MB World DRI and Pellet Congress: Steel Scrap To what extent is scrap being considered as a feed stock in the MENA region?

Transcription

1 MB World DRI and Pellet Congress: Steel Scrap To what extent is scrap being considered as a feed stock in the MENA region? 2 th -4 th March 2015, Abu Dhabi, UAE Atilla Widnell Senior Metals Analyst 2015 Metal Bulletin Research 1

2 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 2

3 2015 Metal Bulletin Research 3

4 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 4

5 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 5

6 Introduction Latest Developments: What are the possible advantages of diversifying to include scrap for steel production? How has scrap availability changed in the region? Forecasts: Where could the scrap come from? What is going to happen to scrap prices over the next 12 months? Conclusions MBR products: MBR Steel Scrap & Metallics Forecaster how can it help your business? 2015 Metal Bulletin Research 6

7 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 7

8 1.2 GCC Scrap Imports (Mt) Traditionally, some countries within the GCC have been self sufficient with respect to scrap generation in feeding domestic crude steel output. 0.6 Kuwait UAE Saudi Arabia Qatar Steel producing nations within the GCC, particularly Kuwait, Saudi Arabia and UAE, substantially increased scrap imports in 2014, compared to the previous year. 0.4 Oman Bahrain Higher import volumes have largely been driven by new electric arc furnace (EAF) capacity additions and expansions of existing facilities Source: ISSB, MBR 2015 Metal Bulletin Research 8

9 0.6 Kuwait Scrap Imports (Mt) Kuwait witnessed the largest increase in scrap imports in 2014, out of all the GCC and remaining Middle East and North African nations. The JV between the Iranian Mines & Mining Industries Development & Renovation Organisation (IMIDRO) and Kuwait s KWT Steel, saw production start at the company s 120 t EAF in KWT Steel is itself a joint venture between Iran and Kuwait, in which IMIDRO holds 49% with the remainder belonging to Kuwait. In later phases, a 1.6M tpy direct reduced iron (DRI) facility and pelletizing plant with a capacity 5M tpy is scheduled to be built through the JV to feed the aforementioned EAF. Source: ISSB, MBR 2015 Metal Bulletin Research 9

10 7.0 Saudi Arabia Crude Steel Output (Mt) Saudi Arabian South Steel also commissioned commercial production at its new 1M tpy electric arc furnace (EAF) in The EAF uses approximately 80% hot-briquetted iron (HBI), sourced mainly from Qatar Steel, and 20% scrap, but can process up to 100% HBI, according to SMS Concast/Meer. Similarly, Watani Iron & Steel commissioned a new 250 Kt EAF and was scheduled to restart an idled plant in tandem with this new facility. Meanwhile, Projects Al Yamamah Steel and Al Atoun are still awaiting power allocation for their billet plants in Yanbu, nearly five years after announcing the projects. Source: WSA, MBR 2015 Metal Bulletin Research 10

11 Saudi Arabia Scrap Net Trade Profile (Mt) Composition of Scrap Supplying Nations 2014 (%) Australia 7% United Kingdom 6% 0.1 Germany 10% United States 77% Source: ISSB, MBR 2015 Metal Bulletin Research 11

12 0.12 Turkish Rebar Exports to Saudi Arabia (Mt) 0.25 Turkish Rebar Exports to Other GCC (Mt) UAE Oman Kuwait Source: ISSB, MBR 2015 Metal Bulletin Research 12

13 600 Hot Metal vs. Scrap ($/t) Hot Metal Proxy Scrap Despite the recent commissioning of local steel facilities, MBR estimates that some overseas blast furnace/basic oxygen furnace (BOF) producers have retained their competitiveness in the region. This is largely a result of relatively low blast furnace (BF) steel raw materials costs, particularly iron ore and coking coal, compared to local scrap and DRI/HBI-intensive EAF producers Source: MBR 2015 Metal Bulletin Research 13

14 Chinese Rebar and Rod Exports to GCC (Mt) SAUDI ARABIA UTD ARAB EMIRATES QATAR OMAN Cheaper imports of semi-finished and finished steel products have penetrated select GCC and MENA nations from overseas, owing to the cost competitiveness from these suppliers. As a result, some BF/BOF long products steel producers, particularly in China and Turkey, have benefitted from this relatively low cost base and have been able to export large volumes to the region Source: ISSB, MBR 2015 Metal Bulletin Research 14

15 Implied Cost Competitiveness BOF vs. EAF Producers ($/t) However, the influx of the aforementioned cost competitive long products has removed support from international and local GCC billet and rebar prices over the past few months. As a result, major seaborne long products prices have recently experienced precipitous declines. This has subsequently placed greater pressure on scrap prices to move towards an equilibrium with other steel raw materials costs Source: MBR 2015 Metal Bulletin Research 15

16 3.5 Iron Ore vs. Scrap Iron Unit Ratio Ratio Average Scrap iron unit costs have remained relatively high over the past year compared to the cost of an iron unit in iron ore. In fact, the cost of an iron unit in scrap typically trades at a long term average of a x1.95 multiple compared with the cost of an iron unit in iron ore. That said, the ratio has fallen towards its long term average following recent and sharp declines witnessed in major international scrap benchmarks partly pressured by finished steel prices Source: MBR 2015 Metal Bulletin Research 16

17 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 17

18 The key theme over the next five years will be backward integration: MENA crude steel capacity is 89m tonnes with long product capacity of 74m tpy and HR flat capacity 27m tpy. The region is clearly short of crude capacity compared to finished capacity, requiring semis imports. Current Capacity in Regional Markets (000 tonnes) Region DRI Crude Rebar Rod Sections HRC CRC HDG HRP GCC 14,600 17,940 15,290 3,110 2,930 2,200 1, Turkey 0 45,725 19,670 4,250 4,160 14,700 5,750 3, Iran 13,790 21,510 12, ,820 7,800 3, ,890 Others 0 4,250 5, Total 28,390 89,425 53,275 8,235 12,360 24,700 10,450 5,245 2,390 Source: MBR, Midrex, WSA 2015 Metal Bulletin Research 18

19 60 MENA DRI/HBI production growth (M tonnes) MBR expects MENA EAF-based steelmaking to face a positive outlook in the coming years, while production will be partly fed by significant volumes of new DRI/HBI capacity. In fact, MBR expects these capacity additions to drive DRI/HBI output and climb to c.50m tpy in the next 5 years Source: MBR, Midrex 2015 Metal Bulletin Research 19

20 GCC DRI/HBI and Scrap Net Trade (M tonnes) DRI/HBI Scrap Greater scrap competition with Turkish buyers amid private sector scrap-led expansion e.g. South Steel and United Steel. DRI/EAF s will use greater scrap content in their mix e.g. ESI and SULB are considering expansions without additional DRI units. Less internal availability of DRI within the region e.g. Jindal will exit merchant DRI market, Qasco, SULB and ESI should funnel DRI availability towards their own downstream steel production Source: MBR, GTIS 2015 Metal Bulletin Research 20

21 3.5 Iron Ore vs. Scrap Iron Unit Ratio Ratio Average Semi-finished and finished steel produced via the blast furnace (BF)/basic oxygen steelmaking (BOS) process, using cost competitive hot metal, will also place pressure on prices of material made via the scrap and DRI/HBI-intensive EAF route Therefore, EAFs will remain under pressure to reduce input costs, particularly scrap, to maintain modest margins and competitiveness with relatively lower cost steel producers Source: MBR 2015 Metal Bulletin Research 21

22 500 Turkish HMS #1&2 (80:20) Import Price ($/t) MBR believes the strength of the US dollar will also undermine underlying scrap consumption, particularly in the USA, as some steel producers import cost competitive semi-finished and finished steel products rather than melting scrap to make new steel. As a result, MBR has reduced its scrap price forecasts for 2015, and we estimate that international scrap prices have the potential to decline another $30/t in the short term Source: MBR 2015 Metal Bulletin Research 22

23 Introduction Latest Developments Forecasts Conclusions 2015 Metal Bulletin Research 23

24 Conclusions: What are the possible advantages of diversifying to include scrap for steel production? Technical benefits, but has created a cost disadvantage to some new EAFs in the region. How has scrap availability changed in the region? GCC has switched from a net exporter to net importer in Where could the scrap come from? Volumes largely sourced from suppliers in UK and USA; potentially more from EU. What is going to happen to scrap prices over the next 12 months? Pressured by finished steel prices and hot metal costs, scrap prices will remain subdued Metal Bulletin Research 24

25 2015 Metal Bulletin Research 25

26 420 MBR Chicago #1 HMS Forecast vs. Actual Forecast Actual In 2014 we had an accuracy of 96% i.e. our average price for 2014 = $377/tonne for Chicago HMS#1, while actual came in at $360/tonne over the same period. 360 Most importantly, we have accurately forecast the direction of the market through the full four quarters of Forecasts originally produced in December Metal Bulletin Research 26

27 Thank you for your attention Questions & Answers 2015 Metal Bulletin Research 27

28 Contact details for further information: Metal Bulletin Research Straits Trading Building, #12-01, 9 Battery Road, Singapore, Atilla Widnell Senior Metals Analyst awidnell@metalbulletinresearch.com 2015 Metal Bulletin Research 28