Opportunities for Merchant DRI/HBI. Lynn M. Lupori Managing Consultant

Transcription

1 Opportunities for Merchant DRI/HBI Lynn M. Lupori Managing Consultant

2 Hatch is a global, employee-owned company with over 10,000 professionals serving the mining and metals industry around the world. Our organization Hatch supplies business, process and technology consulting, design and engineering and construction, operations and project management to the mining and metals, energy and infrastructure industries worldwide Established 1955 and employee owned 10,000 highly skilled people serving clients worldwide US$40BN of projects now under management in 60 countries Our values Safety Quality Innovation Sustainable development Effective risk management

3 Our offices are located around the world to serve customers regional and global needs. Amherst, New York Baltimore, Maryland Boston, Massachusetts Buffalo, New York Cleveland, Ohio Denver, Colorado Houston, Texas Millburn, New Jersey

4 Hatch Consulting is a leading management consultancy specializing in the mining and metals industries. Hatch Consulting is organized into specialized practices by industry and service, combining to provide precise solutions, expertly delivered to the exact needs of each individual client We provide high level support services, ranging from business strategy development through strategic market studies to implementation of new technologies, management and operating practices We specialize in steel and raw materials, and providing strategy development and implementation services to companies through out the industry Our Investment and Business Planning (IBP) practice provides economic, environmental and technical evaluations of minerals properties and processing facilities, due diligence, pre-feasibility and feasibility studies and related investment planning and appraisal services

5 Shipments of DRI/HBI have grown to nearly 15 Mt in 2012; an increase of 30% over the past 10 years World DRI Shipments Mt Water Land Source: Midrex

6 Latin America is the world s leading trader of DRI/HBI supplying North America, Europe and Asia with a major portion of their overall demand. Source: Midrex

7 In North America, the US is the leading importer of DRI, however... Million Tonnes North American DRI/HBI Imports by Country US Canada Mexico* * - import volumes for Mexico reflect both DRI/HBI and pig iron Source: AISI, ISSB and Hatch

8 ...the only current merchant exporter of DRI to the US is Venezuela (~800 kt in 2012.); a majority of imports are captive DRI/HBI from the Nucor & ArcelorMittal facilities in Trinidad. Million Tonnes 4.0 US DRI/HBI Imports By Country of Origin Trinidad And Tobago Venezuela Canada Others Source: USDOC

9 ALTERNATIVE IRONMAKING TECHNOLOGY A significant portion of the trade between Latin America and North America is the captive trade between Trinidad and the US & Canada. This is due to the approximately 3.8 Mt of DRI capacity in Trinidad & Tobago owned/controlled by two of North America s largest steelmakers ArcelorMittal & Nucor. It is expected that the Trinidad plants will continue to operate into the foreseeable future. Logistics of ore supply from Brazil to Trinidad and DRI shipment into the USA is good. Trinidad has a large, captive natural gas supply with few users, so pricing is expected to remain low in the future. Company Location Capacity (Mt/yr) Modules Product Status (as of 4/30/12) Arcelor Mittal Point Lisas I & II Point Lisas DRI Operating ArcelorMittal Point Lisas III Point Lisas DRI Operating Nu-Iron (Nucor) Point Lisas DRI Operating Total Trinidad & Tobago Source: Midrex and Hatch Consulting

10 When it comes to merchant suppliers, the Venezuelans are one of the global leaders, however, it could be said that they are in a vulnerable position. The Venezuelan industry was nationalized during Low production in 2009 was partially due to the financial crisis, but production has not recovered at the same pace as demand. The on-going issues in Venezuela are showing no signs of recovery and may get worse as Venezuelan mines are forced to move into higher phosphorus-containing ores. Questions remain on the overall recovery of DRI/HBI production in Venezuela Venezuela DRI/HBI Production Mt Capacity 9.47 Source: Midrex

11 While Venezuela has been the historical merchant DRI producer to the US, nationalization has significantly impacted both volume and quality of production. The Venezuelan DRI industry has not fared well post nationalization with reports of frequent power and gas interruptions and ore supply issues at the mines. It is no surprise that US scrap dealers report supply problems for merchant DRI and that merchant pig iron pricing and popularity has increased beyond merchant DRI/HBI. In the last few years it is believed that the Venezuelan mines are moving into lower quality, high phosphorus ore which makes the HBI that does make it to market somewhat undesirable. The functioning of the hot briquetting machines has been said to be suspect. The general quality of the HBI is rumored to be poor or in one past client s words, A heap of poor quality fines that no one wants to buy.

12 Usage of DRI is, and will continue to be, based on two primary issues quality & price. There are two categories of DRI users at an EAF: 1. EAF s that charge alternative iron units (pig, DRI/HBI) at the minimum amount to dilute scrap residuals that cannot be removed in the EAF. Typically 10-30% of charge mix is AIUs. For high quality steels only. 2. EAF s that hot charge a large proportion of hot DRI to the EAF (say 80%+) because this is a lower cost structure versus scrap. At current market pricing, a scrap based EAF is similar cost to a hot DRI (HDRI) charged EAF. With low US natural gas pricing, it is more attractive to buy DR grade pellet and charge a large portion of HDRI to an EAF versus buying Venezuelan DRI and charging at the 20% level. However, an EAF operation producing more commodity grades of steel will have a hard time justifying the capital expense of a HDRI facility.

13 ALTERNATIVE IRONMAKING TECHNOLOGY For electric furnace steel producers, only flatroll and/or high quality steel products require the addition of alternative iron units to achieve the required residual levels. May Require AIUs Scrap Based no AIUs required Flatroll Rebar Special Bar Quality (SBQ) High Quality Wire Rod Plate (pressure vessel grades) Stainless products Merchant Bar (MBQ) Commodity Wire Rod Structural Beams (a small volume of high strength may require AIU s) Rail products (some grades)

14 When we look at a low quality Southeast USA EAF producer considering converting from scrap-eaf to HDRI-EAF operation it will be hard for a lower quality EAF shop to justify a switch away from scrap to HDRI. Opex costs are similar but the DRI facility requires considerable capex. $/Tonne Liquid Steel $650 Southeast USA, Purchased Pellet Cost Structure Summary HDRI/EAF vs. Scrap Based EAF $550 $450 $350 $250 $150 $50 $502 $508 The bars represent the cost of raw materials and conversion cost adjusted with yield to be on a common $/t liquid steel basis. Cost of Brazilian market price is included in the DRI production cost. -$50 Purchase Brazil Pellet & HDRI-EAF Scrap EAF Scrap DRI - Production DRI - Purchase EAF *This assumes Brazil pellet at market pricing via Gulf Coast (NOLA), $3/GJ natural gas and $30/t shipping cost to bring pellet to Southeast USA example plant. Both are example plants and not meant to represent a specific operation. Source: Hatch Source: Hatch

15 While the HDRI route might not make sense for many EAF producers, increased usage of HBI/DRI holds a number advantages over scrap that make it the raw material of discretionary choice for many steelmakers, especially those who are producing (or looking to produce) higher quality materials. Comparative Benefits of EAF Charge Materials EAF Cost/Productivity Factor Scrap Cold HBI/DRI Hot HBI/DRI Pig Iron Hot Metal Iron Nugget Estimated Melting Energy Base Electrical Power Cost Base Chemical Energy Advantage Base Carbin Addition Demand Base Furnace Productivity Base Charging Time Impact Base Residual Reduction Base Nitrogen Reduction Base Slag Volume Base Flux Demand (lime and dolime) Base Yield Impact Base The evaluations in Table 1 are based on the performance/cost impact of the various alternate charge materials versus the use of 100% scrap. A - rating indicates increased cost or reduced productivity while a + rating indicates an improved situation. Consideration also needs to be given to the potential proportion of the total charge mix that can be achieved. Basically Scrap, HBI/DRI (hot or cold) and Iron Nugget can be used in any proportions up to 100% while Pig Iron and Hot Metal are limited to a range of between 0% and 30% of the total scrap mix. The melting power of HDRI is similar to that of scrap Source: Hatch

16 Given the current economic uncertainty and the impact on all steel consuming industries (automotive and construction) Hatch has chosen to take a conservative approach to trend growth in its development of a steel consumption outlook in North America through 2020 and beyond. Million Metric Tons North America Raw Steel Production Forecast by Route BOF EAF

17 As a result of increases in steel production, quality of steels produced and increased residual levels in scrap, the outlook for DRI consumption in North America is very positive. We have identified 36 North American EAF steel making plants with AIU requirements (without their own associated DRI/HBI facilities) which are currently being met principally by DRI or imported pig iron. These steel mills all produce value added carbon flatroll, long products or stainless steels. Geographically, the bulk of demand is east of the Mississippi River in the Great Lakes Region allowing a merchant producer to reach most consumers from a centralized location. Beyond demand from EAF producers, integrated steel producers can use DRI/pig iron as an addition at the blast furnace to increase liquid iron production or at the basic oxygen furnace they typically charge up to 20% scrap in addition to liquid iron (up to half that charge can be in the form of DRI/pig iron). The fragmentation of the customer base does make for a challenging order book, however, this could be mitigated by a significant off-take agreement with one major consumer. Opportunities may exist to construct a facility on-site to provide either HDRI or CDRI to a steel producer and sell the remaining production on the merchant market.

18 Opportunities may exist for merchant DRI production in North America, however, there are likely several factors that will impact the overall success of any potential merchant DRI facility in the region. Proximity & availability of DR grade pellets either through a Gulf port to receive Brazilian pellets or a Great Lakes port to receive pellets from a North American supplier. Long term natural gas supply & pricing agreement at current price levels natural gas represents approximately 10% of DRI production costs. Future fluctuations in pricing can significantly change the economics. Secured off take agreement for production with a very fragmented customer base and increased domestic production capacity, competition for merchant shipments will be strong. Currently, most consumers without captive production capacity consume less than 100 kt of AIU. Significant shifts in burden mixes aren t forecasted so securing a relationship for a majority of production will be essential for any new DRI facility.

19 Thank You! Hatch Consulting 9 th Floor, Portland House Bressenden Place, London SW1E 5BH, UK Lynn M. Lupori Managing Consultant Hatch Consulting 1600 West Carson Street Pittsburgh, PA LLupori@hatch.ca Hatch Consulting 310 East Ocean Center A-24 JianGuo Men Wai Road Chaoyang District, Beijing P.R. China Hatch Consulting 2800 Speakman Drive Mississauga, ON L5K 2R7 Canada Hatch Consulting Rua Gomes de Carvalho, andar Vila Olimpia São Paolo - SP Brasil