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Page 1 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
Page 2 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
December 2011 - Issue 23
Page 3 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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)
December 2011 - Issue 23
Page 4 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
December 2011 - Issue 23
Page 5 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
December 2011 - Issue 23
Page 6 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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.
December 2011 - Issue 23
Page 7 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
December 2011 - Issue 23
Page 8 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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)
December 2011 - Issue 23
Page 9 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
December 2011 - Issue 23
Page 10 www.sbb.com Copyright © 2011 by Platts, The McGraw-Hill Companies, Inc.
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
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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: paul_bartholomew@platts.com
Workers’ yurts at Aspire’s Ovoot coking coal project
SBB Raw Materials Xtra News & features on the raw materials market
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