STEEL RAW MATERIALS MONTHLY Issue 33 / November 2015
Cost saving gains eroded by falling ore price Falling iron ore prices over October and into early November have eaten into the already thin margins of smaller Australian iron ore producers and it is mainly the weak Australian dollar that is providing any breathing space. Much of the cost saving gains made over the past 18 months have been eroded by the descent below $50/dry mt CFR for 62% Fe fines. The Australian dollar averaged US$0.72 cents in the September quarter and is tipped by analysts and economists to trade at US$0.70-0.72 cents in the December quarter. With 62% Fe iron ore prices averaging $55/dmt in the September quarter, a near 30% foreign exchange margin was a lifesaver for smaller producers. For a long period until 2013, the Australian dollar had been at or even above parity with the US dollar, as a result of the strong prices of iron ore and other commodities, and the weaker US dollar due to the Federal Reserve’s QE program.
CONTENTS
National Australia Bank has forecast the Australian dollar will finish up around US$0.68 cents by the end of next year, which is roughly the consensus view, but UBS Wealth Management believes it could be lower at around US$0.65 cents. These views are premised on the Fed gradually lifting interest rates, along with no further rate cuts by the Reserve Bank of Australia. The RBA kept record low interest rates unchanged on November 3. Fortescue Metals Group is working off expectations of an Australian dollar of US$0.72 cents in fiscal 2016 (ending June 30), according to its most recent operations report, which along with improved operating costs will give it an average C1 cost of $15-16/wet mt by midnext year. If this can be achieved the Perthbased miner expects its cash breakeven price on a Platts 62% Fe basis to be around $36/dmt CFR by the end of FY2016, down from around $40/dmt CFR currently. (continued on page 2)
FORTESCUE C1 COSTS VERSUS REALIZED PRICES 120
C1 cost ($/wmt)
100
Realized price ($/dmt CFR)
80 60 40 20 0 Jan-Mar 2014 Apr-Jun 2014 July-Sep 2014 Oct-Dec 2014 Jan-Mar 2015 Apr-Jun 2015 Jul-Sep 2015 Source: FMG, Platts
KEY PRICE ASSESSMENT MONTHLY AVERAGES, OCTOBER 2015 Platts IODEX Iron ore fines 62% Fe CFR North China Platts Coking Coal, Premium low-vol FOB Australia Platts Ferrous Scrap HMS CFR Turkey
Unit $/dmt $/mt $/mt
Average 53.25 78.69 178.93
change -3.88 -1.59 -24.73
% change -6.79 -1.98 -12.14
TSI Iron Ore Fines 62% Fe Chinese imports (CFR North China port) TSI Coking Coal, Premium hard, Australian exports (FOB port) TSI Ferrous Scrap HMS 1&2 80:20, Turkish imports (CFR port)
$/dmt
52.74
-3.61
-6.41
$/mt
79.51
-2.51
-3.06
$/mt
178.55
-27.63
-13.40
www.platts.com
www.twitter.com/PlattsSteel
Iron Ore Market Focus 3 Iron Ore Data 5 Metallurgical Coal Market Focus 6 Metallurgical Coal Data 8 Scrap Market Focus 9 News 10 Special Report 15 Turkey ARC Monthly Data 23 24 Global Trade Highlights Steel Raw Materials Monthly Averages 25
EDITORIAL
BRICs looking less sturdy Having decided to take a look at the so-called BRIC (Brazil, Russia, India and China) economies from a steel demand perspective in this issue, it was a coincidence that Goldman Sachs, original coiner of the term, announced it had shut its BRIC fund, after it lost close to 90% of its value over the past five years. Brazil and Russia have been hit by falling oil prices (not to mention coal and iron ore and other commodities), while China’s massive economic growth seems to be finally running out of steam. India is expected to be the rising star of the four but its steel and economic growth trajectory are hard to plot with any certainty while it still has many ageold problems to solve. China and Brazil built up steel capacity on the basis that it would easily be absorbed by ongoing urbanization and development. Is India – already the world’s third-largest steel producer – in danger of making the same mistake? World Steel Association said last month that global steel was in a period of low growth until “other developing regions… produce another major growth cycle.” Mexico, Indonesia, Nigeria and Turkey (the ‘MINTs’) are tipped by many to pick up from the BRICs, but the hyperbole is likely to be turned down on this occasion. — Paul Bartholomew
METALS
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
Cost saving gains eroded by falling ore price ...from page 1
Fortescue reached its long-held 155 million mt/year capacity target on an annualized basis in the March 2014 quarter. In that quarter, the Platts 62% Fe index averaged $120/dmt, while Fortescue’s C1 costs were $34.88/wmt, and its realized sales price $107/dmt on a Platts 62% Fe basis. C1 costs accounted for 33% of the
realized sales price. In the September 2015 quarter (production capacity is now roughly 10 million mt/year higher), its C1 costs were $16.90/wmt, some 34% of the average sales price of $50/dmt in the quarter. So while the company’s C1 costs have roughly halved over the past 18 months, the proportion versus the realized sales price has not
ATLAS C1 COSTS VERSUS REALIZED PRICES 100 C1 cost (A$/wmt)
Realized price (A$/dmt CFR)
80 60 40 20 0
shifted as much because iron ore prices have fallen so hard. Freight costs have helped margins, averaging $5.6/mt in the September 2015 quarter compared with $8.8/mt in the March 2014 quarter, while oil and diesel prices have fallen significantly, along with the Australian dollar. Fortescue has also benefited from good demand for its 58% Fe material at a time when Chinese mills are keeping output low due to poor market conditions. This has served to narrow the spread with 62% Fe prices. Following a recent analyst tour of Fortescue’s Pilbara operations, UBS said the company could reduce its all-in cash costs to $15/mt, its cash breakeven price “on a Platts 62% Fe equivalent basis would be $36/dmt CFR.”
Jan-Mar 2014 Apr-Jun 2014 July-Sep 2014 Oct-Dec 2014 Jan-Mar 2015 Apr-Jun 2015 Jul-Sep 2015 NB: Average used of C1 range and Standard and Value Fines prices in Jan-June 2014 Source: Atlas
FORTESCUE’S OUTPUT, COSTS AND REALIZED PRICE Output C1 cost Realized price Platts 62% Fe average (million mt) ($/wmt) ($/dmt CFR) ($/dmt CFR) Jan-Mar 2014 29.60 34.88 107 120 Apr-Jun 2014 43.80 34.03 82 103 July-Sep 2014 42.90 32.08 71 90 43.60 28.48 63 74 Oct-Dec 2014 Jan-Mar 2015 35.50 25.90 48 55 Apr-Jun 2015 42.10 22.16 52 60 Jul-Sep 2015 45.10 16.90 50 55
(continued on page 14)
Source: FMG, Platts
Steel Raw Materials Monthly is published monthly by Platts, a division of McGraw Hill Financial, registered office: 20 Canada Square, Canary Wharf, London, UK, E14 5LH.
STEEL RAW MATERIALS MONTHLY Issue 33 / November 2015 ISSN: 2052-3572 Managing Editor Paul Bartholomew; Australia (+613-9631-2096) Senior Managing Editor Russ McCulloch; Singapore (+65-6227-7811)
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Tougher for juniors While Fortescue has the scale and ability to lower costs even further, some of its smaller rivals are more constrained. Fellow Pilbara iron ore miner Atlas Iron has tirelessly taken cost out of the business but almost foundered back in April when the 62% Fe iron ore price went below $50/mt CFR. “We reduced our costs to $61/mt at Easter (April 3-6) from $85/mt,” David
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STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
IRON ORE MARKET FOCUS
Prices under pressure as pre-winter restock proves elusive China’s iron ore imports of 699.45 million mt over January-September were almost identical to the year-ago period, China Customs data shows. July-September quarter imports of 246.3 million mt were a record, however, beating the previous record of 242.1 million mt in the same quarter of 2014. The September quarter is typically a strong one for Australian iron ore production and exports, joined this year by record output from Vale. Unfortunately, all of this supply has hit at a time of weak demand in China, due to low crude steel production and ever decreasing steel prices. Pig iron production over January-September of 528.3 million mt was down 3.3% on the same period a year earlier, while crude steel output of 609 million mt was 2.1% lower. Port stocks have subsequently climbed again, putting more downwards pressure on iron ore prices, which appear to have settled below the $50/mt CFR level for the time being. Mysteel data shows port stocks at major Chinese ports had reached 82.68 million mt by the end of the first week in November, up almost 3 million mt from just a week earlier. Iron ore spot trades were well down in the month of October (48 compared with 73 in September as observed by Platts), with fewer cargoes from BHP Billiton, and Vale selling mainly on a floating price basis. Platts 62% Fe iron ore fines averaged $53.25/mt CFR in October, down $6.79/ dry mt from the month before. The Steel Index’s price for the same material averaged $52.74/mt CFR in October, $6.41/mt lower than the September monthly average. Chinese output drops off Capacity utilization at larger Chinese iron ore producers (those with capacity of more than 1 million mt/year) fell to just 51.6% by the
first week of November from around 64% a fortnight earlier. Again it indicates that a seaborne spot price of $50/mt CFR is the pain point for many domestic producers. It was a similar situation in April this year – the previous time spot prices went below $50/ mt – when a large chunk of domestic supply was switched off in favor of imports. But as soon as prices climb up above $50/mt, much of this local production is turned back
on again, showing the elasticity and market responsiveness of Chinese producers. With little pre-winter restocking taking place, plentiful supply, and no sign of a turnaround in steel prices, iron ore prices could remain at a similar level for the rest of 2015. This is likely to result in domestic Chinese capacity utilization of less than 50% for the rest of the year and into 2016, a period when local production is typically lower in any case due to the colder winter months. As for so-called ‘non-traditional’ iron
SGX - IRON ORE FORWARDS - 62% Fe ($/dmt CFR) 53 01-Oct
30-Oct
48
43
38 Nov-15
May-16
Nov-16
May-17
Nov-17
May-18
Nov-18
Source: SGX, TSI
PLATTS MONTHLY AVERAGE IRON ORE PRICES, OCTOBER 2015 ($/dmt) IODEX: Iron ore fines 62% Fe CFR North China 63.5/63% Fe CFR North China 65% Fe CFR North China 58% Fe low Al CFR North China 58% Fe CFR North China 52% Fe CFR North China Per 1% Fe differential (Range 60-63.5% Fe)
Monthly average 53.25 54.50 57.51 48.53 45.78 36.06 0.98
$ change -3.88 -4.23 -5.02 -3.69 -3.69 -3.67 0.00
% change -6.79 -7.21 -8.03 -7.07 -7.46 -9.23 0.41
TSI MONTHLY AVERAGE IRON ORE PRICES, OCTOBER 2015 ($/dmt) 62% Fe fines, 3.5% Al, CFR Tianjin port 58% Fe fines, 1.5% Al, CFR Qingdao port 58% Fe fines, 3.5% Al, CFR Tianjin port 62% Fe fines, 2% Al, CFR Qingdao port 63.5/63% Fe fines, 3.5% Al, CFR Qingdao port 65% Fe fines, 1% Al, CFR Qingdao port
Monthly average 52.74 48.89 49.09 53.94 53.74 58.34
$ change -3.61 -3.62 -3.62 -3.61 -3.61 -3.94
% change -6.40 -6.90 -6.87 -6.27 -6.29 -6.32
PLATTS 62% & 58% Fe IRON ORE MONTHLY AVERAGES CFR CHINA ($/dmt) 80 62% Fe
58% Fe
70
PLATTS OBSERVED IRON ORE SPOT TRADES BY VOLUME - JAN-OCT (number of trades)
60
Rio 192 BHP 104 Vale 74 Other 245 Total 615
50
Source: Platts
Source: Platts
Copyright © 2015 McGraw Hill Financial
3
40 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15
Jul-15 Aug-15 Sep-15 Oct-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
IRON ORE MARKET FOCUS ore supply, it is disappearing quickly, unable to compete with lower-cost, higher-quality material from Australia and Brazil. Producing nations outside of Australia, Brazil, South Africa and Ukraine now supply less than 10% of China’s iron ore needs. Australia and Brazil now account for 85% of Chinese iron ore imports, compared with around 75% in January-September last year. If the big four iron ore producing companies, Vale, Rio Tinto, BHP and Fortescue Metals Group, produce at a similar level in the final quarter of this year to the September quarter, they will have added an extra 75 million-80 million mt this year compared with CY2014. Softer October exports from Western Australia’s Port Hedland of 36.5 million mt, down from 39.4 million mt in September, suggest the final quarter could be a bit softer out of Australia. More tons in 2016 Next year could see a similar amount of new tons, though exports from the new Roy Hill project in Western Australia could be delayed until early 2016 and the company may not export the 20 million mt or so of iron ore that many analysts have built into their supply-demand models. Vale has also said it may trim output expectations slightly in response to the Samarco disaster. The new S11D project is around 75% complete and will likely start making a supply contribution towards the end of 2016. So next year could potentially be a bit slower in terms of additional supply than was thought a few months ago. Given market conditions and prices, the major producers may not be in a hurry to bring on new tons too quickly. With Chinese demand for iron ore slowing, any additional supply will put the market under even more pressure and the major producers will need to take market share from each other as the size of the pie will likely get
CHINA’S IRON ORE IMPORT SOURCES JANUARY-SEPTEMBER 2013-2015 Australia Brazil South Africa Ukraine Other Total
2013 2014 2015 304.2 405.8 449.8 111 125.2 134.2 32.3 33.3 34.7 12.4 13 16.3 141.3 122.2 64.4 601.2 699.5 699.4
4
and improved ore handling plant utilization at Newman helped support the stronger output. The Melbourne-headquartered company plans to produce 247 million mt in the twelve months to June 2016.
IRON ORE PORT STOCKS IN CHINA (million mt) 120 Total
100
Australia
Brazil
80 60 40 20 0 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Source: Mysteel
PORT HEDLAND IRON ORE EXPORTS (million mt) 40 30 20 10 China
Rest of the world
0 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
15-Oct
Source: Pilbara Ports Authority
CHINESE MONTHLY IRON ORE IMPORTS (million mt) 100 80 60 40 20 0 Sep-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Source: Platts
IRON ORE TRADING BY MAJORS (number of trades) 100
Vale
Rio Tinto
BHP Billiton
Other
80 60 40 20 0 Oct-14 Source: Platts
Source: China Customs, GTIS
Copyright © 2015 McGraw Hill Financial
slightly smaller rather than bigger. BHP’s July-September quarter iron ore output of 67 million mt (on a 100% basis) was up 7% on last year and by 3% on the previous quarter. The ramp-up of its Jimblebar mine
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
IRON ORE DATA its output was still down on its Brazilian rival. Rio produced 86.1 million mt in the September quarter on a 100% basis, while Vale produced 88.2 million mt for the period. Fortescue has kept output steady for around a year at an annualized 165 million mt/
Rio had built up significant stockpiles at its Pilbara operations as its mines moved closer to 350 million mt/year production capacity and was able to push through a record 91.3 million mt in the September quarter, which was higher than Vale’s though
BIG 4 - QUARTERLY IRON ORE PRODUCTION (million wmt)
year, indicating it has no wish to bring on extra supply at a time of weak iron ore prices. The Perth-based miner produced 45.1 million mt of iron ore in the September quarter, compared with 42.1 million mt in the previous quarter. — Paul Bartholomew
CONTRIBUTION TO CHINA’S IMPORTS (%)
90
100
Australia and Brazil
75
Other
80
60 45
60
30
40
15
Vale
Rio Tinto*
BHP*
Q3 14
Q1 15
20
Fortescue
0 Q1 13 Q3 13 *BHP and Rio 100% basis Source: Company reports
Q1 14
Q3 15
0 2013
2014
2015
Source: China Customs, GTIS
IRON ORE FREIGHT RATES - KEY ROUTES ($/wmt)
CHINESE CONCENTRATE 66% Fe ($/mt)
25
130 Brazil
West Australia
20
120
15
110
10
100
5
90
0 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
80 Nov-14
Jan-15
Mar-15
May-15
Jul-15
Source: Platts
Source: Platts
FALLING IRON ORE AND SCRAP PRICES ($/mt)
CHINA IRON ORE SPOT LUMP PREMIUM ($/dmtu)
400 Scrap (left)
90
Iron ore IODEX (right)
300
70
250
60
200
50
0.10
40
0.05
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Jan-15
Jan-15
0.30
80
Oct-14
Nov-15
0.35
350
150
Sep-15
0.25 0.20 0.15
Oct-14
Dec-14
Jan-15
Jan-15
Jan-15
Source: Platts
Source: Platts
ATLANTIC BASIN IRON ORE PELLETS ($/mt)
CHINA IRON ORE CAPACITY UTILIZATION
160
100
150
80
140
60
70
130
40
60
20
50
120 110
0
100 Nov-14
Jan-15
Mar-15
May-15
Source: Platts
Copyright © 2015 McGraw Hill Financial
5
Jul-15
Sep-15
Nov-15
(%)
($/mt) Large
Nov-14
Jan-15
Medium
Mar-15
Small
May-15
62% iron ore prices (right)
Jul-15
Sep-15
*Large: 1 mil mt/year +; Medium: 300k-1 mil mt/year; Small: sub 300k mt/year Source: MySteel, Platts
90 80
40 Nov-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
METALLURGICAL COAL MARKET FOCUS
Indian demand for met coal disappoints India’s consumption of metallurgical coal and coke will continue to be subdued this year, with steel demand muzzled by poor performance of the country’s infrastructure and construction sectors, according to market sources. With a looming economic slowdown in China and languishing steel prices, observers say that a demand spurt in Asia’s third largest buyer of metallurgical coal is unlikely to materialize before 2016. Crude steel production in India witnessed a robust first quarter, jumping 8.3% year-on-year, but a modest 0.8% increase to 45.07 million mt in the AprilSeptember period put a cap on the total gain this year. As a result, coal and coke import growth have stalled in recent months. Despite surging 34.8% y-o-y in the first five months of 2015, Indian met coal imports have slipped for three consecutive months, falling 17.1% to 10.5 million mt in the JuneAugust period, according to data compiled by Indian ship broker Interocean. Semi-soft coking coal (SSCC) and pulverised coal injection (PCI) coal, both used in steelmaking, will continue to see imports rise sharply thanks to steelmakers’ ongoing focus on hot metal cost reduction, sources said. India’s met coke imports have also declined by more than a third, falling from 1.7 million mt in the January-July period from 2.7 million mt a year ago. “India has largely undershot expectations of a strong 2015 because steel output has been hamstrung by an overall lack of domestic demand,” a marketing manager from an Australian mining firm said. “Our volumes to India have been static this year.” Finished steel consumption during the April-September half rose only 4% y-o-y to 39.15 million mt, according to Joint Plant Committee estimates. This is much lower than earlier estimates of 6-7% forecast by analysts. Industry participants surveyed by Platts estimate that steel demand may not rise beyond 4-5% this fiscal to 80 million mt. Prior expectations that significant growth in Indian met coal would offset China’s retreat from the seaborne market
Copyright © 2015 McGraw Hill Financial
6
Several Indian buyers told Platts that they have hardly increased their overall procurement of met coal and coke due to chronic uncertainty of steel price directions. “We are already in the red, but we are not cutting production because we don’t want to incur the fixed costs of idling a furnace or underutilizing facilities,” a west Indian end-user said. “If raw materials prices don’t fall, then we might have to shut down eventually.”
have been overblown, according to one international trader. While overall Indian imports advanced 11%, Chinese coking coal import volumes (excluding PCI) plunged 19% within the same period to 32.4 million mt. This meant that international trading firms have shifted the focus to sell more spot cargoes to Europe and South America, rather than to India, the trading source said.
PLATTS MONTHLY METALLURGICAL COAL ASSESSMENTS, OCTOBER 2015 Asia-Pacific coking coal ($/mt) Premium Low Vol HCC Peak Downs Region HCC 64 Mid Vol Low Vol PCI Low Vol 12 Ash PCI Semi Soft Met Coke
FOB CFR CFR Change Australia China India Australia China 78.69 85.91 87.92 -1.59 -1.87 79.69 86.91 88.92 -1.59 -1.87 74.77 81.99 84.00 +0.99 +0.71 65.03 72.25 74.26 +0.66 +0.39 63.25 70.47 72.48 +0.04 -0.23 61.35 68.57 70.58 -0.46 -0.73 - - 136.91 - -
North China prompt port stock prices Ex-stock Jingtang (Yuan/mt, incl VAT) Premium Low Vol 685.00 HCC 64 Mid Vol 673.00
India -2.12 -2.12 +0.46 +0.14 -0.48 -0.98 -5.22
CFR Jingtang equivalent ($/mt)* 84.75 83.19
*ex-stock price, net of VAT and port charges.
Atlantic coking coal ($/mt) Low Vol HCC High Vol A High Vol B
FOB US East Coast 81.920 83.068 77.955
Change -4.739 -4.421 -5.715
VM 19% 32% 34%
Ash 8% 7% 8%
S 0.80% 0.85% 0.95%
Detailed methodology and specifications are found here: http://platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/metcoalmethod.pdf
TSI MONTHLY AVERAGE METALLURGICAL COAL PRICES, OCTOBER 2015 ($/mt) Premium hard coking coal, FOB Australia Hard coking coal, FOB Australia Premium JM25 coking coal, CFR China Hard JM25 coking coal, CFR China
Monthly $ % average change change 79.51 -2.51 -3.06 73.96 0.31 0.42 85.93 -1.61 -1.84 81.61 1.38 1.72
AUSTRALIA AND US LOW VOL HCC MONTHLY AVERAGES ($/mt) 120 HCC FOB East Coast US
110
HCC FOB Australia
100 90 80 70 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Source: Platts
Jul-15 Aug-15 Sep-15 Oct-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
METALLURGICAL COAL MARKET FOCUS October prices dip on soft Chinese demand TSI’s October monthly averages for Chinese imports of JM25 PHCC dropped 1.84% m-o-m to $85.93/mt while second tier JM25 HCC gained 1.72% m-o-m to $81.61/mt. TSI’s JM 25 Mid-vol Hard Coking Coal (PMV) index fell 0.1% in October to $83.17/mt CFR Jingtang port.
Platts premium low-vol HCC prices fell 1.6% from the previous month to average $78.69/mt FOB Australia in October. Domestic Chinese coal prices were cut by some Yuan 50/mt in October, leaving seaborne cargos in a more precarious situation as local buyers focused on cheaper domestic material.
Coal buyers were lukewarm in October, and therefore sellers have tended to cross the bid/ offer spreads in the hope of moving tonnages and cutting further losses. TSI FOB swaps traded 151,000 mt in October, increasing volumes for a third straight month. — Kenneth Woo, Charlotte Rao
ACT ON REAL-TIME COAL MARKET INTELLIGENCE Get all your Platts coal coverage delivered in real-time with Platts Global Coal Alert. This valuable tool will allow you to: Save Time – Customize and access Platts coal content in one place Act Faster – Access real-time market intelligence much faster than with a publication ■■ Stay Current – See heards, news, prices and market commentary as they become available ■■ Customize Content – choose the content based on your individual needs, regionally and globally Contact us to take a free trial ■■ ■■
PLATTS MONTHLY METALLURGICAL COAL RELATIVITIES TABLE - OCT 30, 2015 CSR VM TM Ash S P Fluidity Vit % ad ar ad ad ad ddpm Peak Downs 74 20.50 9.50 10.50 0.60 0.03 400 71 Saraji 72 18.50 10.00 10.50 0.60 0.03 160 66 Premium Low Vol
71
German Creek Illawara Oaky North Oaky Creek Goonyella Goonyella C Peak Downs North Standard Premium Hail Creek
70 19.00 10.50 9.50 73 23.20 10.00 9.50 69 23.00 10.00 9.50 67 24.50 10.00 9.50 68 23.40 10.00 8.90 70 23.50 10.00 9.90 68 22.80 10.50 9.80 70 23.50 10.00 9.50 70 25.50 10.00 8.80 69 20.50 10.00 10.00
21.50
9.70
25.50
9.50
9.30
HCC 64 Mid Vol
64
Mavis Downs Lake Vermont HCC Carborough Downs Middlemount Coking Gregory
63 22.00 10.00 8.00 62 21.50 11.00 7.50 58 22.50 11.00 8.00 57 19.00 10.00 10.00 57 33.00 8.50 7.30
9.00
0.50
0.045
Spread vs HCC 64
65
83.00
0.54 0.06 0.45 0.06 0.60 0.07 0.60 0.07 0.52 0.03 0.55 0.04 0.51 0.05 0.45 0.09 0.60 0.08 0.30 0.07
180 1200 1500 4000 1100 1200 900 100 200 300
70 53 79 80 62 62 63 54 59 54
82.00 81.50 81.00 81.00 81.50 80.00 79.75 79.75 79.50 79.50
98.80% 98.19% 97.59% 97.59% 98.19% 96.39% 96.08% 100.00% 96.08% 100.00% 95.78% 99.69% 95.78%
0.60
1700
55
79.75
96.08%
0.05
500
Sep 30 Spread CFR China vs PLV $/mt 84.00 101.20% 83.00 100.00%
0.35 0.05 75 0.44 0.07 120 50 0.35 0.04 60 44 0.50 0.04 50 0.65 0.03 7500 76
100.00%
79.75 79.75 78.75 75.75 75.00
100.00% 100.00% 100.00% 98.75% 94.98% 94.04%
October 30 freight rates. Australia to China: Panamax = $6.45/mt Capesize = $5.65/mt Notes: ad = air-dried; ar = as received; CSR = coke strength after reaction; ddpm = dial divisions per minute Platts monthly metallurgical coal assessments and relativities table provides April 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 is determined mostly from transactional data and spot market assessments, but also where applicable from 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 within a certain range for coke strength after reaction (CSR), volatile matter, 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 penalties or premia for these important price determinants are applied when specifications fall outside of the normal range. However, market observations have a stronger bearing on the relativities than VIU calculations, and theoretical VIU-based relativities are recalibrated by observing spot market data including bids, offers and trades for specific brands, and by observing the tradable or traded spreads between these brands. 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. Since the July 2014 analysis, the table represents relativities at the end of the last working day of each month, rather than an average of relativities through the month. Since the January 2014 analysis, the table represents relativities on a CFR China basis, rather than theoretical FOB Queensland basis. This is because discoverable relativities are more consistent CFR China, likely due to the fact that seaborne suppliers compete on a delivered basis. In addition, FOB Australia relativities have been observed to be less consistent, perhaps due to discriminatory pricing depending on the geographic destination. Source: Platts
Copyright © 2015 McGraw Hill Financial
7
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
METALLURGICAL COAL DATA
AUSTRALIA METALLURGICAL COAL EXPORTS (million mt)
CHINA METALLURGICAL COAL IMPORTS (million mt) 7
15
Australia
Mongolia
Canada
Russia
6 5
10
4 3 5
2 1 India
Japan
China
South Korea
0
0 Jun-14
Jul-14
Aug-14
Sep-14
Oct-14
Nov-14
Jan-15
Mar-15
May-15
Jul-15
Sep-15
Source: ABS, GTIS
Source: China Customs, GTIS
IRON ORE VS COKING COAL PRICES ($/mt)
CHINESE MET COKE EXPORT PRICES, 12.5% ASH ($/mt)
120
190 Prem low vol HCC FOB Australia IODEX CFR China 62% Fe
180
100 170 80
160 150
60 140 40 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-14
130
Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Source: Platts
Source: Platts
INDIA METALLURGICAL COAL IMPORTS - JANUARY-AUGUST 2013-2015 (million mt)
MONTHLY COAL THROUGHPUT FROM MAJOR QUEENSLAND PORTS (million mt) 8
35 Australia
Mozambique
Canada
US
New Zealand
Dalrymple Bay
South Africa
Hay Point
Abbott Point
Gladstone
30 6
25 20
4 15 10
2
5 0
0 2013
2014
2015
Copyright © 2015 McGraw Hill Financial
Jan-15 Source: Ports
Source: Platts
8
Mar-15
Jun-15
Aug-15
Oct-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
SCRAP MARKET FOCUS
Price rebounds after Turkish election Turkish scrap import prices had weakened to the point where its steel mills were turning away from Chinese billet imports and starting to turn back to scrap. However, there has been a rebound in scrap import prices in late October, early November on stronger sentiment following the Turkish election of a majority government. Late October saw a turnaround in the fortunes of ferrous scrap imports into Turkey, with price movement for the material turning positive for the first time in several months. However, before this turnaround occurred TSI’s daily index for imports of HMS #1&2 80:20 scrap hit a fresh record low of $169/mt on October 20. This represented a fall of $150/mt (-53%) from the turn of the year, and highlights the huge impact that Chinese steel exports have had on global markets. Scrap chased imported billet prices lower, while yards carried multiple cargoes for prompt delivery, meaning mills could afford to pick and choose. Meanwhile, the US domestic scrap market continued to be hampered by poor utilization rates at mills. The October buy-week settled at $15-20/long ton lower, while TSI’s US Midwest shredded index dropped $14/lt over the November buy-week. Pricing was strongest in eastern US, buoyed by increased bulk export trade into Turkey and India. However, towards the back end of the buyweek mills began to push back a little, and are eyeing price increases early in the New Year. Post-election boost in Turkey The Turkish domestic steel market saw a sudden increase in demand, and mills were on the hunt for multiple prompt cargoes, forcing yards to raise their prices. Along with domestic rebar prices, international billet prices also increased, giving scrap prices a further lift. TSI’s monthly Turkey import price reached $187/mt by the end of October, and was pushing close to $200/mt in early November. Platts monthly average price for Turkish scrap imports fell $12.14/mt to $178.93/mt in October. Participants had mixed views on whether the uptick in scrap prices seen in November
Copyright © 2015 McGraw Hill Financial
9
was sustainable over the longer-term, particularly as winter traditionally brings restricted scrap supply. With global steel demand remaining subdued and iron ore again on the slide, one could easily see scrap prices falling again. Platts assessment of Turkish premium heavy melting scrap I/II (80:20) imports reached $200.50/mt CFR on November 13, up $3.50/mt on the week before. At least 16 cargoes were booked over the week, according to trades captured by Platts, while one steelmaker said more than 1 million mt of scrap had been booked in the past three weeks or so. East Asian market flat The import market for bulk heavy melting scrap remained sluggish in East Asia in the first half of November. Platts assessed
its weekly East Asian bulk HMS 80:20 price at $170-175/mt CFR on November 13, unchanged from the week before. In Japan, Tokyo Steel Manufacturing has retained scrap buying prices since November 3 arrivals after cutting Yen 500/mt ($4/mt) for its scrap buying prices all works. The purchase price for H2 at its Utsunomiya works, northern Kanto was Yen 15,000/mt ($122/mt). Japanese traders were paying Yen 14,000/mt FAS at Tokyo Bay to collect H2 for export, unchanged from three weeks earlier. South Korean steelmaker Hyundai Steel booked Japanese scrap at Yen 13,700/mt FOB for H2 grade in the week ending November 13, down by Yen 100/mt from a previous Korean booking two weeks earlier. As Hyundai’s price is much lower than Taiwanese and Korean booking prices, Japanese and Korean trading sources believed the volume secured by Hyundai was limited. — Staff
PLATTS MONTHLY AVERAGE FERROUS SCRAP PRICES, OCTOBER 2015 Unit HMS FOB Rotterdam $/mt $/mt A3, FOB Black Sea HMS CFR Turkey $/mt Shredded del Midwest US $/lt Shredded del dock East Coast $/lt HMS del dock East Coast $/lt $/mt HMS FAS US West Coast
Monthly $ % average change change 159.23 -19.25 -10.79 162.95 -16.53 -9.21 178.93 -24.73 -12.14 182.27 -35.94 -16.47 168.59 -24.67 -12.77 120.34 -23.59 -16.39 130.23 -19.42 -12.97
TSI MONTHLY AVERAGE FERROUS SCRAP PRICES, OCTOBER 2015 Unit HMS 1&2 80:20, Turkish imports (CFR port) $/mt $/mt Shredded, Turkish imports (CFR port) Plate and Structural, Turkish imports (CFR port) $/mt A3, short sea, Turkish imports (CFR port) $/mt Shredded, US domestic (del Midwest mill) $/lt HMS 1&2 80:20, Taiwanese imports (CFR port) $/mt Shredded, Indian imports (CFR port) $/mt
Monthly $ % average change change 178.55 -27.63 -13.40 182.50 -21.00 -10.32 188.25 -22.00 -10.46 160.00 -23.75 -12.93 181.25 -33.75 -15.70 140.25 -21.50 -13.29 193.50 -30.25 -13.52
PLATTS EAST ASIA SCRAP IMPORTS / HMS 80:20 ($/mt CFR) 320 280 240 200 160 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Source: Platts
Jul-15 Aug-15 Sep-15 Oct-15
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
NEWS
Little demand pick-up seen in Chinese steel Platts China Steel Sentiment Index (CSSI) weakened slightly in November, with steel market participants expecting fewer new domestic and export orders in the month ahead. The headline index for November fell 3.75 points from October to 31.71 out of a possible 100 points and was the weakest reading since July. It was the second consecutive month the CSSI was below the 50 point threshold, indicating the market continues to contract. Price expectations for flat products improved from last month, rising 21.67 points to 32.39. But the outlook for prices of long products dropped 6.25 points in November to
MONTHLY NEWS ROUND-UP
31.25. The outlook for steel exports – a major outlet for Chinese steel sales over the past two years – was just 24.02 in November, down from October’s 28.27 and the weakest reading since February. Crude steel production was expected to stay at a similar level to October, while steel inventories held by traders were tipped to decrease, the CSSI found. The index indicated a slow end to a lackluster year in China’s steel market with few signs of any pick-up ahead of winter. Market participants were concerned about the export outlet being closed off, either because of a lack of demand from overseas,
CHINA’S STEEL EXPORTS (million mt) 12
2014
10
2015
8 6 4 2 0 Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: China Customs
CHINA’S CRUDE STEEL PRODUCTION (million mt) 80
2013
2014
2015
60 40
Global iron ore trade stalled after 13 years’ growth: bank Global iron ore trade is now in “stagnation mode” after 13 years of steady expansion, with growth levels plunging significantly this year, investment bank Macquarie said. “After continuous growth since 2001, global iron ore trade has very much stalled in 2015 ... This year we are expecting just 2 million mt of seaborne iron ore trade growth over 2014 volumes, which is a stark change from the 120 million mt-plus annual additions seen over 2013 and 2014,” Macquarie analysts said in a report. “Looking at year-to-date volumes in terms of trade, the major deltas are again on the supply side,” the bank’s analysts said, suggesting Australian exports look set to exceed 800 million mt this year — up over 5% on the year and not far off from double 2010 levels — while Brazil’s exports have been growing, but at an underwhelming rate.
Iron ore ‘challenging’ as China slows: ANZ Iron ore fundamentals will remain “challenging” over the short to medium term, as Chinese industrial production slows, ANZ believes. ANZ analysts Mark Pervan and Anurag Soin said, with the latest Chinese growth figures confirming a “slowing trajectory” - particularly in the form of weakerthan-expected industrial production - iron ore fundamentals were likely to follow suit. The analysts said growing Chinese steel exports indicated mills in the country were over-producing, adding to the supply glut. “Strangely, this should keep imported volumes of iron ore high, particularly with highercost Chinese supply being consolidated,” the analysts said. “But excess Chinese steel output means lower steel prices. And with steel mills running on paper thin margins, lower steel prices ultimately means lower iron ore prices.”
China, India met coal import demand to grow long-term: WoodMac
20 0 Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: WSA, NBS
CHINA DOMESTIC STEEL PRICES - SHANGHAI MARKET (Yuan/mt) 3200
HRC
3000
Rebar
2800 2600 2400 2200 2000 1800 Oct-14
Dec-14
Feb-15
Source: Platts
Copyright © 2015 McGraw Hill Financial
10
Apr-15
Jun-15
Aug-15
Oct-15
Chinese and Indian coking coal demand growth is still assured, as a recent pullback in the seaborne market from China may be temporary and Indian dependency grows in line with its steel industry, Wood Mackenzie said. China’s domestic met coal output, which has climbed as steel output slowed, may not be able to grow further over the next decade, pushing China to move back into seaborne imports in a bigger way and buy more from Mongolia in the future, said Wood Mackenzie’s director of met coal research, Jim Truman. “China’s domestic coal production is one of the larger black boxes,” Truman told the Met Coke World Summit in Pittsburgh. India’s annual met coal import demand may grow to 60 million mt from 40 million mt, with slower PCI injection than China expected.
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
PLATTS CHINA STEEL SENTIMENT INDEX HISTORY (points out of 100)
MONTHLY NEWS ROUND-UP
80
Lump buyers floored by Rio Tinto’s term contract pricing
60 40 20 0 May-13
Oct-13
Mar-14
Aug-14
Jan-15
Jun-15
Nov-15
Source: Platts
CHINA REBAR AND HRC EXPORTS ($/mt FOB China) 500
HRC
Rebar
450 400
Some contractual buyers of Rio Tinto lump are grappling with price exposure from the floor premiums set in their contracts, given the sharp decline in spot premiums this year. According to several contract buyers of Rio’s 62% Fe Pilbara Blend lump, the contractual premium is settled against the monthly average of weekly Platts spot lump assessments, adding a value premium of $0.005/dry metric ton unit. But in the event the monthly average of Platts lump premium assessment is lower than the floor premium set by Rio - which ranges from $0.01/dmtu to $0.06/ dmtu among different buyers - the floor is used as the settlement instead.
Vale cuts Brazil Carajas ore project cost by $2 billion
350 300 250 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Source: Platts
CHINA PURCHASING MANAGERS’ INDEX 51 Official PMI
Caixin PMI
50 49 48 47 Oct-14
Dec-14
Feb-15
Apr-15
Jun-15
Aug-15
Oct-15
Source: Caixin, NBS
or because low prices will make exports increasingly uneconomic. Steel inventory levels have been high but traders expected stocks to start falling over the next month, mainly due to some production cuts at mills rather than to a lift in demand. The CSSI reflects expectations of market participants for the month ahead. A CSSI reading above 50 indicates an increase/ expansion and a reading below 50 indicates a decrease/contraction. It is based on a survey of approximately 50-75 China-based market participants including traders, stockists and steel producers. Manufacturing may have bottomed China’s manufacturing industry showed signs of stability in October on stronger export
Copyright © 2015 McGraw Hill Financial
11
orders although, similarly to steel, companies had to trim prices to attract buyers. Caixin’s manufacturing purchasing managers’ index improved to 48.3 points in October from 47.2 in September. While still below the 50 threshold, it was the strongest result since June. With the exception of February, the Caixin (formerly HSBC) PMI has been under 50 all year. China’s ‘official’ manufacturing PMI, published by the National Bureau of Statistics, was flat in October at 49.8. It was the third consecutive month this PMI has been under 50. The official PMI for the steel industry though slipped again, with October dipping by 1.5 basis points on month to 42.2 [see other article]. Caixin’s PMI for October found that export orders rebounded after three weak
Brazilian mining giant Vale again lowered the estimated cost of its massive S11D Carajas iron ore project, this time by $2 billion. The new investment total of $14.4 billion represents a $5.3 billion drop from Vale’s original cost forecast of $19.7 billion, and a $2 billion cut from its latest estimate, in late 2014. The reduction was determined largely by the depreciation of the real against the US dollar, since most of the spending for the project was in the local currency. The total investment includes mine, processing plant and logistics (railway and port). By the end of the third quarter, Vale had already disbursed $8.4 billion into the project and this is expected to total $9.4 billion by year end. According to Vale, works at the S11D mine and respective processing plant was 75% complete, while the rail extension being built to connect the project to the Carajas Railroad (EFC) was 72% completed. The project should come online in the second half of 2016, but the exact date was to be announced in December at the New York Stock Exchange.
CHINESE CRUDE STEEL PRODUCTION 2015 (million mt) Blast furnace output Total output 62.3 65.5 Jan-15 Feb-15 56.3 65.0 Mar-15 60.2 69.5 Apr-15 59.4 68.9 May-15 60.9 69.9 Jun-15 62.3 68.9 Source: WSA
CHINA MILL ANNOUNCED CLOSURES AND MAINTENANCE (mt/year) Mill Volume impact Stoppage status Bayi Iron & Steel 3,000,000 Indefinite Shougang 80,000 One week from late August Guofeng I&S 140,000 34 days from August 3 Shagang 200,000 Diverted to export rather than domestic sales Source: Platts
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
months due to improved demand. Inventory levels rose for the third consecutive month, while price discounting eased from September but “remained sharp overall.” Manufacturing output fell for the sixth month in a row in October though the rate of reduction was the slowest for four months. “Nearly 16% of panelists noted lower cost burdens (compared with less than 1% indicating an increase), with a number of firms linking the fall to lower raw material prices, particularly for metals,” Caixin noted. Caixin chief economist He Fan said there were signs that “previous stimulating measures had begun to take effect” but warned that weak overall demand and lower bulk commodity prices “remain the biggest obstacle to economic growth.” Weakening domestic hot rolled coil prices indicate any positive impact from an improving manufacturing sector may take some time to flow through, and soft domestic demand for finished goods may continue to weigh on steel prices. The NBS PMI, which breaks down the results by enterprise segment, found that larger manufacturers had recovered from an August low of 49.9 to 51 in October, while small companies reported an 8-month low of 46.6 in October. The total new order index rose to 50.3 in October from 50.2 in September, though production fell to 52.2 from 52.3. — Paul Bartholomew
NEW BF CAPACITY ADDITIONS IN CHINA - 2013-2015 Company Region (city) Capacity mt/year Shanxi zhongyang Iron & Steel Shanxi (Lvliang) 1,500,000 Qinyou Special Metal Material Co., Ltd. Jiangsu (Yangzhou) 1,000,000 Xuzhou Huahong Special Steel Jiangsu (Xuzhou) 900,000 Minmetals Yingkou Medium Plate Co.,Ltd Liaoning (Yingkou) 2,000,000 Hunan Valin Lianyuan Iron & Steel Hunan 2,500,000 Baosteel Group Xinjiang Bayi Iron & Steel Xinjiang (Baicheng) 1,380,000 Wuhu Xinxing Ductile Iron Pipes Co.,Ltd. Anhui (Wuhu) 1,000,000 Wuhan Iron & Steel Group Echeng Iron & Steel Co.,Ltd. (Egang) Hubei (Ezhou) 1,500,000 Guangshui Huaxin Metallurgical Hubei (Wuhan) 500,000 Xinjiang Kunlun Iron & Steel Xinjiang 800,000 Tianjin Metallurgy Group Zhasan Youfa Steel Tianjin 1,200,000 Xinjiang Kunyu Iron & Steel Xinjiang (Kuian) 500,000 Hebei Xinda Iron & Steel Jilin 1,500,000 Yunnan Anning Yongchang Iron & Steel Yunnan (Anning) 1,000,000 Anyang Iron & Steel Co.,Ltd. Henan (Anyang) 4,000,000 Lianfeng Iron & Steel (Zhangjiagang) Co.,Ltd. Jiangsu (Zhangjiagang) 1,134,000 Xinjiang Kunyu Iron & Steel Xinjiang (Kuian) 500,000 Sanbao Metallurgical (Fujian) Group Fujian (Zhangzhou) 500,000 Shandong Qilu Xintong Steel Pipe Shandong (Liaocheng) 1,000,000 2013 Total 24,414,000 Nanjing Iron & Steel Co.,Ltd. Jiangsu (Nanjing) 3,600,000 Pangang Group Xichang New Steel Enterprise Co.,Ltd. Sichuan (Xichang) 1,500,000 Inner Mongolia 5,000,000 Baotou Iron & Steel Tonghua Iron & Steel Co., Ltd. Jilin 2,200,000 2014 Total 12,300,000 Qingdao Iron & Steel Shandong (Qingdao) 4,000,000 Baosteel Group Guangdong (Zhanjiang) 9,000,000 Anhui (Maanshan) 2,000,000 Maanshan Iron & Steel Bohai Iron & Steel Hebei (Tangshan) 2,000,000 Rizhao Iron & Steel Shandong 8,500,000
CSSI (Total New Orders) New Domestic Orders New Export Orders Steel Production Steel Prices (flat products) Stocks held by traders
Nov-15 31.71 32.38 24.02 42.59 32.39 44.3
Source: Platts
traded iron ore derivatives volumes when compared with September’s level.
220 200 180 160 140 Apr-16
Source: TSI, SGX
Copyright © 2015 McGraw Hill Financial
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Change from October (points) -3.75 -3.71 -4.25 0.66 21.67 -26.9
*A figure over 50 indicates expectations of an increase; under 50 indicates a decrease
240
Jan-16
2015 2015 2016 2017 2017
PLATTS CHINA STEEL SENTIMENT INDEX – NOVEMBER 2015*
IMPLIED CHINESE STEELMAKER MARGIN ($/mt CFR)
Oct-15
2014 2014 2014 2014
Source: Platts
SGX iron ore curve below $40/mt for late 2016 Iron ore - China’s week-long holiday at the start of October put a dent in
Date 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013 2013
Jul-16
Oct-16
Jan-17
However, year-on-year, total off-shore trade in US$ denominated iron ore swaps, options and futures of more than 90 million mt cleared against TSI’s 62% Fe iron ore benchmark on Singapore Exchange (SGX) and CME Group was up by nearly 60% on the previous year (which experienced a similar seasonal dip in volumes). The forward curve was little changed over October – most market participants having already priced in negative expectations for the coming year – but there was still some volatility in the front months, the November contract trading in a range between $47-52/dmt. Moving into the start of
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
November, the SGX curve slipped slightly in line with a weakening physical market, moving below the $40/mt mark from October 2016 onwards. Coking coal - A flurry of coking coal futures trades (1560 lots) were booked against TSI’s FOB Australia index during October. CME saw a calendar trade (2016) too. The SGX share of total derivative trade has risen from 4.7% in July to 68.9% in October. The forward curve remains relatively flat out to 2017, with a slight contango, but over the course of October the curve itself shifted down over $3.00/mt as the market became considerably more bearish about its longer term price forecast. Bid/offer spreads have tightened as more participants start showing trading interest in TSI. ASEAN HRC - The forward curves for ASEAN have fluctuated in a reduced range over October as physical market price volatility abated, compared to recent history. The index printed at a new all-time low of $274/mt on the last day of the month, though Chinese steel mills seem to be digging their heels in on offer prices. Nevertheless, buyer expectations remain low and traders are offering at more competitive prices. A stand-off is developing, with physical trade slowing. — Staff
ASEAN HRC FORWARD CURVE ($/mt CFR) 350 November
October
330 310 290 270 Oct-15
Jan-16
Apr-16
Copyright © 2015 McGraw Hill Financial
13
Oct-16
Jan-17
Source: TSI, SGX
62% Fe IRON ORE FORWARD CURVE ($/mt CFR) 55 50 45 40 35 Oct-15
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Jul-16
Oct-16
Jan-17
Source: TSI, SGX
TSI COKING COAL FORWARD CURVES ($/mt) 87 85 83 CFR
FOB
81 79 77 Oct-15
Jan-16
Apr-16
Source: TSI, SGX
Surging Chinese billet exports usurping scrap The issue of China’s soaring exports of carbon steel billets and the impact this trade is having on the global scrap market loomed large on both sides of the planet in October. Delegates at the Bureau of International Recycling (BIR) conference in Prague blamed the China billet blitz on the slump in scrap prices to 11-year lows. “Frankly, it was billet exports from China at ever-decreasing prices that were truly the cause of ever-depressing ferrous scrap values,” said William Schmiedel, president of the BIR Ferrous Division and president of Sims Group Global Trade Corp.
Jul-16
Schmiedel maintained that Chinese billet producers have circumvented the 25% export duty on billet and still enjoyed the 13% VAT rebate by declaring the product as bar or adding elements such as boron. Effective January 1 this year China removed export tax rebates on boron-added hot rolled plate and sheet, wire rod and bars (the latter include billets classified for Chinese Customs as ‘square bars’). However, wily Chinese suppliers switched to exporting chromium-added billet to define the material as ‘specialty steel’ and thus continue enjoying the rebate.
This subterfuge makes the task of accurately quantifying China’s billet exports a major challenge, as a recent report by Japan’s Steel Recycling Research Corp acknowledged. SSR nevertheless made an attempt by examining Chinese customs data for “other alloy steel bars”, arriving at a total of 15.7 million metric tons for this year’s January-August period. This would make for annualized total of 23.55 million mt for 2015. This, the research firm noted ruefully, would be not much less than Japan’s entire EAF-derived crude steel production projected for this year. At the Prague conference, BIR Ferrous Division Board Member Andrey Moiseenko of
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
Ukraine’s Ukrmet said that if Chinese billet exports continue at current volumes there will be significant changes in the global ferrous scrap market. “We should see structural changes in Turkey,” Moiseenko told Platts. “Some mills will disappear. If [current billet volumes] continue, things will change everywhere for scrap.” For the Japanese scrap traders, their concerns are nearer to home. The SSR calculated that during this year’s first eight months, China’s exports of billets to South Korea – both disguised and genuine alloy billets – reached 1.4 million mt, which annualized would make for shipments of 2.1 million mt for the full year. South Korea remains Japan’s singlelargest export destination for ferrous scrap, taking 2.48 million mt between January and September this year, accounting for 41% of Japan’s total scrap exports over the period. Japanese scrap concerns What worries the Japanese scrap dealers and traders is that this was nearly 20% down on the same period last year – a drop they associate directly with the increasing reliance of Korean mini-mills on imported Chinese billets. And it’s not just Japanese scrap that the Koreans are eschewing. Korean customs data shows that during the same JanuarySeptember period, the country’s scrap imports from all sources plunged by 44%
EAST ASIA BILLET IMPORT PRICES ($/mt) 600 550 500 450 400 350 300 250 Feb-13
Jun-13
Oct-13
Feb-14
to 4.5 million mt. Indeed, the US – Korea’s second-largest supplier after Japan – saw its liftings halve over the nine months to just 780,000 mt, the Korean data shows. The concern in Japan is that if the Chinese mills continue to push their billet into South Korea at the present rate, Japan’s scrap exports could fall by 1 million mt/year. At present scrap prices, that would be the equivalent of $124 million annually in lost business. In an internal strategy paper obtained by Platts from an Asian scrap merchant, there was speculation over when the flood of Chinese billet would cease. “By examining billet exports in terms of financial, social and political value, we can first see that no, massive exports will not go on indefinitely,” the merchant wrote. “The timing of the end of billet would either be the beginning of 2016, if China decides to limit exports for trade diplomacy reasons, or in the
...from page 2
Copyright © 2015 McGraw Hill Financial
14
Oct-14
Feb-15
Jun-15
Oct-15
Source: Platts
Cost saving gains eroded by falling ore price Flanagan told an investor lunch in Melbourne in July. “Normally, if you pull $300 million of costs out of the business that would be enough to make money, but it wasn’t at Easter time. The price fell to $46/mt and the way we were selling iron ore then meant we were actually getting about A$46/mt ($34/ mt) but it was costing us A$61/mt ($45/mt) to produce and sell it,” he said. The C1 cost proportion of the miner’s average realized price in the September 2015 fell to around 57%, compared with 86% for the April-June quarter. Despite all the costsaving efforts, the falling iron ore price means
Jun-14
the C1 cost proportion is not much different to the March 2014 quarter when the Platts 62% Fe price was $120/mt CFR. Atlas has said previously that the Australian dollar’s weakness against the US dollar has become like a natural hedge. The miner is also hedging “collars, caps and fixed price cargoes” to better insure itself against lower prices. Atlas renegotiated terms with its contractors in April and extracted some additional margin from royalty payment deferrals, and from more favorable terms on some haulage and port arrangements from the relevant authorities. There may not be
worst case after industry consolidation during 2016-2020. The financial and social costs would suggest sooner rather than later.” The merchant estimated Chinese steel costs equate to $32,000 per worker annually. Sims Group president Schmiedel estimated a per capita loss of around $25,000-$30,000 per employee. “It will be cheaper to pension out these workers than continue to operate at these loss levels,” he said, adding that Beijing is aware of this anomaly. Tom Bird, head of UK-based Mettalis Recycling agreed that “clearly” there needs to be change in the approach by China. “Producing steel at the current rate is not sustainable in the long term. [Financial losses are] attracting the attention of Beijing. There is international pressure, this can only be a benefit moving forward,” he told Platts. — Nicholas Tolomeo, Russ McCulloch
much more scope for cost cutting if prices go even lower. Fellow Pilbara junior BC Iron is also hedging some iron ore volumes and foreign exchange rates to protect its breakeven price. It managed to cut A$6/wmt from its costs in the September quarter to A$52/wmt ($36.6/ wmt) out of a realized price of $47/dmt CFR. Mount Gibson Iron’s pit wall collapse at its Koolan Island mine in the Kimberly region of Western Australia reduced its production capacity to around 4.5 million-5 million wmt/ year. Its all-in costs of A$52/wmt FOB ($36.6/ wmt) in the September quarter against a realized sales price of $40/dmt FOB shows the company’s margins are extremely slim. — Paul Bartholomew
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SPECIAL REPORT: BATTLING BRICS
China – shift to lower gear as economy transitions When then Goldman Sachs economist Jim O’Neill coined the term BRICs in 2001, China was at the start of a decade of surging economic growth, with GDP averaging around 10.5% a year. If not for the global economic crisis years of 2008 and 2009, when China’s export markets were severely affected, it would have been stronger still. Since 2012, however, the Chinese economy has slowed markedly, down to levels closer to 7%, as the tail of Beijing’s 2008-2009 Yuan 4 trillion ($586 billion) stimulus program started to recede. Many argue the stimulus package was responsible for fueling debt at provincial governments and state-owned enterprises, resulting in the overcapacity issues – particularly in steel and housing – that China is dealing with today. With China’s economy expanding year after year, companies both inside and outside of China believed the good times
would last forever. Chinese steel mills – both state- and privately-owned – rapidly built up production capacity to support the country’s rapid development and urbanization. Iron ore companies, such as BHP Billiton and Rio Tinto (along with newcomer Fortescue Metals Group and a flotilla of ‘junior’ miners) embarked on huge capacity expansions to feed steel production that was expected to surpass 1 billion metric tons/year by next decade. Indeed, there was never any notion that China might slow one day; or at least not by much. But just as the pace of China’s growth astonished so many, its slowdown has also surprised. The country’s fixed-asset investment fell to a near 15-year low in August and the much-mooted build-out of central, not to mention western China, has been slower than expected and certainly less steel-intensive than urbanization along the eastern seaboard.
BRICS STEEL CONSUMPTION 800
(million mt) -3.3% -3.5% -2.0%
2014
2015 (f)*
2016 (f)*
% = Year-on-year change
600 400 200
+3.1% +7.3% +7.6%
0
China *Forecast. Source: worldsteel
India
-0.7% -10.4% -1.0%
-8.6% -12.8% +0.5%
Russia
Brazil
MANUFACTURING PURCHASING MANAGERS’ INDICES PMI POINTS 54
(index)
52 50 48 46 44 42
India
Russia
China
Feb-15
Brazil
Apr-15
Source: Markit Economics
Copyright © 2015 McGraw Hill Financial
15
Jun-15
Aug-15
Oct-15
In a September report from CLSA, analysts noted that China’s steel consumption had decoupled from GDP growth for the fifth consecutive year in 2015. This was a “logical” trend for a developing economy, CLSA argued, as steel was usually “at the forefront of the economic development cycle due to the need to build out capacity.” In September, Standard & Poor’s downgraded its GDP outlook for China next year to 6.3% from 6.6% with 2017 revised to 6.1% from 6.3%. (In fact, many believe China’s true GDP is already closer to 6% than 7%). Last year, China’s steel consumption fell 3.4% year-on-year, its first reversal in three decades. World Steel Association has forecast China’s steel consumption will fall 3.5% this year and by a further 2% in 2016. The country’s steel production in 2015 appears on track to fall 1-2% on last year. Even BHP has scaled back its outlook for China’s steel output to 935 million-985 million mt by the middle of next decade from 1 billion mt previously. Rio insists Chinese output will still creep up by around 1% a year to reach 1 billion mt by 2030. The boom years have seen China build up crude steel production capacity of some 1.1 billion mt/year, of which it is using just 73% currently, Platts estimates. New steel capacity is slowing, from around 25 million mt in 2013 to 12.3 million mt in 2014, with a similar volume coming on stream this year, largely from Baosteel, according to data collected by Platts. Existing production is being trimmed in response to weak market conditions, but as yet there have been no major output cuts or mothballing of facilities, such as those seen in other parts of the world. New environmental targets could further curb steel output in coming years. In short, like Chinese GDP, steel output and consumption have peaked and are now on their way down. Different hands at the tiller Very little was said beforehand about the likely impact of the new administration led by Xi Jinping and Li Keqiang that replaced
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Hu Jintao and Wen Jiabao in March 2012 – at least not from or about the steel and resources sectors. It was assumed the pair would continue the strategies of the former administration; one which in the words of a senior Asia-based economist, “threw money at everything!” But Xi-Li have subsequently focused on more measured and sustainable growth, transitioning the economy to one driven by the wealthier population’s need for new cars and fridges, rather than more government investment in infrastructure and a reliance on exports. However, the journey is not proving to be easy. S&P’s Academic Council surmised in an October meeting that: “There are significant risks building in the Chinese economy that could tip the balance toward a much more implosive scenario, and the chances that the country’s leaders can carry out a planned transformation toward a more services-based economy without suffering a sharp slowdown are becoming smaller.” Beijing has started to tackle the country’s corruption problem, which some say has contributed to the slowdown. Deals aren’t getting done as easily as before. Pollution is another issue high on Beijing’s agenda, which has a serious social
China’s economic growth prospects getting murkier. Photo: Platts
Copyright © 2015 McGraw Hill Financial
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CHINA’S STEEL EXPORTS (million mt) 12
2014
10
2015
8 6 4 2 0 Jan
Feb
Mar
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Source: China Customs
CRUDE STEEL PRODUCTION JANUARYSEPTEMBER 20142015 700
(million mt) -2.1%
2014
600
2015 % = Year-on-year change
500 400 300 200 +3.1%
100 0
China
India
-0.5% Russia
-1.2% Brazil
Source: worldsteel
impact. But the sense is that pressure on companies, including steel mills, to comply with new environmental regulations is relaxed at times of slower economic growth.
Provincial governments need to meet their revenue and tax targets, while maintaining employment. The central government’s intervention in the Shanghai stock exchange crash earlier this year indicated the shift to a more market-driven economy may be some time away. China still dances to its own economic tune, and is not subject to the same rules as other countries. It is this that attracts the ire of steelmakers in the US, EU and other regions as domestic producers lose market share to Chinese imports. In contrast, surprisingly few steel companies or larger traders in China have failed, despite a lack of cash and extremely low steel prices over the past two years, which suggests they continue to be propped up by provincial governments, or are just hanging on by their fingertips. Haixin Iron & Steel declared bankruptcy last year. In October, state-owned trader Sinosteel Corp was rumored to have defaulted on bank loans worth billions of yuan, which it later denied. A month later, Chinese coking coal producer Hidili Industry International Development Ltd missed a principal payment on an outstanding US dollar bond. Many smaller steel and iron
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ore trading companies have closed their doors. But considering Baosteel’s research department estimates the 100 top steel companies in China lost a collective $3.1 billion over January-August this year, it is remarkable there have been almost no casualties among larger entities. Running out of steam The huge stimulus package in the financial crisis period was aimed at boosting domestic growth at a time when the rest of the globe’s economies were in the doldrums. But local demand is now back at GFC levels. Property construction accounts for around 50% of Chinese steel consumption but is being weighed down by a massive oversupply of new apartments – some 40 million or more on some estimates. Regardless of an improvement in sales – which is largely occurring in tier 1&2 cities rather than in smaller cities where the oversupply is at its worst – working through the supply backlog will take a long time. Much of China’s success over the past decade has been built on productivity gains as workers moved from rural areas to factories. But there are fewer available cheap workers these days, wages have risen, meaning China is less competitive than before, and subsequently some manufacturing – the other key market for steel demand – is being relocated to other countries, including even the US. Manufacturing activity data is the weakest in six years. Auto production and sales are patchy, while shipping manufacturing has also been lackluster in an oversupplied market. In Markit’s Business Outlook Survey for China, released on November 9, it found the “weakest level of optimism amongst Chinese companies since data collection began late-2009.” This was highlighted by a net balance of just +17% of firms expecting business activity to rise over the next year, down from a previous low of +23% in June. Markit said this was “broadly in line with that seen across the BRIC nations as a whole (+18%).” Relying on offshore markets To the chagrin of international steel companies, China has resorted to export
Copyright © 2015 McGraw Hill Financial
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S&P GDP GROWTH SUMMARY (%) 10 2014
2015
2016
2017
5
0
-5 China
India
Russia
Brazil
Source: S&P
CHINA STEEL MANUFACTURING VS STEEL OUTPUT 80
(million mt)
(points)
51
60
50
40
49
20
48 Steel output (left)
PMI (right)
0
47 Jan-15
Feb-15
Mar-15
Apr-15
May-15
Jun-15
Jul-15
Source: Platts
markets over the past year to offload its excess steel capacity at a time of extremely weak domestic demand. Over JanuaryOctober China exported 92 million mt of steel, compared with a 73.4 million mt over the same period last year. Relatively weaker October exports of 9 million mt, down almost 20% month-on-month, suggest overseas appetite for Chinese steel could be starting to wane slightly. But it is too early to tell if the lower export figure is due to a plethora of potential dumping investigations hanging over Chinese steel imports. To date, China has managed to maintain its overall export levels by redirecting material away from countries threatening trade sanctions into other regions. Chinese authorities removed an export tax rebate on certain alloy steel products at the start of the year in a bid to deter exports. But they appear to have become more sanguine about the export level as the year has proceeded, knowing there is not the domestic demand to absorb so much steel. China’s big plan is to export its expertise, financial muscle and even workers under its ‘one belt, one road’ strategy – which can be interpreted as Beijing’s global ‘soft power’ push, as well as
another way of supporting its state-owned steel producers, contractors and engineers. It has been estimated that more than 60 countries could benefit from Beijing’s largesse, whereby China lends countries the funds to develop infrastructure largely fulfilled by Chinese companies. Steel mills in northern China’s Hebei province have discussed relocating capacity to emerging countries, perhaps in support of ‘one belt, one road.’ But as the UK’s recent “red carpet treatment” for Xi Jinping indicates, it is not just emerging nations that want to deepen relations with China. While China may no longer be the shining beacon among the BRICs – many expect the strong growth to come from India now – it remains the most important country in global steel markets. More clarity around Beijing’s thinking will come to light when China announces its longawaited ‘Steel Industry Restructuring Policy’ as part of its 13th 5-year plan that begins in 2016. Certainly, the iron ore producers will hope that China can somehow maintain its strong steel production, otherwise prices will come under even more pressure. — Paul Bartholomew
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India - optimism turning to frustration India’s ambition to increase steel production to 300 million metric tons/year has been thwarted by slower than expected growth in consumption. Market pundits dropped India’s steel consumption estimates to 4-5% from an earlier forecast of 6-7%. The World Steel Association’s estimate for Indian demand this year is for a 7.1% year-on-year rise to 81.5 million mt and a further 7.6% climb next year to 87.6 million mt. Industry participants surveyed by Platts estimate that steel demand may rise 4-5% this financial year (ending March 31 2016) to 80 million mt. This is reflected in recent data published by the Joint Plant Committee, which shows India’s overall finished steel consumption rose 4.5% y-o-y to 46.2 million mt during the April-October half. Meanwhile, India’s overall steel capacity increased by 46% over the previous five years to an estimated 110 million mt/year during the fiscal ended March 2015, from levels of 75 million mt/year in fiscal year 2009-2010. However, steel consumption, which rose by a strong 11.9% during FY20102011, has declined since then by 2.4% each year, according to a report published on November 5 by Mumbai-based research agency India Ratings Further propelling the overcapacity problem is the new capacity being completed by companies such as Tata Steel, Steel Authority of India Limited (Sail) and JSW Steel, which will result in an additional 12-14 million mt/year becoming operational in the current fiscal. Domestic demand stutters Steel demand declined due to a slump in the construction, capital goods and automobile sectors, which are the main consumers
INDIAN IRON ORE IMPORTS-EXPORTS JANUARY-AUGUST 2013-2015 (million mt) South Africa Brazil Oman Australia Total imports Total exports Net exports
2013 2014 2015 456,824 1,275,799 4,022,655 - - 2,292,870 - 41,632 2,129,429 107,540 317,778 607,168 1,109,773 2,060,856 9,336,545 9,745,781 8,218,547 2,728,749 8,636,008 6,157,691 -6,607,796
Source: Ministry of Commerce, GTIS
Copyright © 2015 McGraw Hill Financial
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of steel, the report said. This resulted in estimated capacity utilization for integrated steelmakers in India falling to 81% in fiscal 2014-2015 from 88% in the fiscal ending March 2010. The national budget delivered in late February allocated investments of Rupees 140 billion ($2.1 billion) and Rupees 100 billion for road and railway projects respectively in the current fiscal. However, the execution of big ticket infrastructure items, such as metro rail networks in various cities and highway widening projects, has been delayed due to land acquisition, financing and regulatory approval hurdles. Similarly, Prime Minister Narendra Modi’s ‘Make in India’ initiative aims to transform India into a manufacturing hub by encouraging investment in the industrial sector. The initiative aims at increasing the share of the manufacturing sector in the country’s GDP from the current 16% to 25% by 2022. However, the rate of growth of industrial production during fiscal 2014-2015 was only 2.3%, far below the rate of GDP growth. India’s manufacturing sector experienced a further slowdown in October, mirroring the decline in the country’s steel output. Nikkei India’s purchasing managers index (PMI) recorded a 22-month low of 50.7 in October, from 51.2 in September. Steel forms about 2% of GDP and about 16% of the industrial sector. But a recent study by the National Council of Applied Economic Research found that current conditions of India’s steel industry were “dismal”, with very low profits, low capacity utilization and dim prospects of new private investment, either foreign or domestic. Analysts believe that a proper implementation of ‘Make in India’, coupled with aligned infrastructure development, will boost steel demand growth by 10-12% during 2018-2019 to 2024-2025, reaching 160-180 million mt by 2024-25. India’s per capita steel consumption was 59.4 kgs in 2014, according to the World Steel Association. This is much lower than per capital steel consumption of the largest steel producer China at 510 kgs. India’s is unlikely to ever reach a similar level. To stimulate consumer spending, the
INDIA’S OVERALL STEEL IMPORTS DURING APRIL-SEPTEMBER (mt) 2015 2014 Change y-o-y China 1,591,460 1,343,850 18% South Korea 1,516,320 855,050 77% Japan 1,147,270 654,060 80% Russia 215,870 84,510 155% Ukraine 148,810 222,360 -33% Other countries 1,282,210 1,028,490 25% Total Steel 5,928,940 4,188,320 42% Source: Joint Plant Committee
Reserve Bank of India (RBI) dropped the bank repo rate by a total of 125 basis points over four rate cuts since January in an attempt to encourage banks to drop their lending rates. To date, this has not had the desired effect, in terms of raising consumer borrowings. Meanwhile, a number of steelmakers invested large sums in capacity additions, funded by borrowings, which over-stretched their balance sheets. The net debt of the top steel producers rated by India Ratings increased to Rupees 1,626 billion ($24.45 billion) during fiscal 2014-2015 from Rupees 922 billion in fiscal 2010-2011. In June, the Reserve Bank of India (RBI) said that five out of the country’s top ten private steel companies were under severe financial stress on account of delayed capacity expansions. India’s central bank cautioned that the sector warranted a close watch from lenders due to the high level of stressed loans among steel companies. Industry participants say banks are now reluctant to lend to the steel sector. Utilization rates low but more capacity coming on The nation’s largest steelmaker, Sail, is at the final stages of completing a near 10 million mt/year expansion at all five of its integrated steel plants to take overall capacity to 20 million mt/year. Tata Steel aims to start operations at a 3 million mt/ year greenfield unit at Kalinganagar, in the eastern state of Odisha, by December 2016, which will lift the company’s total capacity to 14 million mt/year. Similarly, JSW Steel is in the midst of an ongoing expansion to increase overall capacity to 18 million mt/ year from the existing 14.3 million mt/year at all three of its integrated steelworks by December 2016.
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The financial performance of almost all Indian steelmakers was affected during the July-September quarter, with some declaring losses. For instance, Sail reported a net loss of Rupees 13.78 billion during the first half of the current fiscal, which includes a net loss of Rupees 10.56 billion in July-September. Similarly, Tata Steel’s Indian operations reported a drop in profits of about 20% y-o-y to Rupees 37.71 billion during the first half of this fiscal. Steelmakers surveyed by Platts at a recent Steel & Raw Materials conference organized by the Federation of Indian Mineral Industries on November 6-7 in the southern state of Goa, blamed low-priced imports for pushing domestic prices further down, impacting their margins. Indian steel prices dropped by 20% y-o-y during April-October. Platts assessed prices of hot rolled coils 3mm thick and above dropped to Rupees 27,500-28,500/mt in October, down from Rupees 34,500-35,500/ mt in October 2014. To address this, the government raised import duties in August on foreign steel by 2.5%, just three months after an initial increase of 2.5%. These measures took the duty on flat rolled steel imports like coils to 12.5% and to 10% on long products such as reinforcing bars. In September, the finance ministry imposed an additional 20% safeguard duty on hot rolled coils above 600 mm width for a period of 200 days. Despite these measures, India’s appetite for foreign steel remains unabated, with imports surging by 42% to 6.68 million mt during April-October, according to Joint Plant Committee estimates. Over this period China remained the top exporting nation to India with an 18% y-o-y jump to 1.6 million mt. South Korea and Japan followed closely, with exports to India shooting up to 77% and 80% respectively. Many hurdles remain The National Council of Applied Economic Research study identifies 11 road blocks hindering the resurgence of the Indian steel industry. These are demand deficiency, decline of trade competiveness and surge in imports, financial fragility, excessive taxation, stalemate in land acquisition,
Copyright © 2015 McGraw Hill Financial
19
Sail’s Bokaro steel plant. Photo: Sail
delays in project implementation, suboptimal system of mineral allocation, inadequate exploration of mineral wealth, inadequate availability of skilled manpower, high cost and low quality logistic facilities and inadequate progress in meeting the environmental standards expected of a modern steel industry. “Mere tinkering with the present policies and exhorting greater effort will not achieve much,” the report said. The study said authorities needed to realize that there were deep-seated structural problems in most manufacturing sub-sectors in India that go beyond the need to improve the ‘ease of doing business.’ So India’s role as the great hope for the world’s steel and raw materials sectors may take a long time to come to pass, if ever. Though there is Indian interest in coking coal projects in Mozambique, Australia is likely to be the greatest beneficiary of expanded steel production. India is already the major customer of Australian coking coal – ahead of Japan with China now back in third spot – importing 32.6 million mt over JanuarySeptember this year, up around 10% on the year before. Earlier this year, the market became excited when India started importing iron ore as seaborne prices were more attractive than domestic ones and various
bans on captive mines reduced access to their own mines for steelmakers such as Tata and JSW. Even Essar Steel, which inaugurated a 6 million mt/year pelletizing plant, preferred to import from countries such as Brazil. But net imports of 6.6 million mt over January-August – mainly from South Africa and Brazil – were not enough to positively impact seaborne prices. It could serve to dent the aspirations of state-owned iron ore producer, National Mineral Development Corporation, which has had to slash domestic prices several times – by 50% y-o-y for fines and by 40% for lump – to stay competitive with imports. This has resulted in a likely 48% y-o-y profit fall in the September quarter, which will not help NMDC’s plans to grow production to support India’s steel output expansion. While there is still optimism about the Modi government, there is a growing sense of frustration that improvements are happening too slowly. India may be the fastest growing of the BRICs, have the best GDP and steel consumption outlook of the four countries, but struggling steel companies may find it difficult to reconcile such a rosy prognosis with the market conditions they are experiencing on a daily basis. — Charlotte Rao, Paul Bartholomew
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Brazil - depressed economy undermines Olympics benefits Many years before Jim O’Neill identified Brazil as a BRIC nation, French president Charles de Gaulle described it as a “country of the future - and always will be.” Unfortunately, that old saying is ringing true once more as Brazil’s economy lurches into depression. Its economy could shrink by 3.1% in 2015 and by a further 1.2% in 2016, says the Organization for Economic Co-operation and Development, (OECD). This would mark the first time since the 1930s that the country would have posted two consecutive years of negative growth. Last month the Brazilian government’s accounts watchdog, Tribunal de Contas da União, rejected the government’s federal budget accounts, also for the first time in 80 years, after crushing losses at state-run oil producer Petrobras amid widespread corruption scandals, which have discredited the government and led to the clamor to impeach President Dilma Rousseff. Ratings agency Standard & Poor’s, a Platts sister company, cut Brazil’s credit rating to junk in September, seven years after raising it to a prized investment grade. After putting Brazil’s outlook on a negative weighting in July, there’s a chance greater than one in three that S&P could again lower the country’s rating over the coming year. The agency cites the risk of fiscal weakness and potential policy reversal amid a lack of cohesion in the cabinet and a worsening growth story. “Domestic dynamics are driving the contraction in economic activity more than the global commodities scenario,” Lisa Schineller, Standard & Poor’s managing director, sovereign ratings, said in an interview. “Brazilian manufacturing is under pressure, to say the least. Petrobras is weighing on investments overall as is the broader political backdrop, with fluid political dynamics and a corruption investigation destroying investor confidence.” Double-digit domestic demand decline Brazil’s apparent steel consumption has declined sharply amid the turmoil, falling 14% year-on-year in the first nine months of 2015 to 16.9 million mt, including imports, Brazilian Steel Institute (IABr) data
Copyright © 2015 McGraw Hill Financial
20
shows. Crude steel output fell just 1.2% over the same period to 25.25 million mt, held up by exports, mainly of semi-finished and flat steel products. IABr forecasts crude steel output for the year at 32.75 million mt, 3.4% down on 2014, and well below installed capacity of 48.8 million mt. Brazil’s steel sector is experiencing a crisis worse than in 2008-2009, said IABr executive president Marco Polo de Mello Lopes in a recent interview. Among steel consuming sectors, durable goods has been hardest hit, with total vehicle production set to slump 20% this year, after a 15.3% decline last year, according to the National Association of Vehicle Manufacturers, Anfavea. S&P sees domestic demand for commodity-grade hot rolled coil falling 15% this year, after a fall last year, with long products demand down 10% despite a flurry of construction activity in the run-up to Rio de Janeiro’s hosting of the 2016 Olympic Games. Linepipe and oil country tubular goods demand has been hit by Petrobras’ financial scandal, which has led to investment and operational cutbacks: “Brazil will remain in a very complex situation for a while….we’re not so optimistic about 2015-2016 because of the limited operation of Petrobras,” said Paolo Rocca, CEO of pipemaker Tenaris. “We’re losing something on Rota 3 in Brazil.” Cheaper real helps weather storm Still, the devaluation of the Brazilian real by over 40% over the last year to recent lows of more than BRL4 to the US dollar has given producers a fillip, allowing the more competitive among them to boost exports, particularly of semi-finished products, at the same time putting up a natural barrier to steel imports, which have become more expensive in local currency terms. Steel exports leapt 48.6% year-on-year in the first nine months, while imports overall slumped 11.9%, IABr said. “In the first part of the year imports rose but now they’re contained,” said S&P’s Brazil-based analysts Diego Ocampo and Marcus Fernandes. “The biggest threat has been Turkish steel and Mexican steel, not from China.”
Indeed, a recent plunge in imports in many industrial areas has driven down the nation’s current account deficit: one positive consequence of the current crisis. Diversified steel market players, and those with a larger international presence, namely Gerdau Group, Cia Siderúrgica Nacional (CSN) and ArcelorMittal Brazil – which export significant tonnages to group operations in other countries - have thus weathered the storm, the analysts said. Opening the export valve gives only partial relief, as international sales margins tend to be lower than those on domestic sales, due to oversupply, said Germano Mendes de Paula, professor of the Economics Institute at Brazil’s Federal University of Uberlândia. The only major investment project currently underway in Brazil’s steel sector - the Vale-Dongkuk-Posco 3 million mt/year joint venture Companhia Siderúrgica do Pecém works - will, at least initially, be entirely dedicated to slabs exports. CSP’s start-up has been delayed until Q2 2016 from end2015 due to infrastructure delays, Dongkuk said November 4. Market protection mechanisms Brazil is a relatively protected steel market, operating import taxes averaging 12-14% for most third country products from outside the Mercosur southern cone trade bloc. Following an import surge in 2010, domestic producers have also learnt to keep domestic prices competitive to discourage imports. For this reason import penetration has stayed stable over the past five years at around 15% of the market, according to Ocampo. “Longs are more protected than flats,” the analyst continued, “because the bars typically used in Brazil are wider than elsewhere. This also serves as a barrier to imports, because producers abroad would need to tweak their production to suit; some Turkish producers have this capacity.” CSN, which moved into long products a year ago, is benefiting from this market barrier and is also exporting 10% of its long steel production, Ocampo reports. CSN long products plant general manager Fernando Souza Candido explains the company is using surplus slabs from its integrated Volta Redonda works in Rio de Janeiro state to
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cut into blooms in its new EAF-based long products works, due to the slack demand for flat products. “The Brazilian market is 60% of what it used to be,” said Candido, stressing the 500,000 mt/year long products plant may reach full capacity only in another year. Concerns persist that Brazilian works may no longer be competitive on a global scale: Schineller notes that over the past decade, while the real was much stronger, Brazilian industrial exports had declined on a lack of labor market competitiveness. Despite the real’s recent depreciation, hourly wages in dollar terms remain roughly 40% above those in Mexico and China, the Financial Times cited Credit Suisse as saying in September. “This is a big deterrent to inward investment in the country,” the FT said. “I believe the Brazilian steel industry isn’t as competitive now as it was 15 or 20 years ago, due mainly to macroeconomic conditions,” Mendes de Paula said. Still, its costs, even in recent years when the real was strong, were always below the median of the global steel sector, he said. A study published in 2015 by development bank BNDES using CRU data puts Brazilian production costs for crude steel, rebars and hot rolled coil among the world’s four most competitive in the context of the largest players.
Capacity closures Capacity closures are occurring as low market prices erode mills’ profitability. Mendes de Paula notes there have been more rolling mill closures than furnace closures, making it easier to rebuild production once the market recovers. Worst hit among the major steelmakers is Usinas Siderúrgicas de Minas Gerais, which focuses on the hard-hit white goods and car sectors. Usiminas has turned off three of its five blast furnaces this year, which may reduce its crude steel output by more than 900,000 mt from 2014 levels. Its slabmaking capacity is 9.5 million mt/year, but recent data indicates it could be working at under half capacity. The temporary suspension from November of activities at a blast furnace and meltshop in Cubatão, where it idled a 1 million mt/year heavy plate mill late September, and where it will for the time being no longer produce slabs is a move to “reposition Usiminas into a new level of scale and competitiveness ….amid progressive deterioration of the steel market,” the company’s VP of finances and investors relations Ronald Seckelmann said in a statement. “Usiminas will suffer over the next two years, because it’s less diversified,” S&P’s Fernandes said. The power struggle between major shareholders Nippon Steel and Ternium for management control
Russia – steel surviving despite recession Russia is in deep recession. The OECD expects the economy to contract 4% in 2015 and by a further 0.4% next year in what may be the nation’s longest recession since
1997. The economy is largely dependent on oil prices, which remain low and have led to cutbacks within the sector. Yet Russia’s steel industry is in the main doing well and
LARGE RUSSIAN STEELMAKERS’ SHARE OF EXPORT SALES (%) 70 60 50
NLMK
Severstal
MMK
40 30 20 10 Q1 2014
Q2 2014
Q3 2014
Source: Companies
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Q4 2014
Q1 2015
Q2 2015
Q3 2015
at the company could meanwhile delay strategic decisions but isn’t seen having a direct bearing on day to day operations, the analyst said. Votorantim group in October halted an 800,000 mt/year long products mill in Rio de Janeiro state. Gerdau has concentrated on its higher value added operations and niche products, having halted or reduced operations at six plants since 2014 due to demand issues. ArcelorMittal Brazil announced September it is delaying startup of a 1.1 million mt/year longs rolling mill at João Monlevade, due to “adequate existing production at a time of economic downturn and surplus output”. In August, the company’s Brazil’s longs division, which has a total production capacity of 3.6 million mt/year of rolled products, partially halted a 500,000 mt/year rolling mill in Piracicaba. Brazil’s steelmakers don’t yet glimpse light at the end of the tunnel, according to Mendes de Paula, while the S&P analysts expect another 18 months of pain. “Timing on a meaningful turnaround is uncertain… we see modest economic growth of 1% in 2017, but a lack of visibility related to fluid political dynamics,” said Schineller. This is expected to bring some steel market recovery in 2017, after a very challenging 2016. — Diana Kinch
industrial production, as measured by the Markit Russia Purchasing Managers’ Index, rebounded in October after 11 months of decline. The ruble’s significant devaluation late last year - down 42% against the US dollar - and its subsequent stabilization at what economists view as a more “realistic” rate, has helped boost Russian steel exports close to record level of some 30 million metric tons/year, enabling production to continue at strong levels. Exports climbed to 20.8 million mt in January-September, for an annualized 27.7 million mt, from 19.2 million mt a year earlier. The ruble’s new value has enhanced a natural export vocation, backed by solid port and rail infrastructure, “making Russia globally much more competitive in
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
various segments: manufacturing, steel and metals,” Evgeny Gavrilenkov, managing director and chief economist at Russia’s Sberbank CIB, said in October. The exports surge has further favored infrastructure development at ports on the Baltic Sea and the Black Sea. Of course the export story is not all positive. The European Commission is now actively investigating the need for antidumping duties for products from Russia and China, including cold rolled coil, amid lobbying from anxious EU steelmakers and trade bodies. Even with the complex trade scenario, Russia’s steelmakers are likely to adapt, according to Sberbank. “It’s crisis as usual in Russia, not a full-scale crisis,” Gavrilenkov said. “Russia has frequent crises: whenever oil and gas go down people think we’re in a crisis. But the system adapts, the Russian economy has adapted to the new normal.” Sanctions seen helping cut debt What’s also happened is that the steam has been let out of an economy that overheated in 2011-2013, when high levels of domestic and international lending, both consumer and corporate, fueled inflation and interest rates, pushing the ruble up 50% between 2009 and its crash last year. “Domestic demand is shrinking now because it was artificially inflated with people rushing into investments,” says Gavrilenko. Sanctions, which are seen not to have affected the steel industry, have played a beneficial role in limiting the inflow of new money into the economy and helping cut $200 billion of foreign debt, according to the economist. “Russia should be grateful: sanctions have been very positive macroprudentially,” he maintains.
RUSSIAN STEEL MARKET BY SEGMENT Tubes and pipes (20%)
Construction and Infrastructure (67%)
Machinery (7%) Metalwork (4%) Automotive (2%) Source: Metal Expert, NLMK, Moody's
Copyright © 2015 McGraw Hill Financial
22
RUSSIAN STEELMAKERS’ SLAB CASH COSTS WILL REMAIN FAIRLY LOW ON THE WEAK ROUBLE ($/mt) 450 Severstal
MMK
NLMK
350
250
150 Q1 2013
Q4 2013
Q3 2014
Q2 2015
Source: Company data, Moody’s forecasts
CIS APPARENT STEEL USE (million mt) 60 50 40 30 20 10 0 2011
2012
2013
2014
2015(e)
2016(e)
Source: WSA
Spending has also been tempered by the low oil prices, which have curbed high expenditure in hostile drilling environments in the north of the country. The downsizing means the economy is now recovering slowly on a more stable basis, with growth of more than 2% expected for 2016, Sberbank calculates, even though both the International Monetary Fund and the OECD anticipate a further GDP decline. Statistical discrepancies are just part of the system, Gavrilenko explains. Domestic construction plunge: tubes brighter Moody’s Investors Service expects Russia’s domestic demand for steel to decline by around 10% in 2015 and remain weak in 2016, driven primarily by the slump in construction, the largest steel-using sector, representing two thirds of aggregate demand, says analyst Artem Frolov. According to Russian federal state statistics service Rosstat, in January-August 2015 construction activity in Russia declined by 8% year-on-year, in comparable prices. Moody’s expects residential and commercial construction to continue shrinking in 2016 on weak demand.
In the vehicles sector, Russia’s 2015 new car sales may contract by up to 45% yearon-year to 1.28 million units, with recovery starting only in spring 2016, said Autostat, an automotive sector analyst firm, citing information from PricewaterhouseCoopers. “Demand for steel in Russia has been supported by the tubes and pipes sector which represents around one fifth of total domestic demand - particularly by large pipeline projects, including Power of Siberia, and oil and gas companies’ maintenance needs,” Frolov said. “However, demand for pipes from the oil and gas companies could start declining if oil prices remain at their lows for long.” Moody’s notes that many of Russia’s larger steelmakers have substantially improved profitability on currency factors. Together with cost-cutting and the fall in prices of feedstocks including iron ore and coking coal, this will lead their cash slab costs to stabilize at an internationallycompetitive $200-250/mt this year, with the higher exports helping to offset lower domestic demand. Slab cash costs of around $200-$260/mt in H1 2015 are compared with export prices of around $305/mt on an FOB basis, Frolov said.
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
In January-September, Russia’s Magnitogorsk Iron and Steel Works (MMK) quadrupled its net profit from a year earlier to $546 million, after the ruble devaluation allowed cost reduction. Its free-cash flow, or operating income, doubled y-o-y to $940 million, according to the company’s financial report. NLMK achieved cost savings of $163 million in January-September 2015. Output holding up In terms of volumes, steelmakers are doing well, maintaining capacity utilization levels of 82%, compared to less than 80% in the European Union, according to Ukrainebased information service Metal Expert. “Nobody’s doing too badly,” said Sberbank CIB’s commodities strategist Dmitriy Kolomytsyn. That is, with the possible exception among the majors of Evraz, which has greater exposure than others to the hard-hit domestic construction industry, compounded by a poor performance by its US business unit and by its South African unit entering receivership earlier this year. Evraz’s crude steel output in the first nine months of 2015 fell 7.4% on-year to 10.8 million mt, while finished steel volumes slumped 12.9% to 6.4 million mt. However, these results include volumes from Evraz Vitkovice Steel, disposed of in April 2014, and of Evraz Highveld Steel and Vanadium, in business rescue, which are not consolidated as from April 2015. Indeed, Evraz reported a 3.3% uptick in consolidated crude steel output in Q3 from the previous quarter, after completion of repair works at Russian mills, with the improvement expected to continue in Q4. Overall, crude steel production has this year remained almost at 2014 levels, dipping just 0.5% over the first nine months to 53.3 million mt, World Steel Association reports. Producer Severstal said early November it was fully booked and working at 100% capacity at its flagship Cherepovets iron and steelworks and doesn’t intend to reduce steel output in the short- to medium-term. “Regardless of falling markets, we are still making money,” CEO Vadim Larin told investors, noting that in January-September the company boosted its free cash flow
Copyright © 2015 McGraw Hill Financial
23
Usiminas’s Ipatinga steel plant. Photo: Usiminas
by just over half on-year. “So far this year, Severstal’s financial results have been the strongest since the glorious first half of 2008,” he added. Imports, which were never really significant, have meanwhile plunged to 3.2 million mt in January-September, down from 4.8 million mt in the same 2014 period, partly due to sanctions imposed by the EU on some oil tube exports to Russia in 2014. The ruble depreciation also favored Russian pipe mills by prompting a 55% y-o-y decline in Russian pipe imports in H1 2015 and slashing OCTG imports by 70%. Lower imports also resulted from an anti-dumping investigation into OCTG imports from China that Russia, together with its customs union partners (Belarus and Kazakhstan) completed in Q3 2015. It subsequently imposed duties of between 12.23% and 31%. Market bottoming out Metalloinvest reported an upturn in domestic sales of both pig iron and steel in the first nine months of the year, with the domestic market becoming its main sales destination in Q3, thanks to increased orders from Chelyabinsk Pipe Rolling (ChTPZ) and Revyakino Steel Rolling Plants. Severstal said early November that while the Russian
steel market may contract in 2016 by a further 1-2% on-year, this may effectively be the bottom. “The adjustment has already occurred, with this year’s demand falling by more than 10% from 2014. No significant improvement can happen in 2016 but the year should not see any comparable fall either,” Larin told investors. Russian steel use is forecast at around 38 million mt next year, similar to this year’s 38.5 million mt, down from 43 million mt in 2014. “Russian steelmakers are reasonably conservative in their expectations, recognizing pricing pressure because of domestic recession and competition in international markets, particularly from China,” concludes Moody’s Frolov. “From a credit standpoint, Russian steelmakers rated by Moody’s are well positioned to weather domestic recession and weak pricing environments in international markets, as a result of their generally strong financial metrics, sufficient liquidity for the next 12-18 months, continuing cost-cutting measures and competitiveness in export markets due to the ruble depreciation.” — Diana Kinch, Katya Bouckley An amended version of this report appeared in Platts Metals Insight on November 12
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
TURKEY ARC MONTHLY DATA
Scrap weakness in October prior to rebound The Turkish long steel supply chain last month remained depressed with scrap continuing to plunge in October as imports of steel products from China into the eastern Mediterranean made traders and producers even more gloomy. The Turkey ARC Scrap 30-day index was at minus 1.79% in October from 3.29% in September, with billet’s falls reducing the impact on scrap in the overall mix. This suggested mini-mills had access to cheaper feedstock and may be increasing competitiveness, or operating at an advantage to re-rollers using imported billets. The Turkey ARC Billet 30-day index was at 1.83% in October, weakening from 2.17% in September. The Turkey ARC rebar 30-day index remained more stable and close to equilibrium values with the other two inputs based on Turkey ARC analysis, moving to minus 0.24% from 0.45% in September. The degree over and below zero marks the commodity’s price deviation from the 30-day and 60-day average price relationship for the three-product group, according to Turkey ARC. The three commodities saw a fifth month of overall collective price declines since May’s rise, based on Platts data. Scrap fell sharply in early October. The drop in prices moved the relationship with iron ore values to a year-to-date low mid-month at below 2.2:1 scrap to iron ore adjusted for iron content, down from a peak of over 3.7:1 seen in April. Scrap since August trended below its average 30-day price relationship with billet and rebar. Scrap rebounded in late October and into November, reducing margins available to mini-mills, with rebar-toscrap margins at a $144.50/mt as of November 13, below margins available earlier last month. Rebar’s margin over Black Sea billet CFR Turkey basis was $56/mt on November 13, at relatively low levels. — Hector Forster
Copyright © 2015 McGraw Hill Financial
24
TURKEY ARC INDEXES - MONTHLY AVERAGES, 2014 - 2015 (%) 6
4
2
0
-2
-4
-6 Oct-14
Dec-14
Feb-15 Billet 30-day Rebar 30-day
Apr-15
Jun-15
Aug-15
Oct-15
Scrap 30 Market Indicator
Platts Turkey ARC is a relative strength indicator for rebar FOB, billet CFR and scrap CFR prices. The daily index for each commodity is the degree the price is over or below the average of the price relationship with the others over the past 30 days, with 0 as equilibrium. Indices for each commodity based on relative price analysis over 60 days are available for longer term price signals for the commodity or for the wider complex, and potential changes in demand and supply for the steel industry. Source: Platts
TURKEY ARC OCTOBER DAILY DATA ANALYSIS (%) Scrap 30-day Billet 30-day Rebar 30-day Market Indicator 01-Oct -3.08 3.31 -0.40 0.00 02-Oct -2.81 2.28 0.03 -1.02 05-Oct -2.63 3.29 -0.64 -3.05 06-Oct -4.00 3.71 -0.27 -3.56 07-Oct -3.73 3.08 -0.06 -0.52 08-Oct -3.45 2.86 -0.08 0.00 09-Oct -3.29 3.54 -0.57 -3.49 12-Oct -3.02 3.25 -0.55 0.00 13-Oct -2.21 4.12 -1.46 -3.22 14-Oct -2.00 3.80 -1.40 0.00 15-Oct -3.26 4.56 -1.34 -2.29 16-Oct -3.04 4.23 -1.28 0.00 19-Oct -2.82 3.90 -1.22 0.00 20-Oct -2.65 3.09 -0.80 -0.70 21-Oct -3.61 2.57 -0.02 0.28 22-Oct -1.68 0.68 0.33 2.23 23-Oct -1.55 0.58 0.33 0.00 26-Oct 0.34 -0.75 0.35 2.86 27-Oct 1.24 -2.00 0.77 3.13 28-Oct 1.25 -2.02 0.78 0.00 29-Oct 2.14 -3.12 1.11 0.64 30-Oct 4.47 -4.67 1.05 3.49 Average -1.79 1.83 -0.24 -0.24
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
GLOBAL TRADE HIGHLIGHTS
US Turkish steel mills booked 12.05 million mt of scrap over January-September, down 18% on the year before. The fall was in line with the drop in Turkey’s EAF production over the period as mills turned to Chinese billet.
China China exported 9.02 million mt of steel in October, China Customs data showed, marking a 20% decline on month after a 16% month-on-month jump in September. Yearto-date exports of 92 million mt are up 25%.
South Korea The value of South Korea’s steel exports plummeted by 30% on year to just $2.14 billion in October, according to the Ministry of Trade, Industry & Energy. Motie cited weak demand, lower raw materials prices and low-priced competition from mainly Chinese and Russian steelmakers.
USA CHINA
SOUTH KOREA
INDIA
BRAZIL
AUSTRALIA
Brazil Brazilian iron ore exports in October grew 7.5% year-on-year to 34.14 million mt from 31.77 million mt in the year-ago month, Ministry of Development and Trade data showed. The value of iron ore sales dropped to $1.13 billion FOB, 40% below the year-ago level of $1.89 billion.
Copyright © 2015 McGraw Hill Financial
25
India Rising demand for carbon steel plates in India continues to attract plate imports into the country, with volumes soaring 35% on year during April-September to 536,000 mt, according to new Joint Plant Committee data.
Australia Total iron ore exports from Western Australia’s Port Hedland of 36.5 million mt in October were down 7% on October’s record 39.4 million mt. Some 30.7 million mt were shipped to China from the port in October, Pilbara Ports Authority data showed.
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
STEEL RAW MATERIALS MONTHLY AVERAGES
PLATTS RAW MATERIALS REFERENCE PRICES, OCTOBER 2015
Unit
Price
Change
% Chg
Yuan/mt $/mt R$/mt
854.00 123.27 465.00
-17.25 -4.36 -32.50
-1.98 -3.42 -6.53
Yuan/mt $/mt $/mt $/mt
546.00 173.88 185.00 230.00
-8.00 -34.25 -25.00 0.00
-1.44 -16.46 -11.90 0.00
Unit
Price
Change
% Chg
$/mt $/mt $/mt
160.30 225.88 191.55
-27.09 -8.90 -36.88
-14.46 -3.79 -16.14
$/mt $/mt $/mt $/mt $/mt $/mt $/mt $/mt $/mt
124.19 128.33 187.42 178.00 196.00 140.75 140.75 128.33 132.47
-17.39 -13.25 -14.74 -26.38 -34.00 -17.48 -13.32 -19.91 -13.27
-12.28 -9.36 -7.29 -12.91 -14.78 -11.05 -8.65 -13.43 -9.11
$/lt $/lt $/lt R$/mt
191.00 152.00 177.00 433.75
-37.75 -46.13 -34.25 -12.50
-16.50 -23.28 -16.21 -2.80
Coke and coal Met coke 62% CSR DDP, North China Met coke 62% CSR, FOB North China Charcoal – Brazil domestic
Iron Iron ore concentrate 66% Fe Dry – China domestic Pig iron – FOB – Black sea export Pig iron – FOB Ponta da Madeira – Brazil export HBI – Venezuela export
PLATTS FERROUS SCRAP REFERENCE PRICES, OCTOBER 2015
Scrap, Europe OA (plate & structural) – UK domestic, delivered Shredded – delivered – N. Europe domestic, delivered Shredded – delivered – S. Europe domestic, delivered
Scrap, Asia H2 – del Okayama – Tokyo Steel purchase price, at works gate H2 – del Utsunomiya – Tokyo Steel purchase price, at works gate Heavy – Shanghai – China domestic HMS 1/2 80:20 CFR – East Asia import Shredded Scrap CFR India Shindachi Bara – del Okayama – Tokyo Steel purchase (list) price Shindachi Bara – del Utsunomiya – Tokyo Steel purchase (list) price Shredded scrap A (auto) – del Okayama – Tokyo Steel purchase (list) price Shredded scrap A (auto) – del Utsunomiya – Tokyo Steel purchase (list) price
Scrap, Americas #1 Busheling – N. America domestic, del, Midwest US HMS 1/2 – N. America domestic, del Midwest US Plate & Structural – N. America domestic, del Midwest US HMS 1/2 – Brazil S.E. domestic
STEEL MILL ECONOMICS: GLOBAL SPREADS MONTHLY AVERAGES Oct-15 China Flat Steel Spread (CFSS using IODEX)* 169.43 $/mt China Flat Steel Spread (CFSS using TSI)* 170.17 $/mt China Long Steel Spread (CLSS using IODEX) 172.36 $/mt China Long Steel Spread (CLSS using TSI) 173.10 $/mt China Hot Metal Spread (CHMS using IODEX)* 170.89 $/mt China Hot Metal Spread (CHMS using TSI)* 171.63 $/mt China Coking Margin (CCM)** 180.00 RMB/mt China Billet-Rebar Spread (CBRS) 266.11 RMB/mt Turkey Scrap-Rebar Spread (TSRS: Platts) 155.43 $/mt Turkey Scrap-Rebar Spread (TSRS: TSI) 155.82 $/mt Turkey Scrap-Black Sea Billet Spread (TSBS: Platts) 90.09 $/mt Turkey Scrap-Black Sea Billet Spread (TSBS: TSI) 90.48 $/mt US Scrap-HRC Spread (US SHRC) 251.13 $/st US Scrap-HRC Futures Spread (US SHRCF) 256.36 $/st US Scrap-Rebar Spread (US SRS) 344.88 $/st *Weekly, assessed on Mondays. **Weekly, assessed on Fridays. For spreads calculation and assessment methodology, please go to: http://platts.com/IM.Platts.Content/MethodologyReferences/MethodologySpecs/steel.pdf
Copyright © 2015 McGraw Hill Financial
26
Change % on month change 3.24 1.95 2.76 1.65 -3.87 -2.20 -4.35 -2.45 -0.32 -0.19 -0.79 -0.46 -14.05 -7.24 -6.95 -2.54 -3.81 -2.39 -0.73 -0.47 4.38 5.11 7.45 8.98 0.36 0.14 1.11 0.43 13.99 4.23
SME COMMENT Platts has introduced a suite of price spreads called Steel Mill Economics, aimed at assisting margin modeling and steel industry analysis. Steel Raw Materials Monthly will carry the spreads in the table on the left each month, presented as monthly averages and start to build up some commentary. The spreads represent the differences between the prices of downstream steel products and upstream raw materials that are needed to produce them. For example, the spreads allow a comparison of the margins of US versus Chinese longs producers once the prices of certain raw materials have been calculated.
STEEL RAW MATERIALS MONTHLY
ISSUE 33 / NOVEMBER 2015
STEEL RAW MATERIALS MONTHLY AVERAGES
METALS MONTHLY AVERAGE, OCTOBER 2015 Monthly $ % Unit Average change change Cobalt 99.8% US Spot cath m LME Cash LME 3-Mo LME 15-Mo LME Settle
12.830 27609.660 27613.640 28064.090 27661.590
-0.320 -169.890 -165.910 -172.270 -374.770
-2.433 -0.612 -0.597 -0.610 -1.337
¢/lb ¢/lb ¢/lb ¢/lb ¢/lb ¢/lb ¢/lb ¢/lb ¢/lb
104.000 103.000 105.000 208.500 207.000 210.000 225.500 225.000 226.000
-3.300 -3.075 -2.400 -2.277 -4.200 -3.846 0.200 0.096 0.000 0.000 0.400 0.191 0.000 0.000 0.000 0.000 0.000 0.000
¢/lb ¢/lb ¢/lb $/gt $/gt $/gt
88.375 87.500 89.250 840.000 820.000 860.000
$/lb $/lb
5.865 12.880
-6.125 -6.500 -5.750 -4.000 -4.000 -4.000
-6.481 -6.915 -6.053 -0.474 -0.485 -0.463
Ferromolybdenum US FeMo mean EUR FeMo mean
-1.254 -17.615 -1.748 -11.950
Ferrosilicon in-warehouse US 75% Si Mean 75% Si Low 75% Si High
¢/lb ¢/lb ¢/lb
83.500 82.000 85.000
-1.300 -1.533 -2.000 -2.381 -0.600 -0.701
$/lb
7.555
-0.926 -10.919
Ferrovanadium US Ferrovanadium
Magnesium US Die Cast Alloy Trans US Spot West mean US Dealer Import mean 99.8% FOB China Die Cast Alloy FOB China
¢/lb ¢/lb ¢/lb $/mt $/mt
NY Dealer/Cathode NY Dealer/Melt LME Cash LME 3-Mo LME Settle LME Y1 LME Y2 LME Y3
$/lb $/lb $/mt $/mt $/mt $/mt $/mt $/mt
4.690 4.690 10341.364 10382.386 10344.091 10442.950 10505.680 10515.680
0.140 0.140 445.909 443.863 445.682 442.270 438.180 445.450
Silicomanganese in-warehouse US 65% Mn
¢/lb
41.750
-3.950 -8.643
¢/lb $/mt $/mt
114.875 1633.000 1610.000
-4.725 -3.951 -7.000 -0.427 10.000 0.625
$/lt
1005.760
39.760
4.116
$/mt $/mt $/mt $/mt ¢/lb ¢/lb
15838.523 15729.773 15598.409 15848.182 NA 746.111
369.659 539.773 549.545 366.818 NA 15.611
2.390 3.553 3.652 2.369 NA 2.137
$/FL $/FL
2.010 0.835
$/mt $/mt $/mt $/mt $/mt $/mt $/mt ¢/lb ¢/lb ¢/lb
1727.727 1750.148 1728.045 1782.360 1804.910 1821.230 NA 85.883 85.633 96.656
Silicon 553 Grade Del US Midwest 553 Grade CIF Japan 553 Grade FOB China
190.000 215.000 172.900 2025.000 2305.000
-5.000 0.000 -2.350 -20.000 -20.000
-2.564 0.000 -1.341 -0.978 -0.860
NA FREE MKT 18-8
Tin LME Cash LME 3-Mo LME 15-Mo LME Settle MW Composite MW NY Dealer
Titanium MW US 70% Ferro MW US Turning 0.5%
-0.265 -11.648 -0.190 -18.537
Zinc LME SHG Cash LME SHG 3-Mo LME Settle LME SHG Y1 LME SHG Y2 LME SHG Y3 MW Four Corners MW NA SHG MW NA GAL MW Alloyer NO. 3
9.091 18.262 9.136 17.810 15.090 18.780 NA 0.312 0.312 0.187
Manganese 44% Mn Ore CIF China 37% Mn Ore CIF China
$/dmtu $/dmtu
2.638 2.448
-0.077 -2.836 -0.107 -4.188
Molybdenum Dealer Oxide Midpoint/Mean Dealer Oxide Low Dealer Oxide High LME Cash LME 3-Mo LME 15-Mo LME Settle
$/lb $/lb $/lb $/mt $/mt $/mt $/mt
Copyright © 2015 McGraw Hill Financial
3.077 3.077 4.506 4.466 4.503 4.422 4.352 4.423
Stainless scrap
Ferromanganese in-warehouse US Medium Carbon 85% Mn Mean Medium Carbon 85% Mn Low Medium Carbon 85% Mn High High Carbon 76% Mean High Carbon 76% Low High Carbon 76% High
Monthly $ % average change change
Nickel $/lb $/mt $/mt $/mt $/mt
Ferrochrome in-warehouse 65% High Carbon Mean 65% High Carbon Low 65% High Carbon High Low Carbon .10% Mean Low Carbon .10% Low Low Carbon .10% High Low Carbon .05% Mean Low Carbon .05% Low Low Carbon .05% High
Unit
4.744 -0.979 -17.106 4.657 -0.988 -17.502 4.832 -0.968 -16.690 10520.450 -2025.010 -16.141 10520.450 -2031.830 -16.187 11004.770 -2028.640 -15.565 10770.450 -2034.100 -15.886
27
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Weekly AISI production numbers. Monthly SIMA import data. Monthly World Steel Association data.
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0.529 1.054 0.531 1.009 0.843 1.042 NA 0.365 0.366 0.194
