future of steel - iima
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SCRAP SUPPLEMENTS UPDATE
December 6th 2012
OECD Steel Committee
Stuart Horner Secretary General Designate
Disclaimer
This presentation is intended for information purposes only and is not intended as
promotional material in any respect. The material is not intended as an offer or
solicitation for the purposes of sale of any financial instrument, is not intended to
provide an investment recommendation and should not be relied upon. The material is
derived from published sources, together with personal research. No responsibility or
liability is accepted for any such information of opinions or for any errors, omissions,
misstatements, negligence or otherwise for any other communication, written or
otherwise.
December 6th - 7th 2012 OECD Steel Committee 3
IIMA: 100 members in more than 35 countries
– Producers of Merchant Pig Iron (MPI), Hot Briquetted Iron (HBI), Direct Reduced Iron (DRI) and Iron Nuggets
– Traders/Distributors
– Suppliers of raw materials, logistics, technology, equipment, consultancy, etc.
– Consumers of ferrous metallics
December 6th - 7th 2012 OECD Steel Committee 4
SCRAP SUPPLEMENTS
• Merchant Pig Iron (MPI), Hot Briquetted Iron (HBI), Direct Reduced Iron (DRI) and Iron Nuggets
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TOTAL SCRAP SUPPLEMENTS TRADE 2011
Cross border MPI, 12.5
Domestic MPI, 9.0
China MPI, 55.0
Cross border DRI/HBI, 6.8
Domestic DRI/HBI, 8.0
Metallics trade: 2011 - mt Total 91.3 mt
December 6th - 7th 2012 OECD Steel Committee 6
BENEFITS OF SCRAP SUPPLEMENTS
• Consistent quality and low residual content
• Dilute impurities in scrap
• Better slag foaming
• Controlled C content, consistent C recovery
• N2 scavenger/diluter = low N2 content in steel
• Easier on hearth refractory & electrodes
• High density feedstock (pig iron & HBI), less charging time
• DRI/HBI can be continuously charged to EAF
December 6th - 7th 2012 OECD Steel Committee 7
STATE OF THE MARKET
$0
$200
$400
$600
$800
$1,000
$1,200
Jan 10 Apr 10 Jul 10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12
Scrap supplements: price development $/tonne
MPI FOB Barge NOLA [RN]HBI FOB Venezuela [Metal Expert]Iron ore CIF China 62% Fe 2% Al2O3 $/DMTNo. 1 Bushelling - Chicago [SPB]Shredded scrap - Chicago [SPB] Rebar / N.America domestic FOB US Midwest mill [SBB] HRC / N.America domestic FOB US Midwest mill [SBB]
December 6th - 7th 2012 OECD Steel Committee 8
MPI CASH COSTS
$25.0$14.5
$35.0
$50.0
$175.0
$124.6
$0
$50
$100
$150
$200
$250
$300
$350
$400
$450
$500
Value chain for Brazilian MPI
Logistics USA Ocean Freight Logistics to FOBOther cash costs Charcoal/coke Iron ore
$385 FOB
$424 delivered US midwest
iron ore @ $75.40/tonne + $4 per tonne logistics
1,600 kg / tonne pig iron
Charcoal @$70/m3
2.5 m3 / tonne pig iron
Not included:- shrinkage- working capital cost- depreciation/amortisation- margin
$399 CFR
December 6th - 7th 2012 OECD Steel Committee 9
HBI PRODUCTION COST
$25.0
$30.0
$22.0
$35.0
$232.0
$0
$50
$100
$150
$200
$250
$300
$350
$400
Value chain for notional HBI supply to US Midwest steel mill
Logistics USA Ocean Freight Logistics to FOBOther cash costs Natural gas Iron ore
$292 FOB
$347 delivered US midwest
iron ore pellets @ $160/tonne
1,450 kg / tonne HBI
Not included:- shrinkage- working capital cost- depreciation/amortisation- margin
$322 CFR
106 BTU @ $3.50/BTU x 106
December 6th - 7th 2012 OECD Steel Committee 10
SPOT IRON ORE PRICE DEVELOPMENT
$0
$50
$100
$150
$200
$250
$/tonne CFR China for 62% Fe, 2% Al2O3 - TSI data
December 6th - 7th 2012 OECD Steel Committee 11
NATURAL GAS PRICE DEVELOPMENT
0
1
2
3
4
5
6
7
8
Jan 2011 Jul 2011 Jan 2012 Jul 2012 Jan 2013 Jul 2013
Henry Hub Natural Gas Price dollars per million btu
Historical spot price
STEO forecast price
NYMEX futures price
95% NYMEX futures upper confidence interval
95% NYMEX futures lower confidence interval
Source: Short-Term Energy Outlook, November 2012
Note: Confidence interval derived from options market information for the 5 trading days ending November 1, 2012.
Intervals not calculated for months with sparse trading in near-the-money options contracts.
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GLOBAL DRI/HBI PRODUCTION
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DIRECT REDUCTION IN NORTH AMERICA
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DIRECT REDUCTION IN NORTH AMERICA
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SHALE GAS IN NORTH AMERICA
Opportunities for steelmaking: • For EAF steelmakers, higher share of
electricity from natural gas
• Scope for shift in auxiliary BF fuel [typically 150-200 kg/tonne hot metal] towards natural gas
• Indirect use of natural gas in the BF through use of DRI/HBI as charge material to boost productivity
• Futures contracts enable lock-in of forward gas prices - underpins viability of investment in DR capacity
December 6th - 7th 2012 OECD Steel Committee 16
DIRECT REDUCTION PROJECTS: USA/CANADA
• Actual: Nucor Louisiana plant - 2.5 mtpy capacity, due to start up in mid-2013
• Projects: potential second and third modules at Nucor’s Louisiana plant
• Projects: 6-10 companies are actively considering DR plants in North America, some very seriously, with a couple of contracts possible in 6-12 months
• US Steel, Severstal and Northstar BlueScope have received press mention
December 6th - 7th 2012 OECD Steel Committee 17
CONCLUDING REMARKS
• There seems to be every prospect that the third wave of direct reduction plants in North America is upon us - the big differentiator from the past being the ability to lock in long term gas prices.
• There seems to be significant scope for rationalisation of the various projects to ensure maximum efficiency and cost effectiveness across the industry.
• This will doubtless have a significant impact on the metallics supply chain, meaning that offshore HBI and pig iron suppliers may well have to seek alternative markets for their displaced US imports.
• Nevertheless, offshore suppliers of pig iron offer the US steel and metal casting industries a useful hedge against higher gas prices.