Nickel raw materials from the perspec2ve of stainless steel producers. Krisz1na Kálmán- Schüler Managing Partner, DMM Advisory Group.

Transcription

1 Nickel raw materials from the perspec2ve of stainless steel producers Krisz1na Kálmán- Schüler Managing Partner, DMM Advisory Group 26th March 2014

2 DMM Advisory Group Introduc2on DMM: Diamonds, Metals and Mining experts DMM Advisory Group is an interna1onal group of metals & mining experts with opera1ng bases in London, Toronto, Johannesburg, and Beijing. DMM focuses on strategy, marke1ng and technical issues of mining majors, junior miners, metal producers, fabricators, traders and investors. DMM experts carry out commercial and strategy projects, market and technical research for base and precious metals, industrial minerals and diamonds. Please check for further informa1on. 2

3 A wide range of raw materials exist for the stainless steel producers raw material selec2on and purchasing Scrap 304, 316 etc. FeCr50%, FeCr70% NPI 2-8%Ni NBM* FeNi 9-14%Ni ca.20%ni FeNi 30%+Ni Class I Ni Class I Ni brique`es cathodes NiO etc. Fe: Carbon steel, scrap, pig iron Other materials, slag builders etc. Stainless steel producers raw material selec2on and purchasing * NBM: Nickel Based Material 3

4 Decisions about raw material selec2on are made at four dis2nct stages with different 2me horizon The four stages of raw material selec2on Raw material selec2on immediately before mel2ng Selec1on of raw materials available in the raw materials yard Stock for 8-10 weeks supposed to be available in the yard Lean produc1on plans might require only 2-3 weeks supply Responsibility: Produc1on Raw material planning and buying 8-10 weeks before mel2ng Technical requirements and compara1ve prices are important Raw material selec1on based on loading matrices Usually 8-10 weeks stock ordering cycle Responsibility: Produc1on/ Procurement Preferred raw material mix 1-2 years in advance Result of market forecas1ng and strategic raw material planning Supply chain management might become important Responsibility: Management/Strategy Development/ Commercial Contracts Long- term raw material mix incl. investment decisions Outlook on how raw materials can contribute to long- term, sustainable profits Responsibility: Management/ Strategy/Technology/ Investment Commi`ee 4

5 Availability of regional stainless steel scrap is crucial factor in the raw material decision making process Advantages of scrap Stainless scrap sorted by family of grades is preferred in the melt shops as it already has the required composi1on of metal units. Mel1ng scrap requires less energy than mel1ng other Ni raw materials. Disadvantages of scrap The exact composi1on of scrap is ogen difficult to determine, and requires either o Up to 100% tes1ng of incoming scrap, or o Reliable suppliers who guarantee composi1on. Correct storage of scrap can be expensive due to risk of contamina1on. If no local scrap is available, shipping costs might offset the cost advantages of scrap. 5

6 Certain nickel raw materials are more suitable for the produc2on of specific stainless steel grades than others NPI 5-12% Ni NBM % Ni FeNi 20% Ni FeNi 30%+ Ni Class I Ni SS 200 SS 304 SS 316L Higher SS grades NPI with 7% Ni is sufficient to provide the nickel content for SS200. Add FeMn 80% or EBM Manganese to provide Mn units. For SS304 NBM with at least 12.5 % Ni is required in combina1on with FeCr 50%. Alterna1vely, use FeCr 50%, FeNi 30% and Fe pig iron. Technically, Class I Ni can subs1tute all other Ni raw materials. FeNi with above 15% Ni is needed to produce 316L and higher SS grades. Class I Ni is used for highest SS grades and Ni- based alloys 6

7 Possible raw material matrices in the Western and the Chinese loading scenarios - example of SS 304 Western loading scenario Grade 304 based on same grade SS scrap Cr units Ni units Fe units % 18 Cr 8 Ni 74 Fe 304 scrap 80 14,4 6,4 59,2 Carbon steel 10, FeCr 50% 7,6 3,8 0 3,8 Ni metal 1,8 0 1, ,2 8,2 74 Grade 304 based on FeNi 30%, FeCr 50% Cr units Ni units Fe units % 18 Cr 8 Ni 74 Fe FeCr 50% FeNi 30% Fe pig iron Total Chinese loading scenario Grade 304 based on NPI 12.5 %, FeCr 50% Cr units Ni units Fe units % 18 Cr 8 Ni 74 Fe 304 scrap 0 FeCr 50% NPI 12.5 % Fe pig iron 0 Total Grade 304 based on NPI 12.5 %, FeCr 70% Cr units Ni units Fe units % 18 Cr 8 Ni 74 Fe FeCr 70% NPI 12.5% Fe pig iron Total A large number of technically feasible varia2ons of raw material combina2ons co- exist and require evalua2on. 7

8 For a successful long- term raw material strategy a wide range of influence factors need to be included Selected factors influencing the four stages of raw material selec2on Raw material selec2on immediately before mel2ng Raw material planning 8-10 weeks before mel2ng Preferred raw material mix 1-2 years in advance Long- term raw material mix incl. investment decisions Short- term factors Specs of the final grades to produce Availability of raw materials in the yard or at suppliers Price of raw materials Composi1on incl. impuri1es Energy costs Costs of further raw materials Market- related factors Price of alterna1ve raw materials Stainless demand trends Price development of raw materials Shipping costs Suppliers reliability Produc2on- related factors Capacity u1lisa1on Long- term OPEX e.g. furnace relining Inventory/storage requirements Produc1on rate Integra1on with suppliers Emerging new technologies Environmental factors Supply con1nuity risk Environmental restric1ons incl. REACH registra1on Poli1cal environment/risk Infrastructure and opera1onal risk 8

9 Example: Stainless demand trends will change local raw material requirements Stonecu`ers bridge, HK example for higher SS grades needed in China: Upper pylons required life- 1me is minimum 100 years (SS duplex 2205) 9

10 Example: Indonesian raw material export ban underlines the importance of supply analysis Which op(ons are available for China s NPI/NBM producers medium- term in case the Indonesian raw material export ban stays in place? 1. Using lower grade ores from non- Indonesian sources The usage of lower grade Ni ore is probably restricted to the produc1on of SS 200- series with max 6 % Ni However, stainless producers can mix lower grade NPI with higher grade FeNi of Class I Ni to achieve required composi1on Opera1ng in the Philippines carries a high poli1cal and opera1onal risk 2. Using nickel ores with high degree of impuri2es, e.g. from China Stainless producers require an addi1onal refining step at NPI/ NBM producers s site Improve refining at the stainless steel producers site Construc2ng new NBM plants in Indonesia Might come at significant cost (infrastructure needed, 1me line, poli1cal risks etc.) Many construc1on projects stopped

11 Example: Emerging nickel produc2on technologies might require different raw materials For nickel oxide ores, RKEF is old mel1ng technology developed in the 1890s. When will other mel(ng technologies become more efficient than RKEF? Direct mel2ng RKEF + EAF + AOD + LF Used at several new Chinese facili1es Capacity is dependent on the slowest link in the produc1on process: RKEF RKEF bo`leneck can be addressed by double RKEF- lines Extra opera1on required to remove P which can be done through pre- treatment or two steps in the AOD. Other emerging low cost Ni produc2on technologies Nippon Yakin Kogyo s (Krupp- Renn) process finally reported to be stable Direct reduc1on of Fe oxide ores may be transferred to a direct reduc1on technology of Ni oxides. 11

12 A number of models exist to evaluate the raw material input of mixed feed produc2on Tools for evalua2ng raw materials in mixed feed produc2ons (selec2on) Price for Ni unit comparison Short- term factors Market- related factors Total costs analysis Compara1ve yield and produc1on costs analysis Value driver analysis (DuPont) Supply chain opera1on model Value- in- use analysis Long- term value- in- use inves1ga1on Produc2on- related factors Environmental factors 12

13 Choice of evalua2on model needs to reflect the required planning 2me horizon and market condi2ons Dynamic, uncertain market Value driver analysis (DuPont analysis) Dynamic, long- term value- in- use analysis Rather foreseeable market Quality parameter assessment Price for Ni unit comparison Short- term planning horizon Compara1ve yield and produc1on costs analysis Value- in- use analysis Total costs analysis Supply chain opera1on model Long- term planning horizon 13

14 Value- in- use analysis inves2gates the value implica2ons of alterna2ng raw materials in the same melt shop = Value- in- use calcula2on Produc1on contribu1on as stainless output Cost contribu1on of main raw materials (Cr, Ni, Fe, Mn etc.) Cost contribu1on of addi1onal raw materials (gas, slag builders etc.) Cost contribu1on of energy Cost contribu1on from other OPEX (labour, maintenance etc.) Value- in- use ($/y) Loading Case (Reference) Alterna1ve Loading Scenarios for the same melt shop 14

15 Supply chain performance of raw material suppliers ogen overrides sales prices as selec2on criteria for raw materials Raw material supply chain s performance measurement tool (SCOR based) Performance ahributes Raw material delivery reliability Supplier s responsiveness Supply chain s agility Supply chain management cost Assets management performance The ability of the supply chain to deliver the right product with the right quality, to the right place, at the right 1me The supply chains capability to quickly deliver (lead 1mes) The supply chains capability to flexibly respond to changes in details of orders Costs of the supply chain including e.g. transporta1on, quality control Cash- to- cash cycle 1me, inventories needed, payment terms etc. Customer specific metrics 15

16 The value driver analysis inves2gates factors crea2ng the largest impact on the ROIC for alterna2ve raw materials Excerpt of a value driver analysis (DuPont analysis) for produc2on scenarios using different raw materials Value(components( Value( drivers( Controllable(( factors( PreDtax( ROIC/ Opera.ng((margin( (EBITA/Revenues)/ Capital(u.lisa.on( (Rev./inv./capital)/ Expenses/ Revenues/ Working( capital/ Fixed( capital/ Raw(( material(( costs/ 16 OPEX/ Energy(( costs/ Capacity( u.lisa.on/ CAPEX/ Shipping/costs/ Labor/and/ maintenance/costs/ Storage/costs/ Electrical/ energy/ AOD/u>lisa>on/ EAF/u>lisa>on/ Raw/material/ handling// equipment/ Maintenance/ contracts/ Environmental/ filter/costs/ Storage/>me/ Inventory/turnover/ U>lisa>on/>me/ Time in AOD/ Produc>on/ rate/ EXAMPLES( Automated/raw/ material/handling/ system/

17 Long- term value- in- use analysis includes alterna2ve loading scenarios possible only in the future Produc1on contribu1on Cost contribu1on (all short- term) Loading Case (Reference) Alterna1ve Loading Scenarios for the same melt shop Alterna1ve Loading Scenarios possible only in the future - CAPEX for new equipment etc. - Further long- term OPEX = Long- term total cost($/y) CAPEX can include improved technology, expansion to accommodate alternative raw materials 17

18 Long- term value- in- use analysis also simulates evalua2on of new produc2on investments VIU results of Alterna1ve Loading Scenario compared to Reference case Long- term value- in- use ($/y) Discount Rate = Long- term value- in- use Net Present Value of VIU results forecasted for the future 18

19 The long- term value- in- use calcula2on provides relevant input into a range of internal func2ons Raw material supplier Data for sales strategy development Benefits of the value- in- use calcula2on Value driver analysis Stainless steel producer Alterna2ve raw material evalua2on Sales steering Long- term and scenario based sales planning Long- term value- in- use (VIU) Cost reduc2on Evalua2on of suppliers Development of marke2ng and sales arguments Collabora2ve pricing 19 Scenario based produc2on planning

20 Summary Nickel units can be supplied to the stainless produc1on by adding a number of different nickel products A large number of technically feasible varia1ons of raw material combina1ons co- exist for stainless steel and require evalua1on Raw materials are selected by the stainless producers at four different stages with different 1me horizon and influence factors Wide range of different tools exist to evaluate raw material selec1ons, but currently tools are needed that can address a complex and dynamic market environment Suggested tools are long- term value- in- use analysis, supply chain management, and value driver analysis 20

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