A Look at the Surge of Chinese Billets On The World Markets. Are They Here to Stay?

Transcription

1 9 th Steel Scrap Conference American Metal Market Events November 2015 A Look at the Surge of Chinese Billets On The World Markets Are They Here to Stay? John D. Heffernan, Partner

2 Introduction Impact of Chinese Billets on Scrap Trade Chinese Billets Costs Considerations Other Factors Future Considerations Conclusions

3 World s Largest Scrap Exporters and Importers Year 2012 Source: Colakoglu Metalurji

4 Turkish Scrap Imports, Major Sources Source: ISSB Source MBR Gerdau Market Update

5 Turkish billet imports vs. scrap imports (kt) 2,000 1, , , , ,512 1,278 1,540 1,849 1,320 1,752 1,669 1,467 2,124 1,858 1,312 1,858 1, ,004 1,414 1,717 1,778 1,652 1,700 1,451 1,640 1,504 1,403 1,207 1,440 1,363 1,319 1,163 1, Jan-13 Mar-13 May-13 Jul-13 Sep-13 Nov-13 Jan-14 Mar-14 May-14 Jul-14 Sep-14 Nov-14 Jan-15 Mar-15 May-15 Source MBR Steel Raw Materials Tracker Ferrous scrap Billet

6 Turkish steel output monthly (kt) Source MBR Steel Raw Materials Tracker

7 Turkish billet CFR vs. HMS No.1/2 scrap CFR (differential) $/tonne $/tonne Jan 13 Feb 13 Mar 13 Apr 13 May 13 Jun 13 Jul 13 Aug 13 Sep 13 Oct 13 Nov 13 Dec 13 Jan 14 Feb 14 Mar 14 Apr 14 May 14 Jun 14 Jul 14 Aug 14 Sep 14 Oct 14 Nov 14 Dec 14 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Daily Metal Bulletin Ferrous scrap Index HMS 1&2 (80:20 mix) (North Europe material) $ per tonne cfr Turkey Turkey import billet $ per tonne cfr main port Source MBR Steel Raw Materials Tracker

8 Chinese Billet Production Costs Assumptions Major Elements Conversion Costs Cash Costs

9 Chinese Billet Production Costs Assumptions 90% of Chinese billet production is by Blast Furnace/BOF process 80% of iron ore is imported Steel Raw Material Costs = 1.6 X iron ore fines X coal (coking, PCI) X scrap costs Iron ore fines cost = Platts 62 % Fe CFR China price = $ 50.00/ton Coal cost = blend of HCC, PCI coal costs = $ 80.00/ton Scrap costs (includes other raw material costs) = $ 200/ton Steel Raw Material costs = 1.6 X X X 200 = = $ 184/ton Above does not include transportation within China for non coastal plants Source: (MIAG)

10 Chinese Billet Production Costs Major Elements China billet production costs = raw material + conversion costs by process Raw materials: iron ore fines, coal (coking, PCI), scrap (includes fluxes, alloys, etc.) Conversion costs: labor, electric power, refractories, services, etc. Not included: corporate, plant overhead, depreciation Source: (MIAG)

11 Chinese Billet Production Costs Conversion Costs $/ton $/ton steel Sinter plant Coke plant Blast furnace BOF Billet caster Total 102 Source: (MIAG)

12 Chinese Billet Production Costs Cash Costs Total Chinese billet cash costs = raw materials + conversion = = $ 286/ton (not including overhead and non cash costs) This represents the best case scenario: a modern Chinese plant located on the coast. This cost does not include transportation from China to Turkey. Obviously Chinese billets are being exported at well below cash costs and far below total costs. Source: (MIAG)

13 Iron Ore to Qingdao vs Scrap CFR Turkey Oct-14 Nov-14 Dec-14 Jan-15 Feb-15 Mar-15 Apr-15 May-15 Jun-15 Jul-15 Aug-15 Sep-15 Oct-15 Daily Metal Bulletin Ferrous scrap Index HMS 1&2 (80:20 mix) (USA material) $ per tonne cfr Turkey Index of spot market Iron Ore prices delivered to China, normalized to Qingdao and 62% Fe US $ per tonne Daily China export billet $ per tonne fob main China port Source MBR Steel Raw Materials Tracker

14 Iron Ore Production Forecast (mt) Major Offshore Suppliers

15 Iron Ore Production (mt) Major Offshore Suppliers Producer e 2016e 2017e Vale BR Rio Tinto - AUS BHP Billiton - AUS FMG - AUS Roy Hill - AUS Total % Change Source: Company reports; MIAG; Bradford Research

16 Key Producer Breakeven Price ($/t - 62% Fe - CFR)

17 CONCLUSIONS Cheap iron ore imports to China will continue to impact world Scrap trade by enabling Cheap billet exports from China make it more economical for Turkish steel companies and many others to roll billets rather than to melt scrap in the EAF, thus reducing scrap demand and scrap prices. are clearly being exported at prices well below their costs. are being imported by many other countries besides Turkey for the same reason.

18 John D. (Jack) Heffernan Charles C. (Chuck) Bradford