AMM 9 th Steel Scrap Conference Economic Fundamentals of Scrap and Iron Ore Prices

Transcription

1 AMM 9 th Steel Scrap Conference Economic Fundamentals of Scrap and Iron Ore Prices September, Chicago, IL, USA Atilla Widnell Senior Metals Analyst 2015 Metal Bulletin Research 1

2 Disclaimer: Prices and other information contained in this presentation have been obtained by us from various sources believed to be reliable. This information has not been independently verified by us. Those prices and price indices that are evaluated or calculated by us represent an approximate evaluation of current levels based upon dealings (if any) that may have been disclosed prior to publication to us. Such prices are collated through regular contact with producers, traders, dealers, brokers and purchasers although not all market segments may be contacted prior to the evaluation, calculation, or publication of any specific price or index. Actual transaction prices will reflect quantities, grades and qualities, credit terms, and many other parameters. The prices are in no sense comparable to the quoted prices of commodities in which a formal futures market exists. Evaluations or calculations of prices and price indices by us are based upon certain market assumptions and evaluation methodologies, and may not conform to prices or information available from third parties. There may be errors or defects in such assumptions or methodologies that cause resultant evaluations to be inappropriate for use. Your use or reliance on any prices or other information published by us is at your sole risk. Neither we nor any of our providers of information make any representations or warranties, express or implied as to the accuracy, completeness or reliability of any advice, opinion, statement or other information forming any part of the published information or its fitness or suitability for a particular purpose or use. Neither we, nor any of our officers, employees or representatives shall be liable to any person for any losses or damages incurred, suffered or arising as a result of use or reliance on the prices or other information contained in this publication, howsoever arising, including but not limited to any direct, indirect, consequential, punitive, incidental, special or similar damage, losses or expenses. We are not an investment advisor, a financial advisor or a securities broker. The information published has been prepared solely for informational and educational purposes and is not intended for trading purposes or to address your particular requirements. The information provided is not an offer to buy or sell or a solicitation of an offer to buy or sell any security, commodity, financial product, instrument or other investment or to participate in any particular trading strategy. Such information is intended to be available for your general information and is not intended to be relied upon by users in making (or refraining from making) any specific investment or other decisions. Your investment actions should be solely based upon your own decisions and research and appropriate independent advice should be obtained from a suitably qualified independent advisor before making any such decision Metal Bulletin Research 2

3 Introduction Latest Developments: What US and global indicators tie into scrap prices? How are steel makers adapting to take advantage of low iron ore prices? Forecasts: What factors will affect the iron ore price? How long will this continue? What impact will this have on scrap demand and prices? Conclusions MBR products: MBR Steel Scrap & Metallics Forecaster MBR Steel Raw Materials Weekly Market Tracker 2015 Metal Bulletin Research 3

4 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 4

5 Steel news, prices & analysis Market analysis and forecasts Company data for metal and mining industries Prices for the physical spot iron ore market 2015 Metal Bulletin Research 5

6 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 6

7 300 Big 4 Iron Ore Output (Mt) 250 BHP Rio Tinto 200 Vale FMG Major Australian and Brazilian iron ore suppliers expanded production of their assets since H1 2013, following substantial investment programmes. 150 As a result, the Big Four (Rio Tinto, Vale, BHP Billiton and FMG) accounted for almost 998Mt of the world s iron ore production in These miners have continued to ramp-up output through the first three quarters of 2015 and are on course to produce almost 1.1bn tonnes this calendar year Source: MBR, Company Reports 2015 Metal Bulletin Research 7

8 120 Major Iron Ore Export Volumes (Mt) Brazil Australia Markedly higher iron ore production, particularly in Australia and Brazil, has resulted in these volumes being exported, particularly to China, to feed steel raw materials requirements. 60 At the same time, persistently high iron ore supply availability has removed substantial support from major seaborne benchmarks since Dec Source: MBR, GTIS, ISSB 2015 Metal Bulletin Research 8

9 Key Producer Breakeven Price ($/t - 62% Fe - CFR) Sep-14 Mar-15 Nearly all seaborne iron ore suppliers have lowered breakeven prices, following the substantial declines in benchmarks since the end of External factors such as lower oil prices and local currency fluctuations have been fundamental in reducing overall costs. But so has active cost-cutting measures - focusing on efficiency of existing assets with many new projects and expansion plans put on hold. Fewer international producers have fallen victim to market conditions than expected, although significant volumes appear to have been displaced in China. Source: MBR, Company Reports 2015 Metal Bulletin Research 9

10 450 Hot Metal Proxy ($/t) Source: MBR 2015 Metal Bulletin Research 10

11 60% Floor Space Under Construction and Real Estate Investment (% Y/Y) 50% Floor Space Under Construction 40% Real Estate Investment 30% 20% 10% 0% Source: MBR, CEIC 2015 Metal Bulletin Research 11

12 80 70 China Monthly Crude Steel Output (Mt) More recently, however, Chinese mills have scaled-back crude steel output partly in response to quite substantial financial losses due to relatively low finished steel prices. At the same time, the Chinese government has also instructed local steel producers, particularly in northern China, to reduce output to meet numerous blue skies initiatives to improve air quality, particularly in Hebei province, ahead of key political events. As a result, domestic crude steel output has declined almost 1% between January-September 2015, compared with the same period a year earlier. Source: MBR, WSA 2015 Metal Bulletin Research 12

13 120 China Steel Exports (Mt) 120% 100% % Volumes [LHS] % Y/Y [RHS] 50% 60% 40% 20% 0% -20% That said, production volumes of Chinese semifinished and finished steel have far exceeded apparent domestic consumption. This has resulted in the exportation of excess supply volumes to overseas markets, both near and farther afield. In fact, annualised export data indicates China is on course to ship in excess of 110Mt of semifinished and finished steel in % -60% 0-80% Source: MBR, ISSB, GTIS 2015 Metal Bulletin Research 13

14 450 Hot Metal Proxy vs. Scrap ($/t) Hot Metal Scrap Source: MBR 2015 Metal Bulletin Research 14

15 China BOF/EAF Scrap Consumption Rates (kg/tls) EAF [LHS] BOF [RHS] Chinese scrap consumption via the BOF and EAF steelmaking process has failed to climb in tandem with domestic crude steel production. In fact, we understand that Chinese BOFs and EAFs have continued to consume relatively high proportions of hot metal in 2014/15 compared to previous years. Therefore, the scrap consumption rate per tonne of liquid steel produced in both steelmaking processes in China has declined towards historically low levels Source: MBR, CAMU 2015 Metal Bulletin Research 15

16 450 Hot Metal Proxy vs. Scrap ($/t) Hot Metal Scrap Source: MBR 2015 Metal Bulletin Research 16

17 180 Turkish Construction Index (Base = 2010) Q1 Q2 Q3 Q Source: MBR, Turkish Statistical Institute 2015 Metal Bulletin Research 17

18 4.0 Iron Unit Ratio: Iron Ore vs. Scrap Ratio Average The declines in iron ore and coking coal prices have been large factors in the competitiveness of hot metal production costs through 2014 and 2015 compared to relatively costlier scrap. The long-term average of the iron unit price ratio for steel scrap is typically 2.0x costlier than the iron units in iron ore and this relationship has been out of sync since early Source: MBR 2015 Metal Bulletin Research 18

19 60 US Manufacturing PMI 50 Chicago Busheling/Shredded Spread ($/t) Spread 20 Average Source: MBR, Markit, AISI 2015 Metal Bulletin Research 19

20 120 Major Iron Ore Benchmarks ($/t) CFR Qingdao 30 Implied Pellet Premium ($/t) % Fines 66% Concentrate 65% Pellet Metal Bulletin Research 20

21 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 21

22 60% Floor Space Under Construction and Real Estate Investment (% Y/Y) 50% Floor Space Under Construction 40% Real Estate Investment 30% 20% 10% 0% Source: MBR, CEIC 2015 Metal Bulletin Research 22

23 China Crude Steel Output by Process (Mt) EAF BOF Looking forward, MBR anticipates that Chinese crude steel production will display more modest growth over our forecast period. Domestic electric arc furnace output will marginally increase its share of overall production, particularly in light of recent stringent environmental policies and the replacement of outdated/inefficient capacity. We believe this will place some increased demand on the Chinese scrap recycling industry to process sufficient volumes to meet domestic consumption requirements. 0 Source: MBR, WSA 2015 Metal Bulletin Research 23

24 120 China Steel Exports (Mt) 120% 100% % Volumes [LHS] % Y/Y [RHS] 50% 60% 40% 20% 0% We expect to see continued penetration of relatively cheap Chinese semi-finished and finished steel into overseas markets. Unless, countries/regions can impose strict antidumping duties on Chinese-origin steel products to protect local industry % 20-40% -60% 0-80% Source: MBR, ISSB, GTIS 2015 Metal Bulletin Research 24

25 1400 Iron Ore Production Forecast (Mt) BHP Vale Rio Tinto FMG MBR anticipates steel raw material prices, particularly iron ore, will remain close to multi-year lows seen in 2015 over the next months Roy Hill This means there is modest downside risks for iron ore benchmarks from current levels, as additional supply volumes come on-stream from Roy Hill and Vale s S11D projects Source: MBR, Company Reports 2015 Metal Bulletin Research 25

26 700 Iron Ore/Scrap Price Forecast ($/t) Scrap Iron Ore Relatively low cost BF/BOF mills using hot metal and penetrating overseas markets will place pressure on overseas electric arc furnace producers to negotiate further discounts with scrap and metallics suppliers and improve mill margins and competitiveness in the short-to-medium term. Looking further forward, MBR forecasts a rebalancing of mining assets will provide some support to iron ore and alternative iron unit prices over the forecast period. 0 Source: MBR 2015 Metal Bulletin Research 26

27 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 27

28 Conclusions: What US and global indicators tie into scrap prices? Manufacturing, Turkish Construction Index, Iron Unit Ratio & Chinese Fixed Asset Investment. How are steel makers adapting to take advantage of low iron ore prices? BOFs lowering scrap consumption rates in favour of hot metal What factors will affect the iron ore price? How long will this continue? Australian and Brazilian iron ore output, Chinese steel output, and Samarco disruption. What impact will this have on scrap demand and prices? The new normal relatively low scrap price environment for next months Metal Bulletin Research 28

29 Why MBR? 2015 Metal Bulletin Research 29

30 Month Forecast Actual February April Despite the substantial fall in major international scrap benchmarks in February, MBR does not believe these most recent declines will be the end to the overall downward trend We believe that renewed Turkish scrap demand will be sufficient to support benchmarks close to current levels in the short-term. Scrap and metallics prices will experience downside risk as buyers step out of the market towards the end the third quarter. $249/t CFR Turkey 16 th February 2015 $259/t CFR Turkey 22 nd April 2015 July August October We believe seaborne HMS#1&2 (80:20) scrap import benchmarks could fall well below $200/t, CFR Turkey, in the short-term. MBR anticipates major Turkish scrap import benchmarks will experience modest declines through to October, as local buyers curb production schedules. MBR forecasts major seaborne scrap benchmarks will face modest downside risks through the remainder of October, as buyers maintain relatively low purchases. $220/t CFR Turkey 20 th July 2015 $199/t, CFR Turkey 17 th August 2015 $174/t, CFR Turkey 15 th October 2015 Reference Price: Metal Bulletin s North European HMS#1&2(80:20) Turkish Import Price, CFR Turkey 2015 Metal Bulletin Research 30

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34 Questions & Answers 2015 Metal Bulletin Research 34

35 Contact details for further information: Metal Bulletin Research Straits Trading Building, #12-01, 9 Battery Road, Singapore, Atilla Widnell Senior Metals Analyst T: M: awidnell@metalbulletinresearch.com 2015 Metal Bulletin Research 35