with iron ore, speaking to steelmakers. Some bottomed at $140/mt in October last uncertain sentiment in China’s steel sources are tipping a price of $170- year and expect prices will reach $160- markets is dampening demand for spot 172/mt FOB Australia for high quality 180/mt FOB Australia this year.”We metallurgical coal, with prices softening HCC in the April-June quarter, lower expect the moderately improved steel in the final week of February in line with than earlier predictions of $175/mt market sentiment to lead steel weaker coke and steel prices in China. FOB.In the Atlantic market, low-volatile companies to restock coking coal and The Platts assessment for Premium hard coking coal was assessed at the add temporary upward momentum to low-volatile hard coking coal started the end of February at $150/mt FOB US coking coal prices,” S&P said. month at $172.50/mt FOB Australia when the effects of heavy rainfall in Queensland were still being felt, and ended February at Platts monthly metallurgical coal assessments, February 2013 $168.00/mt FOB. In the first week of February, premium Asia-Pacific coking coal ($/mt) low-vol HCCs gained some $2.50/mt on tighter supply, as the Blackwater rail line FOB CFR CFR Change in Queensland was out of service, while a Australia China India Australia China India number of steel mills had vessels either Premium Low Vol 171.81 185.36 186.81 +5.97 +6.63 +6.22 waiting or half-filled at Gladstone port. HCC Peak Downs Region 171.56 185.11 186.56 +5.97 +6.63 +6.22 However, the impact was not as dramatic HCC 64 Mid Vol 155.17 168.72 170.17 +3.08 +3.74 +3.33 as in recent years when monsoonal Low Vol PCI 146.75 160.31 161.75 +7.89 +8.56 +8.14 weather on top of earlier rains in the Low Vol 12 Ash PCI 134.03 147.58 149.03 +7.44 +8.10 +7.69 north-eastern Australian state saw spot Semi Soft 122.81 136.36 137.81 +3.61 +4.27 +3.86 prices reach $300/mt.Vale also had its Met Coke - - 299.39 - - -0.38 logistical problems in the month, declaring force majeure on met coal North China prompt port stock prices shipments from Mozambique due to Ex-stock Jingtang CFR Jingtang heavy rain hampering rail transport. The (Yuan/mt, incl VAT) equivalent ($/mt)* Brazilian company also wrote down $1.03 Premium Low Vol 1357.50 179.89 billion on its Australian coal assets for HCC 64 Mid Vol 1258.75 166.46 the October-December quarter. *ex-stock price, net of VAT and port charges. People’s Congress could be key Atlantic coking coal ($/mt) Chinese participants, who generally stocked up with raw materials before the FOB US Lunar New Year holidays, are awaiting East Coast Change VM Ash S the outcome of the People’s Congress in Low Vol HCC 150.625 +6.670 19% 8% 0.80% March to see whether the new leadership High Vol A 141.575 +6.711 32% 7% 0.85% may introduce some stimulus measures High Vol B 122.100 +3.691 34% 8% 0.95% that may encourage steel production. Detailed methodology and specifications are found here: Coking coal producer sources indicated http://platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/metcoalmethod.pdf that since they still had sufficient coal inventory at the moment, they would rather wait and see the outcome of the Australia and US low vol HCC monthly averages ($/mt) meetings to decide whether to enter the spot market.In the final week of 240 February a spot cargo was heard sold by HCC FOB Australia a Chinese trader for $183/mt CFR China 220 HCC FOB East Coast US for Australian premium hard material, but other Chinese buyers were insisting 200 they buy for $175/mt CFR China. Sell- side participants were still banking on 180 achieving a price in the $180s mt CFR for top-tier coking coals. 160 The next round of quarterly contract negotiations is expected to start in 140 Japan soon with major producers BHP Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Billiton, Anglo American, Teck and Rio Tinto understood to be in the country Source: Platts

Metallurgical Coal Market Focus

Chinese domestic metallurgical coal steel market, but coke plant operators in a cut in the coke purchasing price as steel prices peaked in early February after four China were less so, causing them to companies refused to take any more coke. months of price increases. Coke prices deliver as much coke as they could Platts assessment of China domestic dipped after the Chinese New Year before the holidays. coke dropped Yuan 35/mt ($5.6/mt) to holidays because of the weak steel As coke makers feared, the steel Yuan 1,815/mt ($292/mt) delivered duty market, which saw coke inventories at market after Chinese New Year turned out paid to Tangshan mills in northern China mills pushed to higher-than-normal levels to be weak, and the combination of falling on February 28, compared with Yuan in February. Steelmakers had been finished steel prices and high coke stocks 1,850/mt DDP on January 31. bullish about the post-Chinese New Year drove steelmakers to destock. This caused — Staff

Platts monthly metallurgical coal relativities table, February 2013 CSR VM TM Ash S P Fluidity Vit % August Spread Spread ad ar ad ad ad ddpm average $/mt vs PLV vs HCC 64 Premium Low Vol 71 21.50 9.70 9.30 0.50 0.045 500 171.81 100% Peak Downs 74 20.70 9.50 10.50 0.60 0.03 400 68 171.55 99.85% Oaky North 69 22.50 10.00 9.00 0.60 0.06 1500 79 171.08 99.58% Wollombi 70 21.50 10.00 9.00 0.55 0.02 500 61 171.08 99.58% German Creek 71 19.50 11.00 9.50 0.54 0.06 250 67 170.17 99.05% Saraji 72 18.50 10.00 10.50 0.60 0.03 160 67 170.00 98.95% Blue Creek No.7 67 19.85 7.00 8.92 0.72 0.03 1113 70 169.83 98.85% North Goonyella 68 23.50 9.00 8.80 0.52 0.05 700 60 169.44 98.63% Oaky Creek 66 24.50 10.00 9.00 0.65 0.06 4000 80 169.36 98.58% Illawarra 73 22.50 10.00 9.50 0.45 0.06 1200 55 169.15 98.45% Goonyella 68 24.30 10.00 8.90 0.52 0.03 1100 58 168.11 97.85% Elkview Standard 72 21.00 10.00 9.50 0.40 0.05 40 50 167.85 97.70% Hail Creek 69 20.00 10.00 10.00 0.35 0.07 200 54 167.64 97.58% Moranbah North 65 24.50 10.00 8.50 0.50 0.03 1700 58 167.00 97.20% Chipanga* 69 23.50 6.00 10.50 0.80 0.09 400 81 164.62 95.82% 106.09% Premium* 63 20.50 9.00 8.80 0.40 0.05 300 50 160.54 93.44% 103.46% Eagle* 70 25.50 10.00 8.80 0.60 0.08 200 59 160.07 93.17% 103.16% Metropolitan Hard* 70 27.00 10.00 8.50 0.69 0.07 300 62 159.89 93.06% 103.04% Standard* 71 23.50 10.00 9.50 0.45 0.09 100 54 158.61 92.32% 102.22% Elkview 2* 68 22.00 9.50 10.50 0.45 50 157.75 91.82% 101.66% HCC 64 Mid Vol 64 25.50 9.50 9.00 0.60 0.05 1700 155.17 100.00% Peace River* 60 24.00 9.00 8.50 0.40 400 154.95 99.86% Tahmoor* 60 28.00 9.00 9.00 0.40 0.07 3000 51 153.02 98.62% Curragh 60 21.00 9.50 7.00 0.60 0.05 100 153.02 98.62% Lake Vermont HCC 62 21.50 11.00 7.50 0.44 0.07 120 50 152.55 98.31% Carborough Downs 61 22.50 11.00 8.00 0.35 0.04 100 44 152.50 98.28% Tuhup* 60 26.50 9.00 7.50 0.85 0.02 450 97 151.52 97.65% Burton Hard 58 22.90 10.00 8.00 0.50 0.06 250 54 150.96 97.29% Cheviot* 55 26.50 9.50 9.25 0.40 1000 52 149.48 96.33% Gregory 57 33.00 8.50 7.30 0.65 0.03 7500 76 148.64 95.79% Notes: ad = air-dried; ar = as received; CSR = coke strength after reaction; ddpm = dial divisions per minute * Theoretical FOB Queensland price Platts monthly metallurgical coal assessments and relativities table provides previous month’s price assessments for various qualities of coking coal including Platts benchmark grades, premium low-vol and the mid-vol marker HCC 64 Mid Vol. The price information provided will be determined from transactional data, spot market assessments and theoretical calculations using value-in-use (VIU). Platts has developed a normalization tool based on VIU data to track the relative values of several coal qualities. In calculating a theoretical value-in- use, Platts may apply linear penalties and premia for coke strength after reaction (CSR), volatile matter (until 27.5%), total moisture, ash and sulphur and non-linear adjustments for phosphorus, maximum fluidity and vitrinite percentage. For each of the latter, no adjustments are applied within a “normal range,” but the penalties or premia for these important price determinants are applied when specifications fall outside of the normal range. The theoretical VIU-based relativities are recalibrated in the market by observing spot market data including bids, offers and trades. The final assessed value is a combination of the observed market activity, the editorial evaluation of the coal attributes and the results offered by the calculations. Particular market events and specific circumstances may also have an influence on the market for coking coal or individual grades. Platts observes and monitors all relevant market information for consideration in its assessments. Source: Platts

Scrap Market Focus

Prices rally in late February after slow start arrivals, compared to ¥31,500/mt for February 7 deliveries. February was a ‘month of two halves’ for Weaker Yen sparks price rise In the February 18 week, Hyundai Steel many of the world’s major scrap import Japanese scrap prices rose in February. contracted some 70,000 mt of Japanese markets, with steep price falls in the first The export auction held by the Kanto scrap for delivery between March and April. week followed by strong rises mid-month. Tetsugen group on February 13 attracted The Korean mill’s booking prices were TSI’s HMS 1&2 80:20 CFR Turkey index a highest bid of ¥33,600/mt ($361/ heard as high as ¥36,000/mt ($390/mt) swung from a month low of $388/mt, to a mt) FAS, up ¥750/mt on a month earlier. FOB for H2 grade and ¥38,500/mt FOB high of $402/mt just two weeks later, as The Kansai Tetsugen’s export auction on for Shindachi. yards pushed back against unseasonably February 14 attracted a highest-priced bid Bulk US scrap bookings concluded a low averages. of ¥33,900/mt FAS. week earlier reflected an increase of The February 2013 monthly average Rising Japanese scrap export prices around $10/mt. One bulk cargo of West of $393.60/mt is the lowest seen at were driven largely by the weaker Coast US scrap was booked at $425/mt this time of year for at least three Japanese currency against the dollar CFR Korea for HMS 1, up from $415/mt years. The Turkish scrap forward curve and Korean Won. Korean trading CFR Korea in late January. A Malaysian at the end of February anticipates higher sources expect Korean EAF mills to mill also booked one bulk cargo of West prices ($403/mt) in March but then reduce purchasing volumes of Japanese US scrap at $432.50/mt CFR Malaysia goes into backwardation. scrap unless Japanese suppliers accept for 80:20 that week. Certain US In the final week of February Turkish lower bid prices. From February 27, suppliers have since raised their offer mills booked several cargoes from the US Tokyo Steel Manufacturing’s H2 buying prices for bulk scrap to $440-450/mt and Europe as prices rose by around $10/ price at Utsunomiya has been CFR East Asia. mt following a tender which saw a ¥34,000/mt effective February 23 — Staff steelmaker award its lot to a US shipper from Houston. Prices then stabilized before the end of the month with other Platts monthly average ferrous scrap prices, February 2013 deep-sea cargoes booked at around Monthly $ % $400/mt CFR Turkish ports for premium Unit average change change HMS 1&2 80:2. HMS FOB Rotterdam $/mt 366.13 -9.55 -2.54 TSI’s US shredded scrap index A3, FOB Black Sea $/mt 363.70 -9.82 -2.63 (delivered Midwest mill) also moved HMS CFR Turkey $/mt 393.78 -9.72 -2.41 lower in February, though prices proved a little bit sticker, with a Shredded del Midwest US $/lt 373.76 -10.74 -2.79 warmer than normal January providing Shredded del dock East Coast $/lt 347.50 -3.57 -1.02 impetus for mills to conclude lower HMS del dock East Coast $/lt 342.50 -3.57 -1.03 spot buys for February settlement. Rising freight rates in February lessened the impact of the falls for TSI monthly average ferrous scrap prices, February 2013 the export markets, and supported CFR prices as February closed. As with Monthly $ % Turkish imports, the February 2013 Unit average change change average will be the lowest February HMS 1&2 80:20, Turkish imports (CFR port) $/mt 393.60 -10.13 -2.51 average for the last few years. Shredded, US domestic (del Midwest mill) $/lt 375.25 -14.00 -3.60 Indian prices have also fluctuated. Shredded, Indian imports (CFR port) $/mt 415.00 -4.75 -1.13 TSI’s containerized shredded scrap index (CFR India) fell early in the month with the Euro/dollar exchange rate proving a barrier for European exporters. Thus, Platts East Asia scrap imports / HMS 80:20 ($/mt CFR) much of the material was coming out of the US, Africa and the Middle East. 470 However, as steel sentiment improved and the currency barrier eased, offers 450 started flowing out of the UK and Europe, with high quality scrap sales concluded at 430 stronger levels. TSI’s containerized HMS 1&2 410 80:20 scrap index (CFR Taiwan) followed much the same trend, with 390 the price falling away early month before recovering back to January-end 370 levels. Sales have been robust with the Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 supply of scrap out of the US West Coast at steady levels. Source: Platts

Alloys Market Focus

Chinese demand starts to return after quiet month Silicon carbide with around 80% silicon content costs $1,000-1,100/mt on a Trading of ferrosilicon was generally quiet industry, which is expected to affect delivered basis, compared with a spot in February due to the Chinese New Year buying interest for ferrochrome. price of 75%-Si ferrosilicon imported into holidays, but prices traded at a wider Import prices of Indian-origin high Japan of $1,410-1,450/mt CIF Japan on range at the end of the month as demand carbon ferrochrome (6-8% C, 58-60% February 28. As such, silicon carbide is from domestic Chinese steelmakers Cr) remained at 93-95 cents/lb CFR understood to be 20% cheaper than picked up after the holidays. China in the last week of February, ferrosilicon with 75%-Si content. Trading had slowed in the week unchanged from late January, due to a An electric arc furnace operator which before the official holiday period of lack of bids and offers owing to the uses over 4,000 mt/year of 75%-Si February 9-15 due to limited spot material New Year celebrations. Import prices ferrosilicon, cut usage by 10% in 2012 as availability, and reluctance from both could come under pressure if Chinese it started to use silicon carbide briquette buyers and sellers to close deals due to domestic ferrochrome prices continue (80-90% Si) during the ferrous scrap prolonged delivery over the holidays. The to decline, but tight ferrochrome supply melting process. Japanese traders said market also remained quiet in the week and high power costs in India should integrated steelmakers, which consume after the holidays as some companies offer some support. ten times more ferrosilicon, have also only resumed work on February 24. Prices started using more silicon carbide. were under downward pressure due to Silicon carbide take-up The mills typically used low-grade lower offers put out around the $1,400/ Meanwhile, in Japan steelmakers are ferrosilicon of less than 70%-Si as melting mt FOB level by sellers needing cash-flow increasingly turning to silicon carbide agent, but are using more silicon carbide after the long break. instead of ferrosilicon, a cheaper in the past year or so, to save production Raw materials prices typically rise after alternative due to a supply glut of solar- costs, traders say. Japan imported Chinese New Year holidays. Prices showed grade silicon caused by a downturn in the 460,875 mt of ferrosilicon with over 55%- some uptick at the end of the month but solar sector. The material is used for Si content in 2012, down from 470,398 there is some uncertainty on whether this silicon-based solar cells and mt in 2011. uptrend would continue for ferrosilicon as semiconductor devices. — Vivian Teo and Mayumi Watanabe export demand remained sluggish. However, price support was offered by limited spot material availability and high Platts Ferromanganese in-warehouse US – High Carbon 76% ($/gt) domestic prices. China’s spot prices for 75% ferrosilicon were at $1,390-1,450/mt 1400 FOB China in the last week of February, a wider range from $1,400-1,430/mt FOB in late January.Raw materials prices typically rise after Chinese New Year holidays but 1300 there is some uncertainty on whether this would be the case for ferrosilicon as export demand remained sluggish. 1200 However, price support was offered by limited spot material availability and high domestic prices. China’s spot prices for 75% ferrosilicon were at $1,390-1,430/mt 1100 FOB China in the last week of February, Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 down slightly from $1,390-1,430/mt FOB in Source: Platts late January. Market participants in the Chinese Platts Ferrosillicon in-warehouse US (¢/lb) ferrochrome market returned to find domestic ferrochrome prices lower in the 100 week after the holidays. Chinese domestic high-carbon ferrochrome spot prices eased to Yuan 7,500-7,700/mt (equivalent to 91-93 US cents/pound) by the end of 95 February, down from Yuan 7,700-7,800/ mt the week before on slower demand and lower March bid prices by stainless steel producers. 90 Stockpiling activities by stainless mills spurred higher prices before the holidays but post-holiday demand was 85 down significantly. Falling nickel prices Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 after the holidays also soured sentiment in the domestic stainless Source: Platts

News

No change to Indian iron ore status quo in 2013 Monthly News Round-Up

Following the marked decline in Indian In mid-February, the Goan government BC Iron expects Nullagine JV to iron ore production and exports over the filed a statement to the Indian Supreme produce 5 million mt past couple of years, there is little reason Court recommending that new iron ore to expect a significant turnaround in mining operations should be completely BC Iron expects its Nullagine joint 2013. The fate of the mining industry in banned while the extraction and sales of venture with Fortescue Metals Group the southern state of Karnataka remains stockpiled ore and dumps could be in Western Australia’s Pilbara region uncertain more than two years after ore permitted. In a draft mining policy it had to produce 5 million mt of 57% Fe exports were first banned from the state proposed in August 2012, the state said it direct shipping ore at a cash operating in July 2010. Questions abound on when, was essential to focus on sales of iron ore cost of $45-50/mt in fiscal year 2013. perhaps even if, the mining ban in the dumps from the state over the next three- BC Iron owns 75% of the JV. The JV neighboring state of Goa may be revoked. to-four years on concerns that exports of sold 2.3 million mt of iron ore in July- Investigations into mining operations this material would become commercially December at a cash operating cost for are ongoing in other states such as unviable after 2015-16. the most-recent quarter of about $47/ Odisha and Jharkhand in eastern India, With Indian ore exports dwindling – wet mt, down from $64/wmt in 2011. and several more regions will come under expected to not even reach 20 million mt BC Iron managing director Mike Young scrutiny this year. Whether history will this fiscal ending March 31 – and end-users said the results were “a bit soft, repeat itself in these states or whether the turning to ore imports, the possibility that especially in the context of the recent investigating authorities, and state India could very well become a net iron ore optimism in the market.” The governments themselves in some cases, importer during 2013-14 presents a Nullagine crushing facility was will adopt a more practical approach rather tantalizing opportunity for miners worldwide. upgraded to over 5 million mt/year, than punishing everyone for the actions of In the long run, however, India’s dependence and the company plans to achieve a a few remains to be seen. on imported ore may not be particularly rate of more than 6 million mt/year in In most cases, investigating authorities significant, but domestic miners would the third quarter of FY 2013. are expected to adopt a course of action remain under pressure to keep their prices in similar to that employed in Karnataka, check so as to not render imports attractive. Uruguay’s government may aimed at eventually permitting only those — Anitha Krishnan mining operations to resume where no or co-finance Zamin ore project only a few illegalities have been Indian iron ore export volumes, Uruguay president José Mujica is determined. The permissible production April-November (million mt) interested in taking part of the limits are however being capped on Valentines iron ore project, owned by environmental concerns. This has led to Change Minera Aratiri — part of Jersey-based 2012 2011 y-o-y some “legal” miners in Karnataka refusing Zamin Ferrous. The idea of co-funding Chennai 0.000 0.029 -100% to reopen their mines, citing little the $3 billion project was first Gangavaram 0.000 1.785 -100% profitability at lower output levels. expressed in recent talks between Haldia 0.739 2.925 -75% The issue is compounded in Goa by the Mujica and Aratiri’s CEO Fernando Kakinada 0.000 0.340 -100% fact that the state hosts some 750 million Puntigliano. “There has been no Krishnapatnam 0.000 0.050 -100% mt of iron ore stockpiled at mineheads and official offer from the government yet, Mormugao, Panjim 10.642 23.878 -55% dump sites, accumulated over several years but the country’s president declared New Mangalore 0.000 0.682 -100% of mining. The debate now pertains to his interest in participating. The Paradip 0.881 5.219 -83% whether the state should resume mining company will analyze the situation,” Visakhapatnam 2.790 5.051 -45% operations – which would cause the said a spokesman. Mujica recently Total 15.052 39.959 -62% stockpiles to rise further – or halt all mining said the development of mining for now and focus only on dump sales. Source: Federation of Indian Mineral Industries projects in the country was a priority this year. The Valentines project is Indian iron ore production data (’000 mt) situated on the border between the departments of Treinta y Tres and 25 Florida, and is expected to export iron 2010 2011 2012 ore in 2016. 20 Sims CEO quits 15 Sims Metal Management CEO Daniel Dienst will step down in June after 10 nine-years in the role, making the announcement on the day the global 5 scrap firm reported a net loss of A$295.5 million for the first half of 0 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec fiscal 2013, ended December 31, 2012. Dienst said the decision had Source: Indian mines ministry

China sees global iron ore oversupply in 2015 Monthly News Round-Up

The global iron ore market is set to enter million mt by 2016-2017. As a result of been made with mixed emotions. Sims an oversupply in 2015 amid slowing this outlook, CMMEA predicted the said along with considering internal demand in China and the commissioning average price of imported iron ore will candidates, its board will begin a of expansion projects by the world’s subside to $100/mt CFR or possibly even global search for a new CEO “with the top iron ore producers, Chinese market lower to $80/mt from 2015. objective of ensuring a smooth sources believe. The slowdown in demand and higher transition at the conclusion of Mr. China’s steel production growth has domestic production resulted in average Dienst’s contract.” been on the decline and will slow further in imported iron ore prices in 2012 falling coming years in line with anticipated lower 20% to $130/mt from $164/mt the year Vale posts $2.6 billion Q4 loss GDP growth of less than 8%. This will before, Yang noted. result in slower growth in iron ore demand, New capacity at the top iron ore Vale posted a loss of $2.6 billion for Yang Jiasheng, secretary general of the producers will be commissioned “one the fourth quarter of 2012, compared China Metallurgical Mining Enterprise after another in 2015-2016”, Huang with a profit of $4.67 billion in Q4 Association (CMMEA), told an iron ore added. The oversupply has already been 2011, on asset writedowns, declining conference in Beijing in late January. delayed from the originally-projected ore prices and an uncertain economic China’s steel output is expected to 2013 due to projects taking longer than climate. The loss compares with a Q3 grow at 2-4% for the next few years with anticipated to bring online, other market 2012 net profit of $1.6 billion. The the country’s demand for pig iron to peak sources noted. Q4 loss includes $5.66 billion in at 750 million metric tons in 2015, which “The ultimate solution to high asset writedowns, including a cut in will consume about 1.25 billion mt of iron imported iron ore prices is not to rely on the valuation of its Onca Puma ore concentrate, he said. In 2012, China’s oversupply but for the Chinese central project by $2.85 billion, a $1.03 crude steel production rose by just 3.1% government to tackle overcapacity in its billion charge on its Australian coal year-on-year to reach 716.5 million mt. domestic steel industry, thus trimming assets, a $975 million writedown on Demand for imported iron ore will demand for iron ore,” a Beijing-based iron its Norsk Hydro stake and a $583 decline from 2015, a scenario that will be ore trader commented. million charge on ThyssenKrupp CSA compounded by an increase in China’s In 2012, China imported 743.6 million steel plant in Brazil. “The year was steel scrap supply, as well as a larger mt of iron ore, up 8.4% from the previous challenging for the global economy, quantity of captive iron ore coming from year, China customs figures showed, which amid heightened uncertainty Chinese steel mills’ overseas which was much higher than China’s crude expanded for the second consecutive investments, he added. steel output growth. Imports accounted for year at below trend pace. Iron ore Huang Weihua, a consultant with Hatch 65% of China’s total iron ore consumption, prices became much more volatile, Beijing, said at the same conference that higher than 62% in 2011. particularly showing large downward China’s steel scrap supply will exceed 200 — Hongmei Li volatility in the third quarter of the year,” Vale said.

BHP promotes non-ferrous Q&A with Jock O’Callaghan head to CEO position PricewaterhouseCoopers national leader for Energy, Utilities & Mining BHP Billiton CEO Marius Kloppers Melbourne-based Jock O’Callaghan spoke to Platts managing editor, Australia, Paul will retire in May and be succeeded Bartholomew. by the head of the company’s non- ferrous division, Andrew Mackenzie. Have investors been spooked by volatile BHP chairman Jac Nasser praised commodity prices, write-downs and the Kloppers for his role in leading the uncertain global economic environment? reform of the iron ore pricing model “There’s no doubt that attention is away from the 40-year old annual grabbed when we have write-downs, benchmark system towards shorter- but it probably affects external investor term prices. “It’s not an exaggeration confidence more than necessarily the to say that this work significantly industry participants’ confidence. Funding changed the dynamics of the iron ore banks are more sophisticated than retail industry,” Nasser said. Mackenzie investors but they are also nervous will focus on cost control but said because of the cash-flow and economic there will be little change otherwise risk and are less likely to concentrate their to the miner’s current business own risk in projects or companies that are strategy. He said the market could single dimensional. expect an “even more laser-like “The fact that a write-down can happen focus” from him on “extracting the means the money has been spent in the most value from our orebodies and first place; the confidence was there to driving down costs, and capital begin with. Global miners have cash flows efficiencies.” BHP reported a 43% coming in from other commodities so can year on year drop in its July- balance some of their risks. If you turn the December profit to US$5.7 billion. Source: PwC clock back much of the development

timing from the major mining houses was the world companies are looking for more Monthly News Round-Up of their own making. Now, they have the non-traditional sources of funding. emerging markets themselves looking to “Along with direct cash injections or steal their march.” stakes from foreign steel mills, some Glencore buys stake in Ferrous other potential funding sources are What impact does a price shock, emerging. For example, private equity is Glencore has taken an unspecified such as the iron ore price plunging in certainly showing much greater interest in stake in Ferrous and will source the second-half of last year, have on the sector than it did 10 or 15 years ago. about 20 million mt of iron ore over investor confidence? Also, Islamic financing is being considered four years from the Brazilian mining “People get worried when there are in the sector whereas once it didn’t company. Ferrous said the new deal sudden price shocks; and they want feature at all.” will contribute to the expansion of its confidence to be restored fairly quickly. 15 million mt Viga project - Ferrous’s But it probably doesn’t have a huge India seems to have had a relatively impact longer-term. The same investment quiet 2012 in terms of overseas annual production target for the mine conditions faced in Western Australia are investment activity, apart from lifting a beginning in 2016. Ferrous produced not the same conditions faced in Brazil or few stakes here and there. Is India still 3.2 million mt in 2012 and aims to elsewhere in the iron ore world.” actively looking to invest? produce 5 million mt this year. “Indian appetite remains incredibly strong Earlier this year, Ferrous and What trends are you seeing in but their ability to complete deals on Glencore reached a 750,000 mt iron project funding? agreeable terms has been a challenge. ore supply agreement for the first “Those who can afford to fund Like China we see no serious downturn half of 2013. development themselves or who have in India’s appetite. When deals are a diverse portfolio of assets around done in this sector they’re very rarely the world can support funding. But it’s pure bilateral deals and the Indians like Wugang eyes H2 2013 startup a bigger challenge for single project or everyone else are competing with other for Liberia project single region companies, and therefore potential acquirers.” Wuhan Iron & Steel Group plans to we’re finding that in Australia and around — Paul Bartholomew bring online its iron ore concentrating facility in Liberia, West Africa, in the second half of this year. The first phase will see production of 1 million China view: Snakes on a plane mt/year of iron ore concentrate for export to the steelmaker’s plants in As landings go, last year’s slowing of already there are signs that the new Hubei province, central China, said an China’s economy which ‘only’ expanded leadership under premier Xi Jinping may official. “We will definitely be able to by 7.8% looks in retrospect remarkably engage in structural reforms which start first-stage mining and well managed. But 2012 was the Year could have far reaching consequences concentrating this year,” she said, but of the Dragon, a creature blessed for the economy, and in particular its was unable to comment on when first with good fortune and divine power. reliance on fixed asset investment to shipments would begin. The project Passengers expecting such a well- drive growth. has been delayed by almost a year. engineered landing in the Year of the In Chinese mythology snakes are Snake, which started on February 9, regarded as both clever and calculating. The Bong project is estimated to may not be so lucky. It’s too early to tell whether the snake contain 4 billion mt of resources at an Sentiment after Chinese New Year will manage to revive the fortunes of the average 36% Fe content. Wugang wasn’t helped by the State Council Middle Kingdom’s steel industry but plans to eventually expand capacity to reiterating that it would be expanding the passengers should probably brace 10 million mt/year and produce 64.5- scope of the property tax program it is themselves for some further turbulence. 65% Fe concentrates. currently trialing to include more cities. Nor — Sebastian Lewis did comments from outgoing prime minister Wen Jiabao that the government Y-o-y change in apparent steel consumption & real estate sales (%) would continue to restrict purchases of houses in cities where house prices are 60 rising too fast. As a result, the price of Shangai Rebar 50 Apparent consumption of nished steel Floorspace sold Futures, the steel product most commonly 40 used in housing construction, for October 30 delivery was down 5% at the end of the February from a high of RMB4,254/mt 20 ($684/mt) seen on February 8 just before 10 the start of the season of eating, drinking 0 and receiving red envelopes stuffed full of money. Rebar futures prices are a major -10 indicator of sentiment and also influence -20 iron ore spot prices. Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 This March should see the transition to the new leadership completed, and Source: NBS

Special Feature

Rio write-down shows challenge of developing from Simandou to the port for export but will truck the ore in the early stages. projects in emerging countries “In a lot of these regions it’s all about infrastructure, especially in the The $3 billion write-down of Rio Tinto’s investment shows the challenge of bulks. It’s doable but it costs a huge Mozambique coking coal assets, which developing resources in some Latin amount of money, and to justify spending precipitated the demise of chief executive American countries. that money you have to know the Tom Albanese in January, begs several “Investment in overseas projects is market’s there,” Halycon Corporate questions: If a company with the clout, always a balancing act between mitigating principal Justin Lewis says. experience and deep pockets of Rio risk and shareholder returns. With Lewis, who was until recently the struggles to make such a project happen, jurisdictions such as Mongolia and Africa, chairman of Beacon Hill Resources, which how will others fare? Does it have any there are rich untapped deposits, but they is building the Minas Moatize coking coal implications for future investment in new come with the associated risk of dealing project in Mozambique close to Rio’s resources projects in Africa and other with primitive mining codes, changes of assets, says such projects are valued emerging regions? And in the current belt- government and political flashpoints,” RBS according to the likely profitability of coal tightening environment, could it signal a new Morgans analyst James Wilson says. and as prices decrease so too does mood of investor caution whereby projects He says potential investors need to do investor appetite. are developed in much smaller phases? their homework on projects and “Would Rio even look at [acquiring] Despite the undoubtedly huge prospective local partners, but to Riversdale today? It was bull market investment in exploration and project encourage the necessary investment to transaction,” he says. “As prices come development in emerging regions in develop their resources, governments in down your margins come down, and when recent years, there is a distinct shortage Africa, Mongolia and Indonesia “need to you’ve got to make huge investment in of success stories at present. Granted, make the sector more attractive.” infrastructure, people delay those projects take many years to bring online. Along with sovereign risk, the other decisions,” he adds. However, the lack of progress along with major influence on the viability or To account for price volatility, such ‘bad news’ stories such as the Rio write- otherwise of new projects is the price of as that seen in iron ore over the past 18 down, could make investment, raw materials. Demand for iron ore and months, companies are obliged to base particularly from Western financiers, metallurgical coal remains strong but iron their business case on fairly harder to obtain and push out production ore prices in particular have been conservative long-term price estimates, timelines even further. susceptible to large and sudden falls. which makes projects less attractive to The much-hyped Simandou iron ore Given the advent of shale gas in the investors and financiers. deposit in Guinea, owned in part by Rio United States the outlook for thermal Despite the challenges, Lewis is and Vale, has been put on the back-burner, coal is less certain. Mining companies positive about Africa’s emergence as a while BHP Billiton wants to sell its Mount and investors need robust commodity major supplier of seaborne iron ore and Nimba project in the West African country. prices to provide the confidence to fund coking coal. He believes Mongolia will Elsewhere, development of Mongolia’s coal new projects and expansions. Fortescue always be overly-reliant on the Chinese and iron ore sectors appears to hinge on Metals Group’s decision to mothball market and notes the wariness of Australian the outcome of new mining laws in the development of its Kings iron ore deposit companies with regards to Indonesia. landlocked central Asian country. Indonesia in Western Australia last September “The last decade and probably the next has already introduced new mining when prices fell below $90/mt CFR is a one have been about the growth of Asia, regulations, which are understood to have case in point. The risk is even greater in but after that we’ll see the rise of Africa deterred new foreign investment. Indian emerging countries, which typically as a continent, and with that domestic company Jindal Steel & Power’s decision require huge new infrastructure consumption growth there will be huge to walk away from the El Mutún iron ore investment. Rio needs to eventually build demand for commodities,” Lewis says. and steel project in Bolivia after significant a 650 km railway to transport material “I suspect there is still a pretty good case for West African iron ore if you can Capital expenditure by location ($ billion) get it out to market. Coking coal seems to me to have a good long-term outlook due 35 to the lack of it around the world. India 2011 2010 and China need it and Australia is 30 increasingly becoming high cost. That all 25 puts a floor under the price.” In a global mining report published last 20 year, PricewaterhouseCoopers found 15 exploration spend in emerging markets in 2011 by the world’s top 40 mining 10 companies was at record levels, while capex spend was also rising. It noted that 5 38% of these companies now have the bulk 0 of their operations in emerging markets. Sth America Australia Nth America Africa China India Rest of Asia Europe While PwC expects this trend to Source: PWC Analysis continue over the longer-term, Jock

O’Callaghan, the firm’s national industry projects; while Shandong Iron & Steel, consideration.” “Africa’s iron ore resources leader for Energy, Utilities & Mining, says CITIC and Chalco all own interests on may have potential, but political stability he “wouldn’t be surprised” if 2012 data the continent. The Chinese government, and huge infrastructure construction costs shows a slowdown in investment activity represented through the National are major obstacles,” he says. due to tough global financial conditions. Development and Reform Commission and An official at an eastern China-based But he points out that assets in these other bodies, appears keen to encourage steel company with responsibility for regions require a long-term perspective, overseas investment in resources, despite investments says the company has been and therefore one year is a “very short a patchy track record of developing such seeking opportunities overseas but has period in trying to gauge overall confidence projects to date. not succeeded in landing any projects. in a particular mining region.” But some industry experts in China “We are looking elsewhere than in “It’s very much about the pace of warn that decent sized projects may be Australia and Canada as these two which assets in these regions can be best left to the large international miners, countries are too costly, but so far we developed. No one has really challenged pointing out that new iron ore supply have not found any projects worth the geological aspects of these coming on this year from Australia investing in,” he says. opportunities,” O’Callaghan says. provides a less compelling case for Perth-based Ocean Equities analyst making potentially risky investments to Adam Lucas believes Western financiers China the ‘wild card’ generate new sources. “won’t invest billions in large African Along with large mining houses and a “Do Chinese steel companies really projects” and expects China to support the plethora of junior explorers, China is need to invest anymore with all the new continent’s emerging resources sector in expected to continue investing heavily in supply from Rio, BHP and FMG?” questions the future. emerging regions, particularly as getting Hatch Beijing analyst Huang Weihua. Halycon’s Lewis agrees: “One thing projects off the ground in countries such Wang Fuliang, vice president of Mag that won’t go away is that the Chinese, as Canada and Australia has become Industries Corp, says few iron ore deposits Indians and Koreans will continue to so expensive. Wuhan Iron & Steel has in the world are particularly attractive when buy assets and those guys are very been an active investor in African iron ore the “pro’s and cons are taken into long-term thinkers.”

Australian miners in Africa face significant risks

Around 80% of all mining companies He says South Africa would be the Africa currently lacks sufficient currently operating in Africa are bellwether in terms of labor law trends infrastructure to transport and registered in the Western Australian and movements in Africa. South African export its minerals to global capital of Perth. These mostly junior president Jacob Zuma is already moving markets. It is estimated that around miners face a number of significant risks towards ensuring mining companies offer $50 billion in infrastructure as they attempt to capitalize on the more employment opportunities for local investment is needed over the next lower cost development environment and workers, in a bid to quell the violent 10 years to see African resources production opportunities in a region that unrest over wages and working successfully mined and exported. is estimated to hold around 30% of the conditions that have plagued the Larger miners like BHP Billiton, Anglo world’s mineral reserves. country’s mining industry over the past American and Rio Tinto have a foothold Risks include security related issues, twelve months. on what limited infrastructure there is managing unions and dealing with The government recently sought a and they are not willing to share this industrial action, bribery and corruption, solution to the unrest and after with junior miners coming into the taxation issues, finding qualified staff consultation with business, region. “It’s much harder for them (junior and ensuring they comply with the laws government and mining miners) to scale up,” the market and regulations of unfamiliar markets, representatives, South Africa’s participant added. according to Allan Drake-Brockman, the Department of Mineral Resources Despite the lack of adequate Perth-based managing partner of announced a new framework for peace infrastructure in Africa, there are some business law firm DLA Piper. and stability in the mining sector. regions that are flourishing and already Drake-Brockman sees industrial One market participant operating in delivering iron ore, coal, varied metals unrest over wage disparities between the region told Platts he did not see and gas production into global markets. local workers and foreign contractors as industrial unrest in South Africa having a After South Africa, Mozambique (coal) is one of the most serious issues that direct impact on the region’s currently the leader in terms of being miners in Africa need to confront. “Local development. “The political landscape is closest to a full scale resource workers are seeing foreign workers very different to the reality on the ground contributor, with Botswana (coal, copper, getting paid higher wages for doing the in mining,” he notes. nickel, diamonds) and Zambia (copper, same job and it’s causing and will cause However, development of mining cobalt) close behind. future industrial unrest,” he says. projects in Africa has slowed over the Many market participants believe Resources companies operating in past 12 months, which he attributes to Africa will rival Australia within the next Africa must also consider which country the financial downturn rather than 5-10 years as the leading resources laws apply in relation to employees. This industrial unrest. “There’s been some supplier, while others think it unlikely is particularly important where a foreign slowing from junior miners as they’ve that the necessary infrastructure could company is engaging both local and faced difficulty raising funds in the recent be built within this timeframe. There are foreign employees on site. In some market slowdown. The time to move in currently around 220 Australian mining circumstances both foreign and local equipment to get mines into production and oil companies with around 595 labor laws may have some application to has also slowed, which has ultimately led projects across 42 countries in Africa. the particular site, Drake-Brockman says. to production delays,” he says. — Marnie Hobson

PwC’s O’Callaghan says China Halycon’s Lewis says there has been PwC’s O’Callaghan describes the continues to desire a global footprint in a tendency in a bull market for phased versus ‘big ticket’ approach to resources. “Like the rest of the industry companies to plan large projects developing projects as a “fascinating they won’t always get it right, but we’re not requiring suitably large capex, elevating debate”, but points out that building a seeing any signs to suggest they’re turning the risk if prices slump. While he expects project in smaller chunks “doesn’t change around and saying ‘it’s all too hard.’ While the world’s major mining companies to the fundamentals of sovereign risk” in that appetite remains it provides another continue developing sizeable projects, emerging regions. wild card in the pack for the global miners, juniors could be better off getting their “Many will feel there is a big because if they choose not to support a projects into production to generate cash compromise in the projects if you take a half project in an emerging market they may flow to fund a phased expansion. way approach; you’re just diminishing the find they’ve lost it,” he says. “If you look at Africa I think you’ll see downside risk in financial terms,” he says. people come at these projects in much “Ultimately, it’s really an issue around Smaller may be best smaller phases, build it up and make it the pace of development in these Rio has said publicly that it will take a work,” he says. emerging countries, not whether it is going “phased approach” to bringing on iron ore RBS Morgan’s Wilson agrees: to happen or not. And with iron ore scale production at Simandou, and many expect “Companies are cutting back their is critical to catch the real upside,” such a strategy to be adopted by other growth ambitions and focusing on O’Callaghan says, adding “the problem for project developers while market conditions cutting costs, so you’re probably going the believers out there is they won’t know remain uncertain. The risk involved in to see smaller projects coming on whether these projects will be successful projects in emerging regions makes this stream. I think the theme is low risk for 10 or 15 years.” approach even more compelling. incremental expansion.” — Paul Bartholomew

Giant leap forward for Australian iron ore in 2013 ore production of 320 million mt/year is ...from page 1 sold domestically, it is estimated. “The outlook for slower expansion of mt in calendar 2012, up 13% from the tonnes from existing operations and global demand for minerals and metals in 138.9 million it produced the year before. facilities after it reaches 155 million mt/ the medium term requires rigid discipline Rio confirmed it is installing new year rather than embarking on another in the allocation of capital and greater capacity with the aim of reaching 290 major expansion program. The Perth-based focus in maximizing efficiency and reducing million mt/year by the final quarter of this miner shipped 64.4 million mt in calendar costs,” Vale said recently. year from 237 million mt/year currently, 2012, up 36% from 47.5 million mt the — Paul Bartholomew and is aiming for 360 million mt/year by year before as it started up production the first half of 2015. Analysts expect from its Solomon mine and increased Rio’s expansion program to result in an output from its Chichester hub. World iron ore trade additional 25 million mt of actual output By contrast, the world’s largest iron this year. The Anglo-Australian miner, ore miner, Vale, expects to sell almost 2% (million mt) 2010 2011 2012f 2013f whose former iron ore head Sam Walsh less iron ore in 2013 than it did last year, Iron ore imports has become group CEO, produced 192.9 eyeing sales of 306 million mt. Like all European Union 27 133 134 136 136 million mt last year, up 5% over 2011. producers, the Brazilian company will focus Japan 134 128 131 132 FMG bettered its production capacity on reducing costs and lifting operating China 619 687 730 769 target by 5 million mt/year at the end of efficiencies. It is currently adding another Korea, Rep. of 55 65 67 70 2012 to reach annualized capacity of 100 40 million mt/year capacity at its Carajás Iron ore exports million mt/year in December and is system but much of this output will be Australia 402 438 481 543 expected to hit its 155 million mt/year replacement tonnages, analysts noted, Brazil 311 324 327 327 target by the end of this year. FMG chief and the miner will also buy at the mine India 96 50 51 38 executive Nev Power told Platts in February gate from local producers to maintain its Canada 33 32 35 35 that the miner will look to extract more capacity level. Roughly 10% of Vale’s iron South Africa 48 43 48 50 West Africa (Guinea & Mauritania) 11 11 12 12 Big four iron ore miners – 2012 production (million mt) World trade 1052 1090 1143 1202 Source: BREE 100

80 Vale Iron ore capacity plans Rio (million mt/year) End-2012 End-2013 60 Vale 320 320 BHP Rio Tinto 237 290 FMG BHP Billiton 188 220 40 FMG 100 155 Atlas Iron 7 12 20 Arrium 7 12 Mt Gibson 6 9 0 Gindalbie/Ansteel Karara 2 10 Jan-Mar Apr-June Jul-Sep Oct-Dec CITIC Sino Iron - 8 Source: Company reports, Analysts, Platts Source: Company reports

Global Trade Highlights

US China Korea Ferrous scrap exports from the US China’s imports of Australian iron ore Imports of Japanese scrap by Korean dropped 12% in 2012 to 21.4 million mt jumped 21% in January y-o-y to 32.4 mini-mills could decrease unless on reduced demand from China but was million mt as mills sought high quality Japanese suppliers lower their prices, still the fourth highest annual export total. material to feed strong steel output rates. local traders say, noting steel production Turkey was the primary recipient of US Australian ore comprises roughly half of in Korea will remain at lower levels until scrap for the third consecutive year. China’s imports. winter has ended.

RUSSIA

CANADA UNITED KINGDOM

UNITED STATES S. KOREA CHINA

INDIA

BRAZIL

AUSTRALIA

Brazil India Australia Brazil could lift scrap exports this year by Iron ore exports between April 2012 and Another tropical cyclone disrupted iron ore 150% on the 400,000 mt it exported in January 2013 fell 68% over the previous vessel loading operations in Western 2012 and potentially reach shipments of year to 16.3 million mt due to export Australia but port and mining facilities 1 mt/year until 2020 because of strong bans and the 30% export duty on fines were not significantly damaged. domestic scrap supply, a study found. and lumps. Queensland coal exports were disrupted by seasonal heavy rains.

Steel Raw Materials Monthly Averages

Platts raw materials reference prices, February 2013 Unit Price Change % Chg Coke and coal Met coke 62% CSR DDP, North China Yuan/mt 1838.75 14.75 0.81 Met coke 62% CSR, FOB North China $/mt 292.00 5.20 1.81 Charcoal – Brazil domestic R$/mt 490.00 10.00 2.08

Iron Iron ore concentrate 66% Fe wet – China domestic $/mt 1025.00 10.00 0.99 Pig iron – FOB – Black sea export $/mt 390.00 5.00 1.30 Pig iron – FOB Ponta da Madeira – Brazil export $/mt 380.00 5.00 1.33 Pig iron – Hebei – China domestic $/mt 2775.00 -50.00 -1.77 HBI – Venezuela export $/mt 300.00 10.00 3.45

Platts ferrous scrap reference prices, February 2013 Unit Price Change % Chg Scrap, Europe OA (plate & structural) – UK domestic, delivered $/mt 349.26 -22.70 -6.10 Shredded – delivered – N. Europe domestic, delivered $/mt 386.37 -13.78 -3.44 Shredded – delivered – S. Europe domestic, delivered $/mt 397.42 -38.10 -8.75

Scrap, Asia H2 – del Okayama – Tokyo Steel purchase price, at works gate $/mt 357.24 21.63 6.44 H2 – del Utsunomiya – Tokyo Steel purchase price, at works gate $/mt 362.65 21.54 6.31 Heavy – Shanghai – China domestic $/mt 466.32 4.10 0.89 HMS 1/2 80:20 CFR – East Asia import $/mt 425.00 0.00 0.00 Shindachi Bara – del Okayama – Tokyo Steel purchase (list) price $/mt 378.89 21.28 5.95 Shindachi Bara – del Utsunomiya – Tokyo Steel purchase (list) price $/mt 384.30 21.18 5.83 Shredded scrap A (auto) – del Okayama – Tokyo Steel purchase (list) price $/mt 365.90 21.49 6.24 Shredded scrap A (auto) – del Utsunomiya – Tokyo Steel purchase (list) price $/mt 371.31 21.40 6.12

Scrap, Americas #1 Busheling – N. America domestic, del, Midwest US $/lt 383.13 -4.37 -1.13 HMS 1/2 – N. America domestic, del Midwest US $/lt 348.13 -4.37 -1.24 Plate & Structural – N. America domestic, del Midwest US $/lt 373.13 -5.62 -1.48 HMS 1/2 – Brazil S.E. domestic R$/mt 475.00 0.00 0.00

Steel Mill Economics: Global Spreads Monthly Averages SME Comment

Change % Feb-13 on month change Platts has introduced a suite of price China Flat Steel Spread (CFSS using IODEX)* 324.67 $/mt -2.79 -0.85 spreads called Steel Mill Economics, China Flat Steel Spread (CFSS using TSI)* 325.21 $/mt -2.36 -0.72 aimed at assisting margin modeling and China Long Steel Spread (CLSS using IODEX) 259.18 $/mt 4.89 1.92 steel industry analysis. China Long Steel Spread (CLSS using TSI) 259.36 $/mt 4.45 1.75 China Hot Metal Spread (CHMS using IODEX)* 291.83 $/mt -0.93 -0.32 Steel Raw Materials Monthly will carry China Hot Metal Spread (CHMS using TSI)* 292.37 $/mt -0.50 -0.17 the spreads in the table on the left China Coking Margin (CCM)** 593.24 RMB/mt -18.69 -3.05 each month, presented as monthly China Billet-Rebar Spread (CBRS) 475.29 RMB/mt 86.48 22.24 averages and start to build up some Turkey Scrap-Rebar Spread (TSRS: Platts) 205.35 $/mt 3.90 1.94 commentary. The spreads represent the Turkey Scrap-Rebar Spread (TSRS: TSI) 205.32 $/mt 4.04 2.01 differences between the prices of Turkey Scrap-Black Sea Billet Spread (TSBS: Platts) 133.24 $/mt 5.52 4.32 downstream steel products and Turkey Scrap-Black Sea Billet Spread (TSBS: TSI) 133.21 $/mt 5.66 4.44 upstream raw materials that are US Scrap-HRC Spread (US SHRC) 287.35 $/st 4.68 1.65 needed to produce them. For example, US Scrap-HRC Futures Spread (US SHRCF) 284.29 $/st -8.05 -2.75 the spreads allow a comparison of the US Scrap-Rebar Spread (US SRS) 333.67 $/st 25.16 8.15 margins of US versus Chinese longs producers once the prices of certain *Weekly, assessed on Mondays. **Weekly, assessed on Fridays. raw materials have been calculated. For spreads calculation and assessment methodology, please go to: http://platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/steel.pdf

Steel Raw Materials Monthly Averages

Metals monthly average, February 2013

Monthly $ % Monthly $ % Unit Average change change Unit Average change change Cobalt Nickel 99.8% US Spot cath m $/lb 12.038 -0.002 -0.017 NY Dealer/Cathode $/lb 8.127 0.125 1.562 LME Cash $/mt 25325.000 -339.780 -1.324 NY Dealer/Melt $/lb 8.127 0.125 1.562 LME 3-Mo $/mt 25517.500 -147.280 -0.574 LME Cash $/mt 17728.625 268.739 1.539 LME 15-Mo $/mt 25517.500 -147.270 -0.574 LME 3-Mo $/mt 17802.625 275.807 1.574 LME Settle $/mt 25515.000 -610.000 -2.335 LME Settle $/mt 17733.750 268.977 1.540 LME Y1 $/mt 18147.500 245.680 1.372 Ferrochrome in-warehouse LME Y2 $/mt 18322.000 263.140 1.457 65% High Carbon Mean ¢/lb 101.500 0.800 0.794 LME Y3 $/mt 18422.500 263.640 1.452 65% High Carbon Low ¢/lb 101.000 NA NA 65% High Carbon High ¢/lb 102.000 NA NA Silicomanganese in-warehouse US Low Carbon .10% Mean ¢/lb 207.500 -1.300 -0.623 65% Mn ¢/lb 51.250 0.000 0.000 Low Carbon .10% Low ¢/lb 207.000 NA NA Silicon Low Carbon .10% High ¢/lb 208.000 NA NA Low Carbon .05% Mean ¢/lb 223.500 -1.500 -0.667 553 Grade Del US Midwest ¢/lb 124.000 1.300 1.059 Low Carbon .05% Low ¢/lb 223.000 NA NA 553 Grade CIF Japan $/mt 1944.375 -62.625 -3.120 Low Carbon .05% High ¢/lb 224.000 NA NA 553 Grade FOB China $/mt 1928.333 -26.667 -1.364

Ferromanganese in-warehouse US Stainless scrap Medium Carbon 85% Mn Mean ¢/lb 84.750 0.450 0.534 NA FREE MKT 18-8 $/lt 1691.200 -89.600 -5.031 Medium Carbon 85% Mn Low ¢/lb 84.125 NA NA Tin Medium Carbon 85% Mn High ¢/lb 85.375 NA NA LME Cash $/mt 24320.500 -330.750 -1.342 High Carbon 76% Mean $/gt 1126.250 41.250 3.802 LME 3-Mo $/mt 24320.750 -306.636 -1.245 High Carbon 76% Low $/gt 1115.000 NA NA LME 15-Mo $/mt 24131.500 -345.318 -1.411 High Carbon 76% High $/gt 1137.500 NA NA LME Settle $/mt 24326.250 -333.068 -1.351 Ferromolybdenum MW Composite ¢/lb 1471.113 -14.675 -0.988 US FeMo mean $/lb 12.875 -0.275 -2.091 MW NY Dealer ¢/lb 1125.500 -20.056 -1.751 EUR FeMo mean $/lb 27.813 -1.067 -3.695 Kuala Lumpur ¢/lb 1102.991 -10.798 -0.969

Ferrosilicon in-warehouse US Titanium 75% Si Mean ¢/lb 93.375 1.925 2.105 MW US 70% Ferro $/FL 3.394 -0.011 -0.323 75% Si Low ¢/lb 92.750 NA NA MW US Turning 0.5% $/FL 1.725 0.000 0.000 75% Si High ¢/lb 94.000 NA NA Zinc Ferrovanadium LME SHG Cash $/mt 2129.000 96.136 4.729 US Ferrovanadium $/lb 14.850 0.115 0.780 LME SHG 3-Mo $/mt 2150.875 93.295 4.534 LME Settle $/mt 2129.275 96.116 4.727 Magnesium LME SHG Y1 $/mt 2223.700 56.650 2.614 US Die Cast Alloy Trans ¢/lb 212.500 2.000 0.950 LME SHG Y2 $/mt 2255.300 47.440 2.149 US Spot West mean ¢/lb 220.000 0.000 0.000 LME SHG Y3 $/mt 2269.800 32.350 1.446 US Dealer Import mean ¢/lb 194.125 -0.675 -0.347 MW Four Corners $/mt 2139.938 94.716 4.631 99.8% FOB China $/mt 2841.667 -18.333 -0.641 MW NA SHG ¢/lb 105.082 4.837 4.825 Die Cast Alloy FOB China $/mt 3141.667 -18.333 -0.580 MW NA GAL ¢/lb 104.582 4.837 4.849 MW Alloyer NO. 3 ¢/lb 115.082 4.837 4.388 Manganese Ore CIF China $/dmtu 5.373 0.228 4.431

Molybdenum Platts Podcast

Dealer Oxide Midpoint/Mean $/lb 11.283 -0.517 -4.381 Why the recent fall in Asian metallurgical coke prices? Dealer Oxide Low $/lb 11.228 -0.506 -4.312 Platts’ Asia steel team discusses the reasons behind the sharp Dealer Oxide High $/lb 11.338 -0.528 -4.450 dip in Asian metallurgical coking coal prices this and last week, LME Cash $/mt 24517.500 -1114.320 -4.347 and assess the implications for long-term contract negotiations. LME 3-Mo $/mt 24517.500 -1114.320 -4.347 LME 15-Mo $/mt 25234.800 -1115.970 -4.235 http://plts.co/ST0226 LME Settle $/mt 25030.000 -1101.820 -4.216