9 th Steel Scrap Conference American Metal Market Events 11 12 November 2015 A Look at the Surge of Chinese Billets On The World Markets Are They Here to Stay? John D. Heffernan, Partner
Introduction Impact of Chinese Billets on Scrap Trade Chinese Billets Costs Considerations Other Factors Future Considerations Conclusions
World s Largest Scrap Exporters and Importers Year 2012 Source: Colakoglu Metalurji
Turkish Scrap Imports, Major Sources Source: ISSB Source MBR Gerdau Market Update
Turkish billet imports vs. scrap imports (kt) 2,000 1,750 190 167 200 89 338 241 168 346 214 210 192 657 750 1,500 168 260 146 225 146 241 184 154 138 350 152 327 504 1,250 174 1,000 750 500 1,512 1,278 1,540 1,849 1,320 1,752 1,669 1,467 2,124 1,858 1,312 1,858 1,916 155 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 1,680 250 0 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
Turkish steel output monthly (kt) 3500 3000 2500 3051.054 2880.476 2875.331 2727.492 2652.937 2975.46 2906.511 2898.341 2832.579 2800.067 2719.861 2715.133 2728.548 2776.182 2611.545 2313.612 2920.4 2843.817 2538.527 2562.794 2000 1500 1000 500 0 Source MBR Steel Raw Materials Tracker
Turkish billet CFR vs. HMS No.1/2 scrap CFR (differential) $/tonne 600 500 400 $/tonne 300 200 100 0 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
Chinese Billet Production Costs Assumptions Major Elements Conversion Costs Cash Costs
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 + 0.8 X coal (coking, PCI) + 0.2 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 50 + 0.8 X 80 + 0.2 X 200 = 80 + 64 + 40 = $ 184/ton Above does not include transportation within China for non coastal plants Source: (MIAG)
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)
Chinese Billet Production Costs Conversion Costs $/ton $/ton steel Sinter plant 15 20 Coke plant 20 10 Blast furnace 35 32 BOF 30 30 Billet caster 10 10 Total 102 Source: (MIAG)
Chinese Billet Production Costs Cash Costs Total Chinese billet cash costs = raw materials + conversion = 184 + 102 = $ 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)
Iron Ore to Qingdao vs Scrap CFR Turkey 400 350 300 250 200 150 100 50 0 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
Iron Ore Production Forecast (mt) Major Offshore Suppliers
Iron Ore Production (mt) Major Offshore Suppliers Producer 2011 2012 2013 2014 2015e 2016e 2017e Vale BR 312 320 311 319 340 375 411 Rio Tinto - AUS 245 254 266 295 340 360 360 BHP Billiton - AUS 149 161 186 225 245 270 300 FMG - AUS 48 66 99 155 157 165 167 Roy Hill - AUS -- -- -- -- 5 40 55 Total 754 801 862 994 1087 1210 1293 % Change -- 6.23 7.62 15.31 9.36 11.32 6.86 Source: Company reports; MIAG; Bradford Research
Key Producer Breakeven Price ($/t - 62% Fe - CFR)
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.
www.miag-us.com John D. (Jack) Heffernan 212-752-2513 Charles C. (Chuck) Bradford cbradford@nyc.rr.com 212-787-4109