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Review of 2011 & look ahead to next year

Solid China performance will underpin raw materials markets in 2012

Normally at the end of each year there is

good reason to be optimistic about the

prospects for the following one. But given

ongoing global economic uncertainty, most

market players are circumspect about what

we can expect from steel markets in 2012.

Though another comparably strong year of

growth in China is likely, the Asian giant is not

inured from global markets and has its own

internal fiscal issues to deal with.

In this issue we take a look back at some of

the key market dynamics that impacted raw

materials prices and production this year;

and of course look ahead into the first

quarter of 2012. Adjectives that occur often

are: “lacklustre”, “uncertain”, “sluggish” etc

‐ with these sentiments underscored by weak

steel, iron ore and coking coal buying and

prices in December.

An early Chinese new year means 2012 will

get off to a slow start. But even if China posts

another solid rather than spectacular year of

steel output, the lack of new iron ore

production coming onto seaborne markets

next year means prices will continue to stay

strong, with analysts forecasting average

prices of $150/t.

Happy Holidays!

Paul Bartholomew

Managing Editor, Australia

Xtra Contents

Top News

Vale’s 400,000 dwt iron ore maxi‐vessel runs aground in Brazil

Goldman Sachs sees iron ore prices of $150/t in 2012

China iron ore imports heading for their highest‐ever total in 2011

India’s iron ore exports could end within five years, NMDC believes

Spot iron ore prices so en again in December on lack of buyer interest

Australia to add another 50m t/y of iron ore in 2012, government forecaster says

China iron ore ports stocks stay around 90m t in December

China’s Qinghai province starts hunt for 500mt of ore over next four years

www.sbb.com

IRON ORE: Tight market will support prices in 2012

China is on track to report its highest‐ever

iron ore import figure in 2011, bea ng the

previous high of 628m tonnes in 2009. If

December imports only equal the lowest

monthly tally to date this year – 50mt in

October – total imports for 2011 will reach

673mt, marking a 9% rise on 2010's

619mt.

Considering weak end‐user demand and

steel prices in China this year ‐ amid an

extremely ght domes c fiscal

environment and global economic

uncertainty – the solid

iron ore import figure

shows the underlying

strength of China's

steel sector.

Steel Business

Briefing's Shanghai‐

based analysts forecast

Chinese crude steel

produc on will hit

700mt this year – up

9% y‐o‐y – slowing to 5% growth in 2012

with output of 732mt. While China has

consistently surprised on the upside since

emerging as a steel behemoth, steel

produc on is likely to plateau over the

next 5‐8 years as the country moves from

an export driven economy to a consumer

driven one. This is not a view shared by

many iron ore producers, however, which

see Chinese crude steel output hi ng 1bn

t/y midway through the next decade.

con nued on page 2

Review p 1‐9

p1‐4 Iron ore: ght market will support prices p5‐6 Ferro‐alloys: stronger Q1 predicted p7‐8 Scrap: cau ous buyers see grown next year p9 Coking coal: weather, Mongolia next factors

Company Profile p 10

p10 Aspire Mining

Monthly steelmaking raw materials news, features & analysis December 2011 - Issue 23

0

50

100

150

200

1‐Jan‐11

1‐Mar‐11

1‐May‐11

1‐Jul‐1

1

1‐Sep‐11

1‐Nov

‐11

62% Fe Fines

62% Fe Fines

TSI Spot Iron Ore Prices ($/dmt cfr)

Source: The Steel Index (TSI) 62% Fe Iron Ore Price Series

December 2011 - Issue 23


At the end of 2011 there were signs that

China would con nue to loosen the purse

strings, which should free up bank lending

to mills and traders and support raw

materials purchases in the new year.

China now accounts for more than 60% of

exports from Rio Tinto and BHP Billiton ‐

Japan, Korea and Taiwan comprise around

35% ‐ while Vale ships around 50% of its

iron ore to Chinese mills and 20% to

Japan, Korea and Taiwan. The Brazilian

miner has more exposure to Europe's

weak steel sector than its two large rivals,

with almost 30% of its output exported to

the EU. ArcelorMi al, a major customer of

Vale, has idled several blast furnaces in

Europe, where steel output is expected to

remain generally flat in coming years.

At this stage there is no forecast for

Japanese steel produc on in 2012 but UBS

analysts predict that post‐earthquake

reconstruc on will generate demand for

3.5mt of construc on steel. This addi onal

demand will be spread over several years

and is therefore unlikely to result in

significantly higher raw materials demand

next year. The Australian government's

commodi es forecaster sees Japan's steel

consump on rising 10% next year to 69mt,

while demand in the US and Europe will

grow 10% and 4% respec vely.

Australia hit its straps mid‐year

Produc on in the Pilbara got off to a slow

start in 2011 as a La Niña weather event

compounded the annual cyclone season in

northern Australia, disrup ng the

opera ons of most iron ore miners.

Rio lost nine shipping days in January‐

March because of damage to a railway

line, as its share of Pilbara produc on fell

19% to 40.4mt from 50m t in October‐

December 2010.

BHP Billiton was less severely affected by

the adverse weather, with Q1 iron ore

output dropping just 1% to 33.2mt.

Australia's third‐largest miner, Fortescue

Metals Group, finally reached its 55m

tonnes/year produc on capacity target in

June. Indeed, it took un l mid‐2011 before

Australian produc on as a whole ramped‐

up and reflected the expansion programs

of the larger miners.

Exports from West Australia's Port

Hedland ‐ used primarily by BHPB,

Fortescue and Atlas Iron (Rio ships from its

Dampier and Cape Lambert ports) – broke

the 20mt barrier in August, staying above

19mt un l November. Over the second‐

half of 2011, Australian exports were

generally up 18‐25% on the previous year.

Despite warnings of vola lity and credit

issues in China from BHPB and Rio, all

Australian miners produced and shipped

at or above capacity and did not report

instances of mills defaul ng on contract

tonnages. Rio is currently producing at

225m t/y while BHPB has been shipping at

an annualized rate of 173m t/y over the

second‐half of this year.

But li le new output in 2012

Australian producers are embarked on

major iron ore expansion programs in the

Pilbara but very li le of this is due to hit

seaborne markets in 2012. Rio is targe ng

353m t/y by mid‐2015; BHPB 220m t/y

capacity by 2017; and Fortescue insists

(publicly at least) that it will meet its 155m

t/y target by mid‐2013.

Fortescue confirmed with SBB that it will

be expor ng at a rate of 95m t/y by the

end of 2012, including 5m t/y of ore from

the BC Iron‐Fortescue Nullagine joint

venture. Despite the commissioning of a

new shiploader at Fortescue's port facility,

another 40m t/y output within 12 months

appears extremely op mis c.

Rio said it will reach 230m t/y from the

Pilbara by mid‐2012 "once the second of

our two incremental add‐ons at Dampier is

completed." Another 53m t/y will come on

in 2013 as part of the Cape Lambert port

expansion.

con nued on page 3

Iron Ore Produc on ’11 v ’10 (Mt)

Source: Company quarterly reports



BHPB would not divulge its expected output li in 2012 but SBB understands that a further 15m t/y will come on from its Yandi mine next year. The next big expansion will not occur un l 2014 when produc on at the new Jimblebar mine reaches 35m t/y before ramping up to 55m t/y by 2016.

The next significant produc on target for Atlas is 12m t/y by 2013

from 6m t/y currently as output from Wodgina is increased and

new opera ons at Abydos and Mt Webber/Daltons are brought

online.

Brazilian expansion pushed back

Another key reason why iron ore supply will remain ght in 2012

is the pushing back of Vale's expansion program. The Brazilian

giant was due to bring on 40m t/y of new capacity in 2012 but

has cited difficul es in obtaining environmental approvals at its

Carajas opera on for the delay. Indeed, Vale expects its 2012

output to fall to around 312mt from a run rate of 320m t/y in the

year to end‐September 2011.

Like its Australian rivals, Vale's first quarter output was also

weather‐impacted, with ore and pellet shipments falling 16% on

the previous quarter to 68.5mt. Produc on at the company's

northern mines was halted because of flooding, while landslides

disrupted rail transporta on.

The miner underwent a change of chief execu ve at the start of

this year – with Murilo Ferreira replacing the long‐serving Roger

Agnelli – which was interpreted by some parts of the market as

the Brazilian government inser ng greater influence on the

company and perhaps adop ng a more cau ous iron ore growth

strategy. Some 130m t/y of expansion tonnage flagged for 2013‐

14 s ll requires board approval. More posi vely, Vale expects to

begin produc on from its Simandou South iron ore mine in

Guinea in West Africa in the first half of 2012 with ini al capacity

of 15m t/y.

Elsewhere in Brazil, there is li le new iron ore produc on due to

come on in 2012. Anglo American's 5.3bnt Minas‐Rio project will

begin producing in the second‐half of 2013, targe ng ini al

capacity of 26.5m t/y. Companhia Siderúrgica Nacional (CSN),

which exports around 15% of its ~25m t/y output, is also

experiencing delays with some of its expansion programs. CSN is

targe ng an addi onal 26m t/y in 2013, followed by 20m t/y the

year a er. MMX and Usiminas have no new capacity due in 2012.

Indian exports unlikely to rebound in 2012

Having suffered a series of setbacks throughout 2011, Indian iron

ore miners and exporters have resigned themselves to only a

feeble rebound in exports next year. Exporters are bracing

themselves for stricter regula ons and measures likely to be

enforced by the government to check illegali es, and ore export

volumes look set to be crimped.

What began in July 2010 as a poli cally mo vated embargo on

ore exports from Karnataka state swi ly assumed the

propor ons of a na onal scandal in 2011. A ban on iron ore

mining is presently in effect in Karnataka, which previously

exported almost 40m t/y. A commi ee appointed by the central

government is also inves ga ng mining opera ons in the ore‐rich

states of Goa and Odisha. Most industry players in India believe a

na onwide embargo on ore exports is unlikely, however, owing

to the damaging effects on government revenues, employment,

and India’s trade deficit with China. But a more pressing concern

for Indian exporters presently is their weakening hold on the

seaborne spot market.

As ore supplies from India remain ght, especially for high‐grade

material, Chinese buyers have been turning to more reliable

suppliers such as Australia and Brazil. Indian exporters also

con nue to grapple with high ore procurement costs, chiefly

owing to an increase in export tariffs since March, and he y rail

freight rates for ore exports. Consequently, while lacklustre ore

demand from China has been pressuring spot prices downwards,

Indian exporters have all but retreated from the market in recent

mes, unable to compete with cheaper offers from Australia and

Brazil.

The scenario is expected to change li le next year. Despite the

possibility of Karnataka's mining and exports embargo being

overturned, local sources believe bureaucra c delays and lack of

support from the state government would render exporters

incapable of compe ng in the interna onal market. There is also

talk in government circles of export tariffs being increased further

in order to discourage exports and preserve the mineral for use

by domes c steelmakers.

con nued on page 4

0

100

200

300

400

500

2010/11

2011/12

Indian Iron Ore Exports (Mt)

Source: FIMI (NB: provisional data)



The Federa on of Indian Mineral Industries (FIMI) expects

exports to total 60mt in the fiscal ending March 2012, down by

38.5% from the 97.66m t India exported in the April 2010‐March

2011 fiscal. Ore exports during April‐October totaled just

35.381m t, down by 25.2% year‐on‐year, provisional data from

FIMI reveals.

Africa an iron ore region of the future

Africa remains a region for the future for iron ore, but could

poten ally contribute up to 19m t/y of new seaborne iron ore by

the end of next year if projects hit their targets. Along with Vale's

Simandou project men oned above, Anglo American‐owned

Kumba plans to ramp up produc on at its Kolomela mine in

South Africa from around 1m t/y currently to 4‐5m t/y in 2012,

before reaching design capacity of 9m t/y in 2013.

Rio's Simandou project is eyeing a 2015 produc on start and

could truck ore to the port in advance of rail infrastructure being

completed. Sundance Resources, which is subject to a takeover

from China's Hanlong Mining currently, will con nue drilling at its

Mbalam project in Cameroon and Republic of Congo, West Africa,

with first produc on earmarked for 2013. But sovereign risk

remains an issue for investors in African projects.

Sources close to Chinese mills told SBB that the market generally

"overes mated China's appe te for African resources projects"

and that sovereign risk was also a genuine concern for China,

despite the country's growing influence in Africa. A case in point

is the debate in South Africa around the na onaliza on of the

country's mining sector, which was discussed in detail in

November's Raw Materials Xtra.

Pricing mechanisms con nue to evolve

Iron ore pricing con nued to evolve in 2011 with quarterly

contract terms coming under pressure when iron ore prices

plunged in early October. Once again steel mills balked at having

to honour quarterly index‐linked contracts that were up to $50/t

higher than prevailing spot prices.

This caused the major miners to become more flexible on pricing

terms, with Vale moving some 80% of its contracts to current

quarter rather than lagged quarterly terms.

Rio noted that the more vola le spot prices witnessed in the final

quarter of the year could hasten the shortening of contract terms

from quarterly to 30‐day terms. Around 90% of Rio's ore is sold

on quarterly terms, but a larger propor on is likely to shi to

shorter‐term or spot as new expansion tonnages are introduced.

BHPB is selling much of its iron ore on monthly terms while

periodically li ing spot sales volumes on the back of Pilbara

output running above capacity.

Fortescue’s Cloudbreak opera on (Pic: FMG)

Japan, Korea, Taiwan and Europe typically con nue to purchase

ore on quarterly contracts while the largest market of China is

content to buy on monthly terms.

Paul Bartholomew

Anitha Krishnan (India sec on)

Iron Ore Imports

2011 (es mate) Mt

2012 (forecast) Mt

EU 142 149

China 645 692

S.Korea 58 60

Taiwan 20 21

Source: BREE, UNCTAD

Japan 132 147

World 1093 1172

Iron Ore Exports

2011 (es mate) Mt

2012 (forecast) Mt

Australia 142 149

India 645 692

Canada 58 60

S. Africa 20 21

Source: BREE, UNCTAD

Brazil 132 147

World 1093 1172



It was a lackluster year for the Chinese ferro‐alloy industry in

2011 with demand from the export market hurt by the global

economic slowdown and subsequent downturn in commodity

prices in the second half of this year.

Chinese domes c and imported carbon ferro‐chrome prices were

mostly in a downtrend this year, mirroring so er stainless steel

and nickel prices. Domes c prices have fallen by 17% and

imported prices of Indian‐origin FeCr have slipped 10% since the

beginning of the year. The sector faced weakening demand in the

second half of the year as Chinese mills cut their raw materials

requirements due to sluggish stainless demand. Chinese domes c

prices saw a slight rebound to RMB 7,400‐7,600/tonne in mid‐

December, however, due to higher electricity rates for industrial

users.

China ferro‐silicon (75% Si) prices mostly hovered in the $1,470‐

1,580/t fob China range this year. But the sector experienced a

sharp drop to $1,430/t late in 2011 as demand worsened due to

the European debt crisis. By mid‐December, prices had fallen by

7% since the beginning of the year. Smuggling also remains

rampant in the industry. Market sources es mate that smuggled

materials which circumvent Chinese export taxes are around

$200‐300/t cheaper than FeSi exported via legal means. This has

further dampened the demand of legal materials.

Producers of electroly c manganese metal flakes were able to

support their prices for the most of this year despite slow export

demand. Prices reached as high as $4,000/t fob early this year.

While prices eased to the $3,600‐3,800/t range therea er, they

held up due to widespread stoppages caused by power shortages

mid‐year despite weak demand. But global economic woes along

with poor domes c demand from stainless mills checked demand

to the point where prices fell as low as $3,150/t in November.

Some op mism for Q1 2012

Trading in the ferro‐alloys market in the first quarter of next year

is expected to be generally quiet due to Chinese New Year

holidays, which start in late January. But the FeCr industry is

generally more posi ve about the new year a er Chinese

domes c FeCr prices rebounded in December. Following

produc on cuts by stainless mills and destocking in the last

quarter of this year, industry watchers believe the stainless

market could pick up a er the Spring Fes val (CNY) and in turn,

lead to improved demand for the raw material.

The ferro‐silicon sector is, however, less sanguine. Smelters and

traders are having a hard me pushing through higher offer

prices following electricity rate hikes. Most believe demand in the

first quarter will con nue to be affected by slow global economic

growth and ongoing smuggling problems. Unless Beijing clamps

down successfully on smuggling, the sector is unlikely to

experience significant improvements in the next quarter.

There may be a chance of a rebound for EMM prices in the first

quarter. The industry typically faces a shortage of ore during

winter which affects EMM supply as a result. And if the stainless

industry does improve a er Chinese New Year, demand for EMM

from 200‐series makers will also help boost prices.

In Japan, the 11 March earthquake saw exports of FeNi plunge by

nearly 43% year‐on‐year to 60,765 t (12,154 t of Ni contained)

between January and August, according to Japanese customs.

The chief reason for the decline was that the subsequent tsunami

flooded the Hachinohe smelter of Pacific Metals, a leading FeNi

producer in Aomori at the northern p of Tohoku.

Vivian Teo

Japanese FeNi Exports (tonnes Ni contained)

Source: Japanese customs

FERRO‐ALLOYS: Stronger Q1 predicted a er lacklustre 2011

Jan‐Aug 2010 Jan‐Aug 2011

Korea 6,798 3,777 (‐44%)

China 5,664 3,874 (‐31%)

Taiwan 7,119 3,927 (‐45%)

Total 21,379 12,154 (‐45%)

Another bleak year ahead for EU ferro‐chrome market

The European benchmark price for ferro‐chrome started 2011

posi vely with high prices and strong demand, but by the start of

the second half of the year, a weakening market was immi‐

nent. Financial uncertainty and European debt fears, as well as

unrest in the Middle East all impacted buying and produc on

trends. With cheaper material being sought from India, the

market for ferro‐chrome in Europe dried up in the la er half of

the year and is unlikely to improve going into 2012.

"This year has been par cularly poor for ferro‐chrome with plen‐

ty of material around chasing reducing demand," an analyst tells

Steel Business Briefing.

con nued on page 6



There were also high stocks in Russia with some traders

expec ng a draw‐down in produc on before prices could

recover.

By Q4, the market for ferro‐chrome remained subdued and the

benchmark price was rolled over from Q3. The rollover came as

no surprise and there were also doubts that consumers would

pay this much given material from India was available at close to

$1/lb. Stocks remained high from the previous quarter, so the

year‐end for ferro‐chrome was slow and sen ment going

forward is that the market will go down further in Q1 2012.

"Stainless steel plants throughout Europe are opera ng well

under capacity," a trader tells SBB.

He says he cannot see this improving by the first quarter of 2012

and expects the benchmark to decline by another 5‐10c/lb. The

world's largest producer of ferro‐chrome, Merafe Resources,

saw a decline in its produc on in the third quarter of 2011 to

48,000t, down from 58,800t in Q3 2010, as a result of weaker

market condi ons and scheduled maintenance during the high

electricity tariff months in South Africa. Its opera ng capacity

was only at 52% in Q3 2011.

Marnie Hobson

The European benchmark started the first quarter at $1.25/

pound and was supported at this level by strong demand and

limited supplies. Market par cipants expected the second

quarter price to rise significantly as a result of this. By Q2 2011,

the European benchmark rose to $1.35/lb, with the rise

a ributable to a steady increase in stainless steel produc on and

strong demand.

The market in Asia also improved at this me, and while Europe

used to be the premium market for ferro‐chrome, China moved

up reflec ng the now similar pricing ranges in these regions. The

second quarter also saw a rise in sen ment that the days of very

high benchmark prices were numbered. Consumers no longer

accepted the basis for high prices, which was predominantly due

to high electricity costs in South Africa in winter.

"The benchmark is star ng to lose trac on," a trader told SBB,

“and when there is cheaper material around, it's just not feasible

to pay these higher prices.” In Q3 2011 a drop in ferro‐chrome

prices was an cipated and the European benchmark was se led

at $1.20/lb. The decline came on the back of a reduc on in

stainless steel produc on rates and limited demand. The poli cal

unrest in Egypt and North Africa also impacted the market with

these regions not buying because of their domes c problems.

http://www.minesandmoney.com/hongkong



SCRAP: Cau ous buyers see growth next year Regional scrap demand in the six Asean

countries—Indonesia, Malaysia,

Philippines, Singapore, Thailand and

Vietnam ‐ picked up significantly in 2010,

according to the South East Asia Iron &

Steel Ins tute.

Apparent scrap consump on combined in

the region rose by 18.1% over 2010. The

higher level of demand was met primarily

by imports, which rose by 5.8% y‐o‐y and

also by domes c scrap collec on, which

was up 12.1%.

Other than Singapore and the Philippines,

which are net exporters of scrap at

300,000 t and 500,000 t respec vely last

year, the other countries are net

importers. Imports in 2010 totaled 7.7mt.

The main suppliers of imports to the

region last year were the US, accoun ng

for 33%, followed by Australia (16%), the

EU (14%), other Asean countries (11%),

South Africa (9%) and other countries

(17%).

This year’s import buying of scrap in the

region has been cau ous. Importers

preferred to book on a needs basis rather

than build up stocks, as scrap prices were

holding firm for the most part of the year.

Finished steel demand, especially in the

last quarter of 2011, has been lacklustre.

Impor ng mills are worried about holding

high levels of scrap cargoes which would

e up their liquidity if steel sales were

slow. Vola le regional currencies and

uncertain es over the global economic

environment have also depressed

sen ment in the scrap import markets.

Individual countries have also faced their

own issues in 2011. Steel demand in

Vietnam has been adversely affected by a

currency crunch and a ghter credit

environment, while in Thailand, industry

has been disrupted by devasta ng floods

in recent months.

Despite this, the growth poten al for steel

output on the back of economic

development exists in several countries in

the region, in par cular Indonesia and

Vietnam. Therefore, strong growth in

scrap consump on is likely to con nue in

the region.

Anna Low

con nued on page 8

‐1,000,000

‐500,000

0

500,000

1,000,000

1,500,000

2,000,000

2,500,000

3,000,000

3,500,000

4,000,000

Domestic

Net import

ASEAN Region Scrap Imports (Mt)

Source: South East Asia Iron & Steel Ins tute



Japan reconstruc on to underpin 2012

The defining event in north Asian scrap in

2011 was undoubtedly the 11 March

earthquake and tsunami that struck

northern Japan. The a ershocks will

con nue to ripple across the Japanese –

and Korean – scrap markets throughout

2012 as long‐delayed reconstruc on

ac vi es finally gather pace a er the

winter snows begin mel ng in April‐May

next year.

The disaster had a two‐fold impact on the

scrap business. The tsunami badly

damaged roads and ports that prevented

scrap from being transported to berths in

Tokyo, Yokohama and Chiba from which

scrap is shipped to western Japan and

abroad.

In parallel, the tsunami badly damaged

Tokyo Electric Power’s No.1 Fukushima

nuclear power sta on and resulted in

radioac ve contamina on blanke ng

much of Fukushima and areas as far south

as Shizuoka. As scrap in dealer yards was

also contaminated, for weeks a er the

quake Korean and Chinese scrap importers

were wary of buying Japanese material.

Li le surprise then that Japan’s scrap

exports in March plunged to 444,800

tonnes from 556,900 t in February, before

troughing in May at just 271,500 t.

By August exports had recovered to nearly

500,000 t and volumes are likely to remain

at this level during Q1 2012. Korean

demand for Japanese scrap remains firm,

with Hyundai Steel and Dongkuk Steel Mill

being especially ac ve.

Japanese domes c and export prices

remained surprisingly resilient, despite the

disaster. Japanese export prices plunged

to ¥33,000/t fas ($423/t at present rates)

in March for H2 material, from ¥38,000/t

in January. But prices did not really

collapse un l October amid the global

steel price slump when they reached a

year low of ¥25,000/t. By mid‐December

however, prices had recovered to around

¥33,000/t and seem set to remain firm

into the new year.

In early December, Godo Steel president

Katsutoshi Kurikawa said construc on

steel demand will “move sideways” from

2011. However, he noted that civil

engineering projects rela ng to post‐

quake rebuilding and the construc on of

protec ve breakwaters around other

shore‐side nuclear plants would generate

business for EAF producers in 2012.

Russ McCulloch

0

100,000

200,000

300,000

400,000

500,000

600,000

Janu

ary

Febru

ary

Mar

ch

April

May

June

Ju

ly

Augus

t

Septe

mbe

r

Octo

ber

Korea

China

Total

Source: Japanese customs

Japan Scrap Exports (kt)

http://www.globalsteel.in



Australian hard coking coal produc on from central Queensland's

Bowen Basin region was s ll recovering from unseasonal rainfall

in September and October when severe monsoonal weather in

December and January brought some of the worst flooding to the

northeastern Australian state for many years.

Mining pits were flooded and the Blackwater coal rail system –

which carries the second‐highest coal tonnage from the Bowen

Basin to Gladstone port – was out of use for several weeks.

Producers already low on run of mine stocks a er the earlier

rains, were (with the excep on of Xstrata) forced to declare force

majeure on contract shipments. As a result, coal miners have

been playing catch up on previous quarters' contract alloca ons

for much of the year. By September Australia was producing

metallurgical coal at around 85‐90% capacity. The Australian

government es mated that the Queensland floods resulted in

10mt of lost exports worth around US$1.8‐2bn between

December and February.

Spot prices for premium low‐vola le hard coking coal prices

quickly soared to beyond $300/t a er the floods, peaking at

$370/t in February before stabilizing in March at around $325,

since when prices have gradually fallen. Low‐vola le premium

HCC ex‐Queensland was $230/t fob on 14 December, according

to Pla s. The discount spread between HCC and semi‐so and

PCI coal also widened as demand weakened.

Japanese steel producers – which rely on Australia for 60% of

their metallurgical coal supply – scoured the world for

replacement tonnages, sourcing from the US, China, Russia,

Canada and South Africa. The shor all from Australia provided a

major opportunity for US coal exporters, in par cular: US exports

to China in January‐March jumped 54% on the previous quarter

to 1.3mt, making it the third largest supplier a er Mongolia and

Australia. Japan became the number one des na on for US

exports in the first quarter when it hadn't even been in the top

ten the previous year, impor ng 1.93mt from the US, a 337%

year‐on‐year increase.

However, demand from Japan so ened from March following the

earthquake, tsunami and subsequent power disrup ons, causing

mills to push back on some coal shipments.

China switching to Mongolian imports

Demand for imported met coal in China has been impacted by

two factors: the return to self‐sufficiency as coal produc on in

Shanxi province recovered following the consolida on program;

and the rise of Mongolia as the importer of choice. Even large

coastal Chinese mills do not rely on imported coal; they are more

flexible when blending coal and therefore less concerned with

purchasing premium quality, and will buy when the price suits.

This is typically when import prices fall closer to domes c levels.

Despite the ongoing infrastructure challenges, China is turning

increasingly to Mongolia for its met coal needs because of the

geographical proximity to northern mills and the heavy discount

on unwashed coal from the landlocked country. Official data

showed China imported 2.3mt from Mongolia in September,

compared with 1m t/y the previous year. By contrast, Australian

coking coal imports fell to 648,000 t from 1.1mt in September

2010. Some analysts predict that Mongolian coking coal

produc on could reach 50m t/y by 2015, and have a significant

impact on seaborne trade.

Projects are also being developed in Indonesia ‐ BHP Billiton has

picked up the pace at its 75%‐owned IndoMet Coal project in

Kalimantan ‐ and also in Mozambique. Though the Indonesian

government is a emp ng to curb exports on raw materials, most

new met coal output will likely feed India’s expanding steel

sector, and to a lesser extent China.

Hard coking coal spot prices in the first quarter of 2012 will again

depend to a large extent on weather condi ons in Queensland. If

condi ons are more benign early next year, prices are unlikely to

strengthen greatly from current levels.

Paul Bartholomew

COKING COAL: Weather, Mongolia the major factors in turbulent year

Global Metallurgical Coal Exports (Mt)

Source: Australian government

0

50

100

150

200

250

300

Aust ralia Canada Unit ed St at es Russia World Export s

2010

2011

2012 f



Company Profile: Aspire Mining

What is the company? Listed on the Australian stock exchange, Aspire Mining is a coal and iron ore explorer and

developer based in Perth, Western Australia. The company, headed by managing director

David Paull, owns 100% of the Ovoot coking coal project in Mongolia, which at this stage is

the largest project of its type in northern Mongolia. Aspire also owns 100% of the Nuramt and

Jilchilibag coal projects to the east of Ovoot,and potentially 70% of the eventual earnings

from the Zavkhan iron ore project, west of Ovoot.

What does Aspire produce? Ovoot is located in Mongolia’s northwestern Khuysgul province, some 60km from the

Russian border. Aspire had envisaged ini al produc on of around 500,000‐1m t/y of

coking coal star ng in 2012 as part of stage 1. The company is conduc ng a pre‐

feasibility study to produce up to 12m t/y with full output expected by 2016.

Why is the company interesting? Infrastructure in undeveloped Mongolia remains a major challenge for the project, and

Aspire is likely to ini ally truck material to the Chinese border to generate cash flows. A

key target for 2012 is the signing of an MoU with the Mongolian government that could

see Aspire build and control a new railway line. The proposed rail network of 550km

comprises a 160km track from Ovoot to provincial capital Moron, and a 390km rail path

between Moron and Erdenet to the east. Some two‐thirds of capex costs will be spent

on building the rail with the balance invested in the mine. Aspire will need to raise

significant funds to build the infrastructure by inking o ake deals with customers.

In December Aspire struck a deal with trader Noble Group to sell output from Ovoot to

customers in China and other Asian countries. Noble will have marke ng rights to at

least 50% of the first 5m t/y of coking coal. Though Aspire is close to the Russian border,

like most Mongolian projects, Chinese traders and steel mills are set to be the major

buyers.

www.aspiremininglimited.com

A Brief History

2011 ‐ Inks deal with Noble Group to sell 50% of production from Ovoot. In February Noble takes a 4% stake in Aspire and lifts this to beyond 8% over the year 2010 ‐ Changes name from Windy Knob Resources to Aspire Mining 2009 ‐ Acquires Ovoot from unnamed vendors in November

Enquiries & Contact Details

Call: Shanghai: +86 21 5110 5488

Singapore: +65 6227 7811

UK: +44 (0)20 7176 3800

US: +1 (412) 431 4370

Brazil: +55 (0)11 3371 5755

Dubai: +971 4 454 8700

Turkey: +90 224 234 1523

Email: General: [email protected]

Marketing: [email protected]

Editorial: [email protected]

Local team: [email protected] | [email protected] |

[email protected] | [email protected] |

[email protected]

Contact:

Paul Bartholomew

Managing Editor, Australia

Platts/SBB

Level 45, 120 Collins St, Melbourne

Vic, Australia 3000

T: +61 3 9631 2096

M: +61 410400156

E: [email protected]

Workers’ yurts at Aspire’s Ovoot coking coal project

http://www.aspiremininglimited.com

SBB Raw Materials Xtra News & features on the raw materials market

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