2014 global metals trends
TRANSCRIPT
May 2014www.platts.com
SMOG CHOKING
CHINESE STEEL
Steel remains a prime target in China’s war against pollution
STEERING ALUMINUM ALLOY DEMAND
Carmakers are fueling demand for aluminum alloy, but pricing may be stuck in neutral
2014 GLOBAL METALS TRENDS
THE NEXT BRIC?
Is it Indonesia’s turn?
THE WINNERS OF THE PLATTS
GLOBAL METALS AWARDS
Success in strenuous times
Novelis is a catalyst for innovationAluminum is an incredible metal, but it’s what we do with it that makes it precious.
The all-aluminum 2014 Range Rover Sport
MAY 2014 insight iii
CONTENTS
insight
1
4 SMOG CHOKING CHINESE STEELSteel remains a prime target in China’s war against pollution.
8 JAPANESE STEEL DRIVES INTO SOUTHEAST ASIA
Downsizing at home and expanding abroad are what Japan’s steel giants are doing now, mainly for automotive sheet.
12 STEERING ALUMINUM ALLOY DEMAND
Carmakers are fueling demand for aluminum alloy, but pricing may be stuck in neutral.
16 SHEET STEEL MARKET MAKEOVERRecalibrated pricing of US carbon sheet steel means a more robust spot market in 2014.
20 THE NEXT BRIC?The Chinese economy is slowing and India is failing to live up to its billing as the “next China,” so which region will drive the next wave of growth?
24 STEEL IMPORT BATTLEGROUNDOver the past decade, the Latin American region has experienced a significant shift in its steel trade balance.
28 COPPER CATHODE SURPLUS? DEPENDS WHERE YOU ARE
Looking for a copper cathode surplus in Europe? Better look elsewhere.
30 LONG STEEL RECOVERYAfter an extended malaise, several factors may converge to work in favor of US rebar and beam mills.
34 CARS DEMAND LIGHTER METALSDrive for auto fuel efficiency takes aluminum alloys and silicon metal along for the ride.
36 PELLET PREMIUMS IN HIGH GEARChina could revolutionize global iron ore pellet trade.
40 BRAZIL’S PIG IRON STRUGGLESMerchant producers in the north team up to tackle changing export patterns.
50 PLATTS GLOBAL METALS AWARDSSuccess in Strenuous Times: a special section on this year’s winners of Platts Global Metals Awards.
insight
insight MAY 2014
May 2014
2
EDITOR’S NOTEIndividuals. Teams. Companies. Th ese are the vital links
along the business-achievements value chain, and Platts is pleased to honor many of them with its Global Metals Awards.
Th is special issue of Insight celebrates key achievements, but as importantly, celebrates the signifi cance of metals in a global economy. And it’s the job of Platts’ worldwide metals editors and analysts to provide actionable news, insight and credible, independent price data to the metals industries.
In this edition, for example, our Shanghai-based team of Tomas Gutierrez and Dai Yuelin kicks things off with a look at how steel remains a prime target in China’s raging battle against pollution.
Senior managing editor in Singapore, Russ McCulloch, then takes the reader on a ride along with Japan’s steel giants as they drive into Southeast Asian automotive markets. Th e duo of Tina Allagh in Washington and Suzie Windsor in London next shifts gears into aluminum, which also is benefi ting from automotive demand.
Pittsburgh’s Michael Fitzgerald steers back to steel, focusing on how new pricing mechanisms in the US carbon steel sheet market are fortifying 2014’s spot market. Australia-based Paul Bartholomew – in search of the next “BRIC,” given a slowdown in China’s growth rate – details the emergence of Indonesia. From there, Brazil-based Adriana Carvalho and Henrique Ribeiro are embedded in the war zone of Latin American steel imports.
Copper is in the spotlight in London-based Ben Kilbey’s article that examines the red metal’s regional supply situations. Pittsburgh-based Estelle Tran explores how steel long products in the United States, such as rebar and beam, are on the verge of a rebound after an extended slump. Tokyo’s Mayumi Watanabe turns the attention back to automotive, explaining what lighter cars mean for aluminum alloys and silicon metal.
London’s Hector Forster and Singapore’s Keith Tan analyze how China could revolutionize the global iron ore pellet trade. Finally, Pittsburgh’s Nicholas Tolomeo and Sao Paulo’s Priscilla Antunes describe how Brazil’s northern pig iron producers are in a fi ght for their lives as markets have changed.
Collectively, these insightful stories represent just a small sample of the quality contributions from the roughly 60 people who make up the world’s best team of editors, journalists and analysts. As a metals news and price information provider, our mission is clear: to help you continue to achieve award-caliber results.
— Joe Innace, Editor
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insight MAY 20144
CHINESE STEEL
Noxious haze has again wafted into a prevalent topic of conversation in China, with the worst air pollution in months choking much of the country’s north including Beijing, Tianjin and Hebei earlier this year.
Over February 20-26, more than one million sq km of China’s northern and central territory, or nearly 15% of the total, was blanketed by heavy smog. Beijing announced its fi rst ever ‘orange’ smog alert – just two weeks ahead of two of the most important political gatherings of the year.
As a result, the country’s steel industry, which was already high on the list of China’s most polluting industries, is expected to remain a focus of Beijing’s anti-smog plans and this could impact production.
Xu Lejiang, chairman of the China Iron & Steel Association (CISA), recently predicted China’s steel output rate of growth would slow in 2014 to 4% from 7.5% last year, meaning 810 million mt of crude steel made in China this year.
On March 6 at the National People’s Congress, Chinese premier Li Keqiang said the government will “declare war’’ on pollution and pledged to fi ght it with the same determination as the country has battled poverty. Smog is aff ecting ever-wider parts of China and environmental pollution is “nature’s red-light warning against the model of ineffi cient and blind development,” Li said.
Pollution has been a key political issue in China since January 2013, when the worst smog in China’s history covered one quarter of the country and aff ected some 600 million people.
China began publishing PM2.5 readings, a measure of small particulate matter in the atmosphere, across the country from January 1 last year. China’s meteorological authorities introduced a three-tier warning system the same month.
Some northern cities, including Beijing, saw PM 2.5 readings bust the usual 0-500 micrograms per cubic meter scale last year, topping 900 mg/cm on some
Steel remains a prime target in
China’s war against pollution.
YUELIN DAIAnalystShanghai
TOMAS GUTIERREZManaging EditorShanghai
CHOKINGCHINESE STEEL
5MAY 2014 insight
CHINESE STEEL
days. Th e World Health Organization recommends 25 mg/cm as an acceptable level.
China’s iron and steel industry, the second biggest consumer of coal after power generation, is perennially identifi ed as a chief culprit for air pollution, especially in northern Hebei province, which hosts one third of the country’s steel capacity and produced 188.5 million mt of crude steel last year.
China’s steel industry began to see air pollution impact production more directly during major smog last December and in February. Several municipal authorities in Hebei and in the eastern provinces of Jiangsu and Shandong have included the steel industry in contingency plans for smog alerts.
Th e municipal plans were formulated after China’s cabinet, the State Council, released an “Action Plan for Air Pollution Prevention and Control” on September 12, 2013, which suggested roughly a 20% cut in energy consumption per unit of industrial value added by 2017, compared to 2012, and focused on three key regions – the Beijing-Tianjin-Hebei area in the north, the Yangtze River Delta in the east and the southern Pearl River Delta.
In the event of a yellow smog alert, Hebei’s Tangshan municipality, which alone has annual steelmaking capacity of more than 100 million mt, will order all steelmakers to suspend at least 30% of production, and re-rollers to cease output between 8:00 am and 8:00 pm, equivalent to an output cut of 50%.
Th e main impact so far has been on iron ore sintering, and Tangshan Iron and Steel, the largest steelmaker in Tangshan,
reported halting operations at two sintering plants following a yellow alert in late February.
One Shanghai-based steel analyst noted that 90 sinter plants in Hebei province’s Tangshan city were fl agged for closure this year, while many more required upgrades. Not only could this impact iron and steel production, but the reduction in sinter output could increase ironmaking costs at small private furnaces without their own sintering facilities, he noted. �
Courtesy: Getty Images
insight MAY 20146
CHINESE STEEL
In early December last year, a total of 104 cities in 20 provinces saw their Air Quality Index soar over 300, forcing shutdowns at several mills in Jiangsu province. Nanjing Iron & Steel in Jiangsu’s capital city was forced to stop a sinter plant on December 3, impacting blast furnace output. Th e sinter plant restarted six days later – without revealing the extent of the output loss.
Meishan Iron & Steel, a Baosteel subsidiary in Nanjing, was also forced to shut down a sinter plant, blast furnace and converter over the same period, reducing steel output by about 25%, it said. Th is may have resulted in about 30,000 mt of lost steel output, Platts calculates.
Zenith Iron & Steel in nearby Changzhou city was also aff ected, ceasing output from a sinter plant, two blast furnaces and one bar mill on December 3. Th e shutdown was planned for one week, and the company took the opportunity to bring forward maintenance on a rebar mill. Th e stoppage was extended for a full month, meaning just over 130,000 mt of lost iron output.
Similar emergency measures are now expected to be taken each time a municipality issues a smog alert. “It’s likely we’ll see those state-owned or bigger steelmakers take action under the emergency measures ... as these bigger mills are strictly monitored by local environmental protection departments,” said a Shanghai-based analyst.
Market observers, however, are doubtful whether these measures will be thoroughly enforced. Smaller producers in Hebei’s Tangshan city will be a key test of this. Many small steelmakers
deactivate their environmental protection equipment when not being monitored to reduce costs by over Yuan 100/mt (about $16), market sources and industry analysts have said. “It will take time for the government to prove it is serious about these measures,” the analyst added.
On February 18, China’s Ministry of Industry and Information Technology (MIIT) pledged a ban on new projects in the steel, cement, electrolytic aluminum, fl at glass and shipbuilding industries before 2017, while gradually eliminating existing projects that were found to be below standard.
Although Chinese Premier Li Keqiang announced on March 5 an ambitious decommissioning target of 27 million mt/year each of iron and steelmaking capacity this year, the domestic steel market response was muted, as the reduction could still be outpaced by new capacity to be brought on-stream.
China closed 122 million mt/year of outdated ironmaking and nearly 70 million mt/year of steelmaking capacity during 2005-2010, but this was far outpaced by new capacity brought on-stream.
Last year, China added 25 million mt/year of new ironmaking capacity and 40 million mt/year of steelmaking capacity, according to MIIT. Meanwhile, its obsolete capacity decommissioning target for 2013 was just 2.63 million mt/year of ironmaking and 7.81 million mt/year of steelmaking.
Also last year, China’s crude steel capacity surged past the 1 billion mt/year mark, according to some estimates. Th e nation’s crude steel output reached 779.04
7MAY 2014 insight
CHINESE STEEL
million mt in 2013, up 7.5% from 2012’s 724.69 million mt, according to the National Bureau of Statistics (NBS).
Hebei, a major industrial region surrounding Beijing which contains more than half of the 10 most-polluted cities in China, has been the focus of China’s anti-pollution drive.
On February 23, during the last major smog, the province scrapped 16 blast furnaces and three converters at 15 steelworks. Th e campaign eliminated 6.71 million mt/y of pig iron capacity and 1.49 million mt/year of crude steel capacity across Tangshan, Handan, Qianghungdao, Xingtai and Zhangjiakou cities. Th is was the fi rst capacity eliminated in 2014 in Hebei.
Hebei has promised to remove 15 million mt/year of crude steel capacity in 2014 and has promised Beijing it will eliminate 66.72 million mt/year of ironmaking and 67.26 million mt/year of crude steel capacity by the end of 2017.
Tangshan city, Hebei’s largest steelmaking base, is drafting a plan to shutter 28 million mt/year of ironmaking capacity and 40 million mt/year of crude steel capacity by 2017.
Th e closures carried out so far, however, have been criticized for being box-ticking activities that have had little eff ect on actual overcapacity. Industry sources pointed out that the campaign in February once again targeted fairly small facilities and some of the plants demolished had actually not been in operation for some time because of the weak market. A Tangshan trader heard that one of the converters demolished had already been idle for about a year.
Th e largest concentration of facilities demolished about 3.3 million mt/year of pig iron capacity in Handan’s Wu’an city. But a source at an aff ected mill told Platts that the BF eyed for closure at his mill had actually been shut down last
year and a new, larger BF had already been commissioned to replace it.
Last November, a similar initiative dismantled ten blast furnaces and 16 converters and was also widely condemned as superfi cial. Th e facilities shut were from eight steel companies in Tangshan, Handan and Chengde cities, with a combined 4.56 million mt/year of pig iron capacity and 6.8 million mt/year of steel capacity – most of which had long before ceased production.
But despite doubts over the eff ectiveness of measures taken so far, environmental concerns are likely to continue to impact the steel industry. After a long period of emphasizing economic development over environmental protection, Chinese offi cials are now more likely to see the nation’s future shaped by how eff ectively they combat rampant pollution. Some 15 provinces have now promised marked improvement in air quality, and offi cials expect to be judged on their results in fi ve years’ time when they will again be jostling for another major round of promotions. Until then at least, the steel industry will be under ever increasing pressure to confront its pollution challenges. �
But despite doubts over the eff ectiveness of measures taken so far, environmental concerns are likely to continue to impact the steel industry.“ ”
insight MAY 20148
JAPANESE STEEL
On occasion, Japanese steel companies issue media alerts when they have absolutely nothing to announce. By any measure though, Kobe Steel’s of March 3 was particularly vacuous.
Th e Japanese integrated steel producer excitedly declared that with several partners including Republic Steel of the US, it was “considering” establishing a
joint venture in Mexico to process steel wire rod for automotive applications.
Yet so devoid of hard information was the announcement that pundits in Tokyo wondered at its purpose. “Maybe (Kobe) is trying to highlight the fact that, while it is shrinking its operations in Japan, it is expanding business outside of the country,” one Tokyo-based steel trader suggested.
Th e sage could have been right because downsizing at home and expanding abroad is precisely what the country’s steel giants are doing now, chiefl y for autosheet.
Over the past fi ve years the Japanese steel mills urged by their automaking customers have quietly reinforced automotive steel supply chains in Southeast Asia, most notably in Th ailand, Indonesia and India. Keeping pace, and setting the scene for a looming Battle Royal for market share, is the Japanese mills’ closest rival, South Korea’s Posco.
Autosheet is the product du jour for the Japanese mills because it’s the steel type holding the most promise as car
JAPANESE STEEL
DRIVESI N T O S O U T H E A S T A S I A
Downsizing at home and expanding
abroad are what Japan’s steel
giants are doing now, mainly for
automotive sheet.
RUSS McCULLOCHSenior Managing EditorSingapore
Courtesy: iStock.com
9MAY 2014 insight
JAPANESE STEEL
ownership surges among Asia’s growing middle class. It’s also where the Japanese mills still enjoy a quality edge after decades of R&D.
For example, Nippon Steel & Sumitomo Metal Corp (NSSMC) off ers ten diff erent sheet brands for auto use, each with multiple sub-varieties (many developed jointly with and exclusively for Toyota Motor; Toyota is NSSMC’s single largest domestic steel customer.)
Autos are also huge consumers of steel. Last year Japan’s domestic automakers consumed 13.1 million mt of Japanese carbon and specialty steel – slightly up on 2012’s 12.9 million – out of total domestic steel orders of 36.2 million mt, according to Japan Iron & Steel Federation data. Only construction consumed more.
Ironically, given the airiness of his company’s Mexico announcement, it was Kobe Steel President Hiroya Kawasaki who last year candidly identifi ed the challenge the Japanese steelmakers face – demographics.
Announcing in May 2013 Kobe Steel’s intention to stop the last remaining blast furnace at its namesake Kobe works in Hyogo prefecture, western Japan, and concentrate all upstream production at Kakogawa 20 miles away, Kawasaki cited Japan’s shrinking birth rate and the rise in Japanese manufacturing abroad for declining steel consumption.
A thinning population means fewer cars, appliances, houses and steel-heavy infrastructure to support it, Kawasaki explained. In Kobe Steel’s case, the Kobe and Kakogawa steel works have a capacity of 8.2 million metric tons/year
but in recent years output has averaged 6.8 million-7 million mt.
A clue to why Kobe Steel has surplus capacity lies in Japanese auto production data. Last year Japan produced 9.6 million cars, trucks and buses, down 3% from 2012 but off by a huge 17% from the 2007 record of 11.6 million, according to Japan Automobile Manufacturers’ Association numbers.
But data from market leader Toyota Motor Group show that during last year, while production of Toyota cars, Daihatsu mini-cars and Hino trucks in Japan edged up by 3% to 4.3 million units, Toyota Group output outside of Japan grew by 6% to 5.8 million units – a new record high. Toyota’s sales within Japan contracted by 5% last year while those outside rose by 5%, the company notes.
Th e drive for Japanese automakers to build manufacturing plants off shore began in the 1980s when the strengthening yen pummeled Japan’s dollar-denominated exports. From that time, Th ailand gradually became the country of choice for Japanese appliance and auto components manufacturers seeking lower costs. Today, Th ailand hosts 214 Japanese-affi liated auto components producers, according to the Japan Auto Parts Industries Association.
From the get-go, the fi nicky car companies demanded that their assembly plants abroad be served the same grades of steels their Japanese plants enjoy. In acquiescing, the Japanese mills initially just upped exports of the cold-rolled and hot-dipped galvanized and specialty steels needed. Th en later, as the carmakers were pressed by regional �
insight MAY 201410
JAPANESE STEEL
governments to lift local content, the mills responded by taking their own plants off shore too.
Auto production in Th ailand in 2012 topped 2.45 million units, according to Federation of Th ai Industries data, up 68% from 2011 and ranking Th ailand tenth among world car producers. Output last year was targeted at 2.55 million – with well over 90% Japanese-badged – though the country’s on-going political disturbances will likely clip this slightly. Th e Th ais expect output to top 3 million units by 2017.
Th ailand fi rst replaced China as Japan’s second-largest steel export destination after South Korea in January 2013, and repeated the feat in January this year (See table).
NSSMC’s view of its future emerged in March last year when the integrated giant tabled a mid-term management plan, its fi rst since its birth the previous October through the union of Nippon Steel and Sumitomo Metal Industries, then Japan’s largest and third-largest steelmakers. (JFE Steel remains number two.)
As expected, the merger rendered several domestic production lines
redundant and these NSSMC is shutting. Going by year’s end is a clutch of cold strip mills, pickling lines, annealing lines, hot dip galvanizing lines and electro-galvanizing lines. Several are already mothballed.
Signifi cantly absent from NSSMC’s catalogue of closures were any lines producing hot rolled coils, the intermediate product from which the CR and galvanized coils are produced. Th is was because the new CR and coated coil plants NSSMC is building abroad it hopes to keep partially fed with HRC shipped from Japan.
Last October NSSMC began commercial production at a new 360,000 mt/year HDG and galvannealed sheets plant in Rayong in eastern Th ailand. Most of the CR substrates the plant requires are being sourced next door from Siam United Steel, NSSMC’s 1 million mt/year CR mill built in 1995 during the last wave of Japanese steel investment in Th ailand. Most of the HRC feeds for SUS come from Japan.
But NSSMC was not the only Japanese steelmaker adding autosheet capacity in Th ailand last year.
In April, rival JFE Steel commissioned JFE Galvanizing (Th ailand), its new 400,000 mt/year plant for HDG and galvannealed, also in Rayong and in an industrial estate where Isuzu Motors Th ailand and Ford Motor Th ailand have plants. Indeed, most of the estate’s 384 tenants are auto and autoparts makers.
Industry sources in Bangkok estimate present autosheet demand in Th ailand at about 800,000 mt/year of which JFE’s share – including imports from Japan
EVOLUTION OF JAPANESE CARBON FLAT STEEL EXPORTS TO THAILAND
Product 2009 2010 2011 2012 2013
Hot rolled coil 967,479 1,621,758 1,478,892 1,896,444 1,622,282
-44.70% 67.60% -8.80% 28.20% -14.50%
Cold rolled coil 351,758 439,204 427,382 395,361 503,019
-25.70% -24.90% -2.70% -7.50% 27.20%
Galvanized 530,130 1,107,840 1,028,903 1,196,437 1,137,475
-45.70% 109.80% -7.10% 16.30% -4.90%
Total (all steel) 2,298,290 4,834,610 4,617,670 5,401,413 5,526,671
-35.50% 210.50% -4.50% 17.70% 2.30%
Source: Japan Iron & Steel Federation
11MAY 2014 insight
JAPANESE STEEL
– is about 55-60% while NSSMC’s including imports is 35-40%.
Between them the two Japanese giants are meeting the bulk of present Th ai autosheet demand though within the next two years they will face tough competition.
Posco in March announced plans for its own 400,000 mt/year HDG plant to start up by end-2015 also in Rayong, clearly targeting Japanese carmakers. Posco CEO Joon-yang Chung had told Platts that, with Th ailand’s auto sector expanding, “there will be enough (autosheet demand) for both sides” – namely the Japanese and Koreans.
But Japanese sources in Bangkok claimed that Japanese carmakers would prefer Japanese-branded steel. “We don’t think Posco can expand its sales,” one said.
Th e scramble for autosheet business likely to erupt in Th ailand between and among the Japanese and Korean steel giants will almost certainly be replicated elsewhere in Southeast Asia, certainly in Indonesia.
Here JFE is leading. Last December the Japanese mill broke ground for another 400,000 mt/year galvanizing plant to be located in Bekasi, east of Jakarta, and to commission around March 2016. Th e line will be almost identical in specifi cations to that JFE already operates in Rayong.
Lagging JFE is NSSMC which, with Indonesia’s state-owned steelmaker PT Krakatau Steel, is studying plans to build a joint venture plant adjacent to Krakatau Steel’s facilities west of Jakarta to make automotive sheet products
mainly for Japanese car and motorbike makers in Indonesia.
NSSMC revealed its Krakatau plans in December 2012. In March it claimed to be continuing to study the proposal “positively” but Posco could be what’s causing the hesitation.
On the same day in March 2013 that Posco fl agged its auto sheet plant in Th ailand, the Korean mill committed to an identical HDG line in Indonesia, exclusively for autosheet and most likely near its integrated joint venture project in the country. Krakatau’s involved here too.
Last December, Posco and Krakatau inaugurated their new integrated works near the latter’s existing west Java works. Th e fi rst phase of their jv steelworks has a capacity of 3 million mt/year – evenly split between slabs and plates. However, pundits suggest a second stage doubling capacity will see facilities for HRC added.
Of course, the CRC substrates for Posco’s Th ai and Indonesia autosheet plants could come from Korea. Yet since August 2009, Posco has been producing CR in Phu My in southern Vietnam – just a few days sailing away from each – at Posco-Vietnam Co, host of a 1.2 million mt/year combination pickling and tandem CR mill and a 700,000 mt/year continuous annealing line. Interestingly, NSSMC owns 15% of that venture.
Korea’s exports of HRC to Vietnam peaked at 1.09 million mt in 2011 before dipping to 829,600 in 2012 and 761,400 mt last year. Posco offi cials explain the dip on the fact that Posco-Vietnam is now taking HRC feeds from NSSMC too. �
insight MAY 201412
ALUMINUM
European aluminum alloy makers are expected to enjoy a much needed uptick in demand throughout 2014 – particularly from the premium automakers such as BMW, Audi, Volkswagen, Daimler and Mercedes – but low ingot sales prices versus consistently fi rm scrap input costs is a growing concern.
Sales volumes for aluminum alloy in Europe during the second quarter are forecast to grow 10-25% from the fi rst quarter, depending on country, sources predict.
“Volumes in Q2 are very strong, even buyers who already agreed to contracts are asking for additional quantities,” says a Polish alloy producer. Alloy buyers in Germany, Hungary, the Czech Republic, and some French diecasters who supply the main auto market – Germany – were seeking higher alloy volumes in Q2 based on stronger sales of car parts to the automotive industry.
A large European diecaster adds that Q2 demand was signifi cantly stronger than in Q1, while others have suggested that
Europe’s alloy demand will be fl at to around 5-10% higher this year.
“We’re expecting similar demand for 226 [alloy] in 2014 overall. We have a 10% increase in car part output for some of our German customers, but a 10-15% fall in other areas, particularly where we supply PSA in France,” notes a German diecaster.
“It’s looking good for the whole year. All the big buyers have had the same positive view,” says another German alloy producer, who forecast an average increase in German aluminum alloy demand of around 5% in 2014.
“Following a disappointing year in 2013, car sales in Germany appear somewhat stronger in the early months of 2014. With a healthy labor market and rising real wages, the outlook appears bright for the region’s largest market,” wrote LMC Automotive analyst Jonathon Poskitt in his report on February car sales.
Western European car sales grew by 5.1% in February to 813,604 units and
Carmakers are fueling demand for
aluminum alloy, but pricing may be
stuck in neutral.
SUZIE WINDSORAssociate EditorLondon
TINA ALLAGHSenior Managing EditorWashington
STEERING ALUMINUMALL Y DEMAND
13MAY 2014 insight
ALUMINUM
for the sixth consecutive month, the market recorded a year-on-year expansion, Poskitt noted.
Despite the uptick in demand, which became evident in December 2013 and carried on strongly throughout the fi rst quarter of 2014, market prices for 226 aluminum alloy have weakened. Th e Platts European 226 alloy assessment shows market prices pulled back by around Eur60/mt ($84) throughout Q1.
Prices in Germany, Europe’s key market, shifted lower during the fi rst quarter. Many Q2 contracts settled at around Eur1,640-1,660/mt delivered, plus credit, and further downward pressure is expected to come in the off -peak summer months, sources suggest.
At the time of this writing, most producers maintained that prices were nearing the bottom of the market. Spot prices are predicted to fall to a low of Eur1,600/mt during the slacker summer months, buyers say.
A number of sellers said they have already noticed an uptick in requests for additional quantities, possibly because some diecasters feel prices are already close to rock bottom and will head up end-August/September.
One of the reasons European spot prices have come under so much pressure is because of plentiful supply in the region.
Europe is still suff ering from overcapacity even since the closure of German producer Oetinger’s Berlin and Hanover plants in September/October 2013, which took 120,000 mt/year of capacity out of the market.
“Oetinger’s two plants closed and then the prices still dropped. Th at’s a sign that there’s too much capacity,” explains a European producer.
Spanish producer Befesa is expected to start its new Eur30 million ($41.4 million) secondary aluminum unit in
Nachterstedt, Germany, September 1 which will bring an additional 90,000 mt/year to the market.
“Th e European market is possibly oversupplied by around 100,000 mt. We may see a similar situation to last year,” warns a diecaster. He speculated that if margins get too low, some producers may be forced to close.
Lower industrial production since 2009 in Italy, Spain, Greece, and – to a lesser extent – France has meant that secondary aluminum availability overall in Europe has increased. And fi erce competition for market share in the key market, Germany, has kept spot prices under pressure.
European producers have complained for numerous months that their margins are at a breaking point with the ratio between scrap input costs and ingot sales prices, leaving most, if not all, in the red.
“We’re selling really good volumes, much more than expected. It’s disappointing about the price as we just don’t achieve good enough margins between the �
Despite the uptick in demand, which became evident in December 2013 and carried on strongly throughout the fi rst quarter of 2014, market prices for 226 aluminum alloy have weakened.“
”
insight MAY 201414
ALUMINUM
scrap and 226 ingot price,” adds a second Italian producer.
He warned that if the squeeze on margins continued, further insolvencies would occur. “It will happen again [referring to German producer Oetinger’s insolvency in 2013] and buyers are playing with fi re,” he believes, suggesting that if scrap prices jump then some sellers may not be able to deliver against forward Q2 sales.
Aluminum scrap has been readily available in the German market and elsewhere in Europe due to the lack of
exports to Asia in Q1, but Indian and Chinese buyers are predicted to re-enter the market in Q2.
“Th ere’s no space to produce [226] with a profi t. Scrap dealers won’t deliver that much at low levels and will prefer to export it,” comments the Polish producer.
Th ere are also growing concerns that Novelis’ new $250 million recycling and casting center in Nachterstedt, Germany, which is due to be completed in July, will take large quantities of scrap out of the European system, leaving aluminum alloy producers short of the key ingredient.
Th e plant will produce up to 400,000 mt/year of aluminum sheet ingot from recycled material and is projected to be
the world’s largest aluminium recycling center, according to Novelis.
In the US, auto sales still look good in 2014 and through the next few years, according to the North American Die Casting Association in its 2014 state of the industry report.
Despite the initial slow start to the year, LMC Automotive’s forecast for total North American light-vehicle sales in 2014 remains at 16.2 million units, with retail light-vehicle sales of 13.3 million units.
“With the likelihood of fl eet sales holding below 18% and modest retail sales increases, the absolute rate of growth could be lower than initially expected,” cautions Jeff Schuster, senior vice president of forecasting at LMC Automotive. “Th e auto industry needs to be prepared for slower but stable growth and increased competitive intensity, which will put pressure on the successful execution of launches this year.”
Due to severe winter weather through the fi rst quarter, LMC Automotive has reduced its 2014 North American production forecast by nearly 100,000 units to 16.5 million units, a 2.5% increase from 2013. Th is is still the highest total in the region since 2000.
But other aluminum diecasting end markets are cyclical, according to NADCA. Th e lawn and garden equipment and power generation sectors have been gradually slowing after the 2011 boom.
A small engine maker said he will be winding down his peak season by May/June. He said looking forward,
Despite the intial slow start to the year, LMC Automotive’s forecast for total North American light-vehicle sales in 2014 remains at 16.2 million units, ...“
”
15MAY 2014 insight
ALUMINUM
depending on scrap pricing and the availability of London Metal Exchange NASAAC material from the warehouses, “I believe a return to the $1.03-1.05/lb level [on A380] is realistic.”
Th e Platts A380 price as of April 24 was $1.06-1.07/lb, delivered Midwest.
Overall, aluminum diecasting shipments are expected to be up in 2014 compared with 2013. US aluminum diecasters said they are expecting an approximate 10% increase in demand this year versus last.
Against this backdrop, US aluminium alloy producers said they expect fi rmer alloy pricing through the rest of the year. Th ey also said their margins have been improving but were constrained by overall higher copper and silicon prices.
“Margins could still get better, but we had bad margins for a long time due to high scrap costs,” remarks a non-Midwest alloy producer.
A Midwest producer claims his margins are at “acceptable levels. Th ey could be better, but the freight costs are taking a big winter bite.” He says, “We would hope the better weather would help with the scrap fl ow into our plants. We think we see improving margins until late May/June, when sales historically taper off . We see the second-half margins weaker than in the fi rst six months.”
On the demand side, he sees consumption remaining strong, but expects “demand to weaken toward the end of Q2 and into the second half.”
Th e producer expected alloy prices to be relatively fl at to slightly up – depending
on when the winter weather in the US broke. Secondary prices have been in the doldrums over the past three years and have not been this soft since 2009.
“We think the supply of scrap will increase as the weather improves,” he adds. “We expect scrap prices to inch up, but there is some uncertainty in the continued operation of Chinese potlines
and whether some of the capacity being taken off line will draw more scrap units to be exported from North America.”
But another producer warns even with the warmer weather, “It will take a few months to replenish the scrap supply, and then we hit July, so I don’t expect a softer market until June/July. If volume picks up as it normally does in Q3, then we should stay fi rm, and I expect to see $1.10 for 380.”
A Midwest producer who supplies an automotive transplant said automotive inventories are at fi ve-year highs, noting that the severe winter weather through Q1 curtailed some sales.
But, he said, there is a lot of pent-up automotive buying as the average age of a car on US roads is over 11 years old.
“I think the diecasters are really driven by automotive, and that certainly looks stable in second half,” said another producer. “Anything to do with housing, I don’t think is a runaway, but hopefully housing continues to support the diecast industry.” �
Th ere is a lot of pent-up automotive buying as the average age of a car on US roads is over 11 years old.“ ”
insight MAY 201416
US SHEET STEEL
Many US steelmakers in mid-2013 began to institute changes in how carbon sheet deals were structured. Th e main change – a move away from index-minus pricing, which had become an industry standard – has altered the landscape of the US fl at-rolled market.
As many major mills began taking a tougher stance on new contract positions in an attempt to achieve higher prices, some sacrifi ced tons – normally allocated to term contracts – to the spot market. US sheet buyers and sellers are now dealing with a more robust spot market in 2014, and this has many market players expecting increased price volatility throughout the year, because some of the stability of previous years’ contracts has been removed.
“We at Nucor have recognized that the returns that have been generated by that [index-minus] pricing mechanism were not compensating us for the quality, service and on-time delivery that we provide to customers today,” Nucor CEO John Ferriola said during an earnings conference call in the fourth
quarter of 2013. Nucor and other major producers were looking to improve their contract structures.
“My problem with the whole [index-minus] system was that there was little to no diff erence between the price I was paying when I had 50,000 [short] tons a month on contract compared to the guy down the street who was only buying 1,000 tons a month,” a service center executive said. “Th ere may have been a separation of 1% or so, but it didn’t make sense.”
Another issue associated with the system was the prevalence of “bucket deals,” or additional spot tons buyers would aim to add at the previously agreed index-minus price. Mill sales people tended to acquiesce – grateful for more volume.
A major problem with bucket deals, according to one trader, was the opportunity for distributors to “sell forward” into the market at lower prices because they knew what their spot transactions purchased at the index-minus level would be. Th is caused a downward pricing feedback loop as those
SHEETSTEEL MARKETMAKEOVER
Recalibrated pricing of US carbon
sheet steel means a more robust
spot market in 2014.
MICHAEL FITZGERALDAssociate EditorPittsburgh
17MAY 2014 insight
US SHEET STEEL
spot transactions at the lower prices were then reported to the pricing index, driving down prices.
Another buyer also noted the ability to get spot pricing at the bucket-deal level, absent an actual contract with a producer.
“Th ere were cases where we would be competing for the same business against larger buyers who had bucket deals, and when we would go to a producer and explain the situation, we were able to get the benefi t of bucket-deal pricing, without having a bucket,” the buyer said.
Now, most – if not all – bucket deals are gone in 2014, according to market sources on both the buy and sell sides. In addition, the majority of steel producers were able to reduce or eliminate discounts associated with the old
index-based contracts, while some mills took a harder stance and eliminated index-based contracts by opting for diff erent 2014 pricing mechanisms.
One major producer estimated that the average discount per short ton last year under the index-minus contracts was approximately $55; for 2014, however, the average has been closer to $18-20/st.
“In total, the form of the discount from the purchase order moved to an incentive-based program,” a distributor said, noting that mills were attempting to “reset the table” regarding incentives for larger-volume buyers.
Many producers have relied more heavily this year on multi-tier, volume-based rebate incentives to reward larger buyers and customer loyalty, and restore more discipline to the market. �
Steel coils from the hot strip mill await further fi nishing
– cold-rolling and galvanizing – at Severstal North
America’s plant in Dearborn, Michigan.
Courtesy: Joe Innace
insight MAY 201418
US SHEET STEEL
In one example, if a buyer purchases the minimum monthly tons as contractually obligated up to the top limit of the fi rst tier, the buyer would receive a $5/st discount, regardless of product. If the buyer reaches the second or third tier, it’s $10/st and $15/st discounts, respectively, regardless of product. When the buyer reaches the fourth tier of volume, a $20/st discount is given on hot-rolled coil, hot-rolled pickled and oiled coil, and cold-rolled coil, as well as a $25/st discount on hot-dipped galvanized products.
“Th e advantage the bigger buyers had in the past years was being diminished, but looks to have returned in calendar year 2014 over the smaller and medium-sized buyers,” the distributor noted.
A major producer added that the rebate programs are a way to promote buying consistency with customers. Under the old index-minus-based deals, “buyers were allowed to come and go with no consequences, but with the rebates it helps to try and add some [buying] discipline.”
As sheet supply contract negotiations dragged on through the end of 2013 and into 2014, many in the market – particularly smaller to medium-sized buyers – found that their larger discounted deals were no longer on the table. Th is led to more spot market activity, growing from about 35% of the overall market to around 50%, according to a service center executive.
“While it may not seem like a lot, this is more than what people were expecting,” he said.
An executive at a major sheet producer confi rmed that since the start of this year
there has been a large increase in spot inquiries.
“Every day we receive large potential orders,” he said. “We don’t win a lot of them, but they are shopping them around and someone is winning those tons.”
While some participants remain unsure about the impact of the spot market resurgence, most seem to believe that 2014 will see increased pricing volatility throughout the year.
“Th e volatility is going to come back,” one trader said, noting the state of US hot-rolled coil pricing. “Th e market is moving substantially in a short period of time.”
Since January 2, the Platts-assessed prices for hot-rolled coil fell from $680-690/st EXW US Midwest to $630-640/st, but then recovered to about $655/st as of early April, Platts data showed. As of this writing, mill outages and unforeseen supply limitations now point to a further pricing uptrend, buyers and sellers concurred.
While some expect less pronounced price swings throughout the year, the trader disputed notions that “the market can’t really get that ugly” due to relatively good business conditions. Citing the increased volatility of more spot pricing, he asked, “What is there to stop it?”
Overall, the 2014 US sheet steel market looks to be more volatile in aggregate than the market in 2013. However, the new pricing mechanism alternatives should permit individual mills and customers to better weather the valleys and the spikes. �
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insight MAY 201420
INDONESIA
No one has yet succeeded in coining a term as popular as ‘BRIC’ (Brazil, Russia, India and China) when trying to identify the next group of rapidly developing economies, but one country that makes it onto all post-BRIC lists is Southeast Asia’s largest economy, Indonesia.
Th e ASEAN region, which includes Indonesia, Malaysia, Vietnam, Th ailand, Philippines and Singapore, is now mentioned regularly by companies such as BHP Billiton and Rio Tinto as a part
of the world they expect to sell more resources to in coming years to feed the region’s rapid urbanization.
Speaking at an industry conference in Perth in March, BHP head of iron ore Jimmy Wilson, highlighted the region’s 400 million population and its proximity to the iron ore mines of Western Australia. Indonesia has a population of 240 million and contains a dozen cities with more than one million people spread across a vast archipelago.
The Chinese economy is slowing and
India is failing to live up to its billing
as the “next China,” so which region
will drive the next wave of growth?
INDONESIA
Sumatra
MALASIA
VIETNAM
AUSTRALIA
PHILIPPINES
Borneo
Java
Jakarta
Sulawesi
Papua
Timor
PAUL BARTHOLOMEWManaging EditorMelbourne
THE NEXT
BRIC?
21MAY 2014 insight
INDONESIA
Indonesia has a growing manufacturing base and its property and construction companies have seen the price of their shares soar this year on the back of a property boom. Jakarta is a bustling and gridlocked metropolis of 10 million people with sparkling shopping malls and new apartment blocks. But travel just beyond the city’s outskirts and it quickly becomes a landscape of rice paddies and water buff alo. Th e country’s steel consumption in 2012 was just 51kg per capita, compared with 245kg per capita for Th ailand, which has 66 million people.
According to the South East Asia Iron & Steel Institute (SEASI), steel consumption in the region grew 17% year on year in January-June 2013 to 32.2 million mt. Indonesian steel consumption rose 35% on the same period in 2012 to 7.6 million mt, while Vietnam’s grew 29% to 6.2 million mt. Malaysia’s steel consumption grew 16% to 4.9 million mt, while Th ailand’s rose by just 1% to 8.1 million mt. Th e region’s smallest nation, Singapore, saw its steel consumption rise 20% over the corresponding half in 2012 to 2.1 million mt, while the Philippines grew 4% to 3.2 million mt.
Steel output in the region grew 12.2% year on year in January-June 2013 to 14.2 million mt. Of this total, 10.7 million mt consisted of long steel products, up 17.2% on the previous year, with the balance hot-rolled fl at products, down 0.5%.
Imports stifl ing local industrySoutheast Asia’s own steel production covers less than half of its steel requirements. But rather than the local
industry expanding to meet rising appetite for steel, the gap is being fi lled by imports, causing capacity utilization at mills in the region to fall below 50%. Steel imports reached 22.3 million mt in January-June 2013 from 19.5 million mt a year earlier.
China is responsible for the lion’s share of imports, frustrating local steelmakers who argue they are unable to compete with cheaper imports. In January-July 2013, China exported 36 million mt of steel, of which 10 million mt (27%) was shipped to Southeast Asia.
Steel companies in the region complain that China is allegedly exploiting trade loopholes to swamp the markets with imported steel. Th ey argue that much of the Chinese hot-rolled coil is actually carbon steel “disguised” as alloy steel due to the addition of traces of boron and is therefore subject to lower tariff s.
Data compiled by World Trade Atlas shows that China’s carbon HRC exports to Southeast Asia fell to just 22,611 mt in 2012 from 2.1 million mt in 2007. But alloy HRC exports from China increased to 1.7 million mt in 2012 from 37,505 mt in 2007. �
ASEAN REGION APPARENT STEEL CONSUMPTION (MIL MT)
2011 2012 H1 2012 H1 2013
Thailand 14.5 16.3 8.1 8.2
Indonesia 10.9 12.5 5.6 7.6
Vietnam 9.7 10.9 4.8 6.2
Malaysia 8.2 8.9 4.2 4.9
Philippines 5.1 6 3.1 3.2
Singapore 3.8 3.8 1.7 2.1
ASEAN 52.4 58.6 27.6 32.2
Source: SEASI
insight MAY 201422
INDONESIA
Th ere are a number of trade defense actions pending with various countries in the region and the ASEAN Iron & Steel Council has taken the issue up with the China Iron & Steel Association, but as yet there has been little impact on the volume of Chinese imports.
Japan is also a major exporter of steel to the region, accounting for 37% of total
cold rolled coil imports in the June 2013 half, and 33% of coated sheet imports.
Steelmakers complain that losing market share to imports means banks are unwilling to lend to them, which curtails their capacity expansion plans and the development of the region’s steel sector in general.
Michael Loefl er, CEO of Th ailand-based HRC producer GJ Steel, said it cost $9-10 billion to build an integrated mill targeting car manufacturers, money that local banks were unwilling or unable to provide. “JVs or strategic partnerships are clearly the way to go,” he said.
Th e steelmaking process of choice in Southeast Asia is the electric arc furnace process because of the lower capital costs compared with other iron and steel making, such as the blast furnace-basic oxygen process. At least 95% of steel in the region is made using an EAF,
meaning there is strong demand for scrap. However, low utilization rates saw total scrap demand for the region fall 8% on 2011 to 18 million mt in 2012, with imports dropping 13% to 7.5 million mt. In Indonesia, scrap demand fell 22.5% to 2.5 million mt with domestic supply halving to just 850,000 mt in 2012 and imports declining 7% to 1.7 million mt.
New blast furnace venturesStill, some of the newer steel projects in the region are going down the blast furnace route in a bid to increase capacity and produce higher quality steel. In Malaysia, a joint venture between local company Hiap Teck Venture Berhad and China’s Shougang Group is expected to produce 700,000 mt/year of steel slab in 2014. In Vietnam, Hoa Phat Group commissioned a mini-blast furnace with 450,000 mt/year capacity in September 2013.
Possibly the two most eye-catching projects in the region are the Krakatau-Posco integrated steelworks JV in Indonesia, and giant Taiwanese company Formosa Plastics Group’s fi rst foray into steelmaking with its Ha Tinh steelworks in Vietnam.
Th e blast furnace at Krakatau-Posco’s venture – a 30:70 equity split between the state-owned Indonesian steelmaker and the Korean giant – was fi red up in late 2013 and will produce 3 million mt/year of slab and plate in the fi rst stage before doubling capacity under stage two of the project. Located close to Krakatau’s existing works in Cilegon, a two hour drive from Jakarta, the JV is sourcing raw materials through Posco’s relationships with Australian and
Steelmakers complain that losing market share to imports means banks are unwilling to lend to them, which curtails their capacity expansion plans and the development of the region’s steel sector in general.
“”
23MAY 2014 insight
INDONESIA
Brazilian miners. But the plan is for the JV to eventually source up to 30% of its iron ore and metallurgical coal needs from within Indonesia. Th e JV is expected to consume 2.8 million mt of iron ore in 2014.
Meanwhile, Taiwan’s Formosa is constructing a 22 million mt/year steelworks in Vietnam, with the fi rst blast furnace due to be lit by May 2015. A Formosa offi cial told Platts that “everything was currently on track” to meet its deadline. To ensure the works has a reliable iron ore feed, Formosa entered into an agreement with Australian iron ore producer Fortescue Metals Group to help develop the miner’s Iron Bridge magnetite project in Western Australia. Th e deal included a purchase agreement for 3 million mt/year of iron ore when steel production starts at Ha Tinh in 2015.
Indonesian met coal recedesIn 2005 Indonesia overtook Australia to become the world’s largest exporter of thermal coal, but the Southeast Asian country’s metallurgical coal sector is taking longer to develop and if anything has been regressing. Th e country produced less than 8 million mt in 2013, most of which came from PT Borneo Lumbung Energi & Metal. China imported just 2.6 million mt of met coal from Indonesia in 2013, some 300,000 mt fewer than the year before. India has long been mooted by developers as the likely destination for most Indonesian met coal but given the Indian steel industry’s slow development and the abundance of Australian coal in the seaborne market, this may no longer be the case.
BHP owns 75% of the greenfi eld IndoMet Coal project in the
Indonesian island of Kalimantan, which could potentially produce 15 million mt/year by 2025, but weak global coal prices and the miner’s emphasis on optimising existing
operations mean IndoMet is unlikely to be a major priority. Th e Melbourne-based mining company told Platts in March that the project won’t produce coal this calendar year. “We continue to evaluate the potential for larger scale developments in the region,” a company spokeswoman added.
For several years the Indonesian government has been trying to develop a minerals regime aimed at retaining unprocessed raw materials for domestic use and placing greater emphasis on value-added exports. A January 12 announcement fi nally provided some clarity. For steel market participants, the biggest impact will be the ban on nickel ore as Indonesia produces 13% of the world’s mined nickel. Exports of iron ore and manganese concentrate can continue until 2017.
Of the Southeast Asian countries, Indonesia and Malaysia are the only signifi cant producers of iron ore. Indonesia exported 17.8 million mt of iron ore to China in 2013, up 70% on the previous year’s 10.5 million mt. Malaysia exported 11.7 million mt of iron ore to China in 2013, double the amount it achieved in 2011. �
Of the Southeast Asian countries, Indonesia and Malaysia are the only signifi cant producers of iron ore.“
”
insight MAY 201424
LATIN AMERICAN STEEL
Th e Latin American region has typically been a signifi cant net exporter of steel, but this started to change in 2010, when the region’s imports exceeded exports by between 2.5 million-3 million metric tons. Following a year of more equilibrium in 2011, the region’s steel trade balance returned to defi cit again in 2012 and 2013, mainly due to the eff ects of global excess capacity.
Rolled steel imports into the region grew 54% between 2005 and 2013, and are expected to reach 18.4 million mt in 2014 – 28% of the apparent consumption, according to the Latin American Steel Association, Alacero − which represents the local steel, ferroalloys and related companies.
Despite several protective barriers launched by local governments in the past two years and companies’ eff orts to curb such penetration, there is still room and need for imports. While Latin America is mathematically able to meet the demand of domestic consumers, it would be too costly for steelmakers to produce each product for each application required in the region – given thousands of steel
products types/grades and their lengthy list of diff erent applications. Imports then come to play the two sides of the coin: competition and complementation.
While open steel trade is generally positive for the industry, with imports also playing a huge role in facilitating infrastructure building, supporting construction activity, and in boosting the expansion of the country’s industrial or manufacturing base, unfair trade practices can cause signifi cant harm to domestic producers, warns Anthony de Carvalho, head of the Secretariat to the OECD Steel Committee.
“Currently, Chinese imports represent near 30% of the trade fl ow to the region, many times under unfair commercial conditions and subsidies, which has a major negative impact on the local industry,” says Guillermo Moreno, general director of Alacero.
“By fostering greater competition, open markets for steel encourage domestic producers to seek better ways to produce steel, cut costs, and develop products that better meet the needs of downstream industries,” adds Carvalho. “But steel
Over the past decade, the Latin
American region has experienced
a significant shift in its steel trade
balance.
ADRIANA CARVALHOManaging EditorSao Paulo
HENRIQUE RIBEIROAssociate EditorSao Paulo
STEEL IMPORT
25MAY 2014 insight
LATIN AMERICAN STEEL
trade does not always take place on a level playing fi eld, and often creates trade frictions between trading partners.”
For Moreno, the local steel industry fi nds itself with idled opportunities, “given the massive imports supplying local needs with abnormally low prices in some cases.”
And it’s exactly the combination of competitiveness and effi ciency versus illegal trade practices that are considered a key issue for the Latin America steel industry. Even though the region could theoretically supply its steel demand, industrial and logistical bottlenecks everywhere from Mexico to Uruguay prevent the local product to compete with the foreign rivals under equal conditions of price. In countries such as Brazil, for example, the problem is widened by the strong impact of high energy costs, plus federal and state taxes infl ating prices up to 30% in several cases.
Moreover, “the appreciation of the Real against the US dollar had severe impacts for costs competitiveness in Brazil. Th e country used to be one of the most competitive in terms of production, but now it is in the middle of the costs curve,” says Germano Mendes de Paula, professor of the Economy Institute of Federal University of Uberlândia.
In Chile, integrated steelmaker CAP Acero had to abandon the fl at-rolled market due to its inability to compete with prices of imported products, shutting down all its three lines starting in 2011 with zincalume, cold-rolled coil and fi nally hot-rolled coil in June 2013. In the same boat, Gerdau Chile bailed out of its drawn line – which represented 2% of its domestic shipments – last
November. Both cases were challenged mainly by Chinese competition.
Nonetheless, Chile sustains 57 free-trade agreements with countries from four continents. “Of course CAP’s failure in the fl ats front has something to do with the country’s market openness, but they [company management] were also responsible for this. CAP did not invest over many years, it did not modernize its lines. Th ey were overconfi dent on �
Source: Alacero
0
5,000
10,000
15,000
20,000
25,000
2011 2012 2013 2014
Imports Exports
LATIN AMERICAN STEEL TRADE
1,000 MT
Source: Alacero
0
200
400
600
800
1,000
1,200
1,400
Arg
entin
a
Bra
zil
Cen
tral
Am
eric
a
Chi
le
Col
ombi
a
Cos
ta R
ica
Cub
a
Ecua
dor
Mex
ico
Par
agua
y
Per
u
Dom
inic
anR
epub
lic
Vene
zuel
a
2012 2013
CHINESE FINISHED STEEL EXPORTS TO LATIN AMERICA
1,000 MT
insight MAY 201426
LATIN AMERICAN STEEL
their brand, so they lost competitiveness,” contends Roberto Picón, trader head at Ferrochile.
Taking a wider perspective, besides direct steel import competition, a major challenge for local steel producers is overvalued exchange rates and what has
been occurring in their local downstream industrial sectors. Th ese sectors are also losing competitiveness, and, as a result, are producing and investing less, losing market share, and thus also demanding less steel from Latin American producers.
Unlike Chile, most of the other Latin American countries have been betting on intense protective measures to deal with the presence of imported products. From January 2013 to February 2014, more than 15 measures were applied across the region against foreign steel products, including antidumping penalties, and an additional 15 cases are still under analysis or investigation, according to Platts’ research. Most of these target Chinese products.
“Besides the AD measures, there are also some technical barriers that impose a series of requirements and standards for imports of steel rebar, for instance, which are not the same required for the home-made products, and this is not a fair ground as well,” says Rinaldo Maciel de Freitas, superintendent of the Brazilian steel importers companies association, ABRIFA.
On the other side, a steel-consumer association named Camacero was created
in Colombia to fi ght a provisional tariff imposed last year on rebar, wire rod and profi les exported from member countries of the World Trade Organization (WTO). Mexico is the main target with a provisional tariff , as it supplies 65% of the Colombian long-products market. Th e safeguard on these products was removed
in April – so the Mexican side won this round – but the concern was raised again by Colombian steelmakers. “Colombia produces around 1.2 million mt/year of long products, but it consumes 2.1 million mt/year. We are short on steel, and this is the same in the fl ats market, in which we have not enough production and a consumption of 1 million mt/year”, argues Edgar Plazas, Camacero’s president. Camacero represents end-users and distributors that rely on foreign steel to fulfi ll their requirements. Following the application of the provisional tariff in mid-2013, rebar prices in the South American country surged by 15% from October 2013 to the present.
Protective trade remedies, when applied transparently and in accordance with international trade laws can be legitimate ways to off set injury experienced by local producers due to unfair trade practices. “Th e problem in the steel industry is that governments continue to resort to many others often less transparent or unilateral measures. Th ese protective measures have contributed to a number of downturns – even crises – in the global steel industry over the past several decades. Th e main lesson learned is that, at best, such protective measures may provide temporary
relief to distressed steelmakers, but they do not provide long-lasting solutions for the industry,” remarks Carvalho.
As the lack of competitiveness prevents Latin American steelmakers from competing on price terms, companies have increasingly developed alternative advantages, such as improving and creating unique quality services, plus widening off ers of higher value-added products.
“Key priorities for the Latin American steel industry in the future will include enhancing the overall competitiveness of manufacturing sectors, including steel, facilitating higher industrial investment, and balancing economic growth in the region to ensure a greater role for manufacturing activity and less reliance on commodity-based growth. Industry players will have to focus on ways to increase the steel industry’s competitiveness in a sustainable fashion, possibly through innovation and higher productivity,” urged the OECD’s steel committee.
It’s unclear how attractive the region will be for exporters in the future. Exports will likely fl ow to those regions where demand growth is stronger than elsewhere and where domestic producers are less competitive in producing the steels required by downstream industries.
Latin America is expected to experience somewhat faster growth in steel demand compared to the world average, but other regions such as the Middle East and much of Southeast Asia are experiencing comparatively stronger demand growth. Low investment rates and the relatively small role played by the manufacturing sector in the region’s economic activity continue to limit the potential for steel demand growth in Latin America. �
It’s unclear how attractive the region will be for exporters in the future.“ ”
© 2014 Thomson Reuters. 04/14.
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insight MAY 201428
COPPER
Last year, 2013, was the year that analysts cried out for a surplus of refi ned copper material. So far in 2014, it’s hard to fi nd – in Europe at least. Looking at China, it’s a diff erent story. Exchange stocks, as well as off exchange, continued to build in early 2014. One source recently told Platts that they have good evidence that there could be as much as two million mt of copper in the country.
However, inventories in Shanghai Futures Exchange (SHFE) sheds stood at
142,671 mt April 11, down 17% on week, data showed. At the end of February stocks weighed in at 198,286 mt. Some are quizzing whether a recent crash in premiums in China – on an unwinding of copper-backed bank loans, could start to see metal fl owing out of the country and to other locations.
Turning to Europe – Rotterdam, specifi cally, where Platts bases one of its assessments – and stocks stood April 11 at 3,200 mt, up from 2,500 mt at the start of 2014, but a long way south of a year ago. Go back to March 6, 2013 and stocks stood at 14,625 mt.
Current premiums are a good indication of the disconnect between China and Europe. At the time of this writing – April 11 – Platts’ European premium assessment for Grade A CIF Rotterdam was in a range of $110 to 120/mt plus LME cash. Around a year ago the premium level was around $50-60/mt, plus LME cash.
On the fl ipside, Platts assessed the weekly CFR China copper premiums at
CATHODE SURPLUS?D E P E N D S W H E R E Y O U A R E
Looking for a copper cathode
surplus in Europe? Better look
elsewhere.
BEN KILBEYDeputy Managing EditorMetals
Source: Platts
PLATTS EUROPEAN PREMIUM (GRADE A COPPER), CIF ROTTERDAM, JUMPS IN 2013
$/mt
30
60
90
120
150
LowHigh
Mar 14Feb 14Jan 14Dec 13Nov 13Oct 13Sep 13Aug 13Jul 13Jun 13May 13Apr 13Mar 13Feb 13Jan 13
29MAY 2014 insight
COPPER
$80-100/mt plus LME cash, down from $90-110/mt the previous week. Th e price diff erence between CIF and CFR is negligible. At the start of 2014 premiums had been pegged around +$200/mt.
“Th e European copper market is very peachy,” said one fund source. “Th ere’s tightness in the European market. Whoever thinks that metal is about to return from China isn’t doing the maths. You’d need $200/mt in Europe to get metal back,” said the source.
It’s clear China has plenty of concentrate and a solid quantity of exchange-registered material, but there is another side to the story – bonded stocks. Th ese stocks have recently been estimated to be anywhere between 600,000 to 1 million metric tons.
Citibank analyst David Wilson recently wrote that from the 550,000 mt market estimates at the end of 2013, volumes of metal held in the Shanghai-bonded network are now estimated to have risen to between 650,000-700,000 mt in early February.
“Shanghai-bonded inventory is generally taken by many analysts and market commentators as representative of total Chinese bonded copper inventory,” Wilson wrote. “However, we believe the bonded volumes have been built up in a number of other Eastern seaboard ports such as Guangzhou, Ningbo, Lianyungang, Rizhao, Qingdao, Tianjin, and Dalian. Indeed, we believe there could be an additional 300,000 mt of copper sitting in bonded warehouses in these other ports, which would suggest there is
currently up to 1 million mt of refi ned copper in China’s bonded warehouse network,” Wilson added.
“What is needed to lure refi ned metal out of China?” asked JP Morgan analyst Colin Fenton, “the market is focused on how long cathode tightness can be sustained.”
Fenton added: “To incentivize exports of refi ned units out of China and into the international market some combination of a larger LME backwardation and lower-bonded premiums is needed.”
For sure, bonded premiums have dropped sharply since the start of 2014, as noted earlier. So the reality is, is that there is a surplus of copper, dependent on what location you’re in and at what level of the fabrication process your business sits.
Soc Gen analyst Robin Bhar wrote in a research paper that the outlook for copper demand is improving “on the back of a strengthening global economy with GDP growth set to accelerate in 2014. In the US, growth is set to shift above trend as housing is now a tailwind to growth and the outlook for business investment has improved. In the eurozone area, economic conditions have stabilized and a slow recovery is under way. Growth in Japan is on an improving trend.”
Th e general expectation is that the second half of 2014 could see material starting to arrive in Europe and premiums coming off the boil.
It appears to be shaping up to be a year of two halves for the European copper cathode market balance. �
insight MAY 201430
US LONG STEEL
Th e US rebar and beam markets are poised to benefi t from the expected recovery in nonresidential construction this year, and buyers anticipate mill pricing will get some support from stronger demand, the gradual move away from scrap-based surcharge pricing and
rebar antidumping and countervailing duty trade cases.
Aldo Mazzaferro, steel analyst for Macquarie Securities, believes US nonresidential construction will propel the 1-2% growth of the overall steel sector, as he sees auto, aerospace and capital goods markets begin to fl atten.
Th e Associated General Contractors of America also forecast nonresidential construction spending to grow 4-8% in 2014 and total construction spending in 2014-2017 to increase by 6-10% per year.
Ken Simonson, chief economist for the AGC, said the best prospects for construction growth this year are in multifamily housing, manufacturing, oil and gas, pipelines, warehouses, lodging and rail.
While the recovery could bypass highway and street spending this year because of the lack of long-term federal funding, market observers are generally bullish on construction spending and demand for steel construction products.
LONG STEELRECOVERY
After an extended malaise, several
factors may converge to work in
favor of US rebar and beam mills.
ESTELLE TRANAssociate EditorPittsburgh
Courtesy: Joe Innace
31MAY 2014 insight
US LONG STEEL
Th e Concrete Reinforcing Steel Institute projects domestic rebar consumption in the US will increase 8.1% to 8.13 million st this year and rise 9.7% to 8.92 million st in 2015.
Mazzaferro maintains domestic mills are in a position of strength not only because of the expected pickup in demand but also because of industry consolidation.
“Th ey’ve already addressed that missing demand problem and kept their market consolidated,” Mazzaferro said, noting that US long-product mills have fi gured out how to be profi table at relatively low utilization rates.
Th e US beam market has three main players: Nucor, Gerdau Long Steel North America and Steel Dynamics. Th ese three mills are also major players in the US rebar market in addition to Commercial Metals, ArcelorMittal Long Carbon North America and other coiled rebar producers.
“We are more consolidated than where we were in the 1990s,” Mazzaferro said. “Th at’s refl ected in the metal spreads.”
In 1995-1999, the spread between shredded scrap and rebar prices averaged $178/st and the spread between scrap and beam – a more value-added product than rebar – averaged $235/st, based on an analysis of Macquarie data. From 2008 to 2013, the spread grew to $298/st for rebar and $390/st for beam.
After peaking in 2008, demand for rebar and beam suff ered because of the fi nancial crisis. Th e US rebar market lost more than 2 million mt of apparent consumption by 2009, reaching the lowest level in 10 years, according to
American Iron and Steel Institute data. Prices and spreads against scrap costs have been fl uctuating, but the gradual comeback in construction demand could help US mini-mills grow their margins, even if scrap prices remain volatile.
Market participants note that everyone has access to scrap news – whether from trade publications or local scrap dealers – and they’ve withheld orders and based buying decisions on expected swings in the scrap market. Domestic mills appear to be addressing this sort of scrap-based hedging.
For more than a year, market players have speculated about a gradual decoupling of long product prices and scrap prices. Domestic mills contacted declined to say whether this was an established trend, but Nucor and Gerdau, in particular, have made announcements suggesting the disassociation.
In May 2013, Nucor informed customers ahead of the settlement of �
REBAR CONSUMPTION IN THE UNITED STATES
Apparent Import Mill shipments Imports Exports Steel Demand* penetration
2003 7,384,021 924,437 253,652 8,054,806 11.48%
2004 7,407,944 1,738,959 223,773 8,923,130 19.49%
2005 6,772,706 1,292,198 253,468 7,811,435 16.54%
2006 6,730,850 2,347,290 273,353 8,804,788 26.66%
2007 7,282,452 1,688,156 303,685 8,666,923 19.48%
2008 6,639,061 880,660 629,630 6,890,091 12.78%
2009 4,614,552 380,497 389,853 4,605,197 8.26%
2010 5,740,263 468,723 519,841 5,689,145 8.24%
2011 5,059,588 594,586 476,865 5,177,309 11.48%
2012 5,653,250 888,526 602,416 5,939,360 14.96%
2013 6,555,614 1,096,695 494,507 7,157,801 15.32%
*Mill shipments plus imports, minus exports.
Source: The American Iron and Steel Institute and Platts steel data and analysis
insight MAY 201432
US LONG STEEL
its raw materials surcharge that it would hold fi nished prices fl at regardless of where scrap prices settled. Th e company
phased out mention of its raw materials surcharge from its pricing announcements for rebar, merchant bar and beam products.
Th e market took notice. During the months when Nucor and its competitors did not disseminate written pricing announcements as scrap prices oscillated, buyers questioned whether prices were slipping.
“Th ey’re basically saying: We’re not basing [prices] off your scrap hopes and
dreams,” a Midwestern US rebar distributor said. He pointed to fundamental supply and demand, explaining there’s no sense in raising rebar prices in the winter because of an uptick in scrap costs if construction sites are frozen.
Mazzaferro agreed that the rebar and beam mills are “better off with a little opacity in their decisions,” as they don’t need to give their customers too many reasons to expect prices to move.
Since 2011, prices for rebar, beam and scrap have been trending down, and spreads have contracted at the same time. US mills have argued that rebar imports sold at less than fair value are causing harm to the domestic industry – a claim that culminated in the recent unfair trade cases launched against Turkey and Mexico.
Some believe that Turkey and Mexico will not see substantial tariff s in the fi nal determination expected this fall, and they will continue to ship rebar to the US market. If they are hit with duties higher than 8% or 10%, however, traders maintain that it will be diffi cult for the two largest rebar exporters to the US to be competitive. Th is could open the door for less competitive foreign mills to enter the US market – and lay the foundation for domestic mills to raise prices.
It’s uncertain whether US mills will see a long-term benefi t from such trade action or if they will be able to completely disassociate long product prices from scrap in the eyes of their customers. With these eff orts though, US longs mills are attempting to return to a position of pricing power and build their balance sheets with better volumes and margins. �
Since 2011, prices for rebar, beam and scrap have been trending down, ...“ ”
Courtesy: Estelle Tran
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insight MAY 201434
ALUMINUM ALLOY
Automakers are perpetually under pressure to make lighter cars, while meeting gas emission, noise and safety standards.
“Government standards get tougher year by year. All cars for future releases need to be lighter than the previous models,” said Tadao Machida, spokesman for Mazda Motor.
Engines account for roughly 10-30% of the total car weight. And the engines have become lighter as aluminum alloys have replaced steel.
Mazda Motor’s Skyactive gasoline and diesel engines, debuted in October 2013 and achieved a 10% weight reduction from previous engines, improving fuel effi ciency by 15%. Mazda focused on increasing the engine combustion ratio.
“In order to raise the combustion ratio, one way was to make the cylinder block component (made of aluminum alloy) thicker. But we took a new approach, designing the component in a way that the engine endures higher pressure, using new shapes and new processing methods,
improving the property of other components such as pistons, and also eyeing mass production techniques,” Machida explained.
“SkyActiv engines are more compact and the structure is simplifi ed. Individual components are thinner and shapes simpler too, making for easier manufacturing,” said an executive at a Japanese engine components manufacturer. “SkyActiv engines of the future will be even smaller,” he added.
Th inner components require more stringent quality management of aluminum alloys, Japanese automaker sources said.
“A minor corrosion or a very small crack … becomes a big deal. A very small cavity can reduce endurance and diminish performance, and aff ect the rest of the engine,” said one engineer.
Engine engineers struggle to control calcium in the aluminum alloys, one cause of cavities. When processing molten aluminum, calcium prevents the smooth fl ow of the metal.
Drive for auto fuel efficiency takes
aluminum alloys and silicon metal
along for the ride.
MAYUMI WATANABESenior EditorTokyo
CARS DEMAND
35MAY 2014 insight
ALUMINUM ALLOY
Calcium is also contained in silicon metal used for auto diecasting alloys commonly used for engine components. ADC12 aluminum alloy, used by Japanese automakers, contains 9.6-12% silicon. 553-grade silicon metal, with maximum 0.03% calcium content, has been used for ADC12 production.
To remove the 0.03% calcium, Japanese secondary aluminum alloy smelters have used nitrates. But use of nitrates has been restricted in eastern Japan due to environmental concerns. Flux and substituting 553-grade silicon metal with 441 grade silicon, with maximum 0.01% calcium content, are alternatives.
“Inquiries for 441-grade silicon have increased in the last few years,” said a Japanese trader. “Two or three years ago, 441 was like 20-30% of the total silicon metal traded and 553 was the majority, but sometimes now, there is more 441 than 553.”
Another Japanese trader added there are some auto-components makers who pay a $10-20/mt premium for silicon metal with 0.01% less calcium.
Japan’s aluminum alloy shipments dipJapanese secondary aluminum alloy smelters shipped 38,811 mt of auto diecasting alloy in February, down 2.5% year on year, the Japan Aluminium Alloy Refi ners Association said in late March.
While it was the fi rst year-on-year decline after fi ve consecutive months of increases, the February shipments were up 1.9% from the month before, the data showed.
A jump in car sales ahead of an April increase in Japan’s value-added tax to 8% from the current 5% has supported demand, industry sources said.
Total secondary aluminum alloy shipments, including those to outside
the automotive sector such as to steelmakers, totaled 69,149 mt in February, down 2.8% year on year, the data showed.
In fact, after Japan raised the value-added tax to 8% from 5% on April 1, some sources with Japanese secondary aluminum alloy smelters said they were keeping low inventories of silicon metal feedstocks, because they feared a softening of demand.
One Japanese end-user said his silicon metal requirement in April did not change from March as the run rate at his plant did not fall.
“But I am careful,” he added. “Prices of silicon are going up so I am buying in small quantities,” he said.
His caution refl ected a silicon market in late-March/early-April being pulled in diff erent directions. In Japan, there were some traders who said they were seeing inquiries for 10-60 mt cargoes from end-users who had kept stocks lean as the end of their fi nancial year on March 31 approached. �
Th is caution refl ects a silicon market in late-March/early-April being pulled in diff erent directions.“ ”
insight MAY 201436
IRON PELLETS
Prices of direct charge iron ore products have recently been bolstered by China’s eff orts to cut air pollution, with steelmaking deemed by Beijing as a major emitter. Pellet premiums for 2014 have reached multi-year highs as a result.
As China’s pellet consumption increases, it is likely to become an increasingly important part of the product’s price discovery, much as it has become the hub for lump and fi nes pricing.
Traditionally negotiated as an annual price between Brazil’s Vale and steelmakers in Japan and South Korea, the 2014 pellet premium was settled at $38/dry mt, a $10/dmt jump over the previous year, and the highest since 2011. Vale idled three pelletizing units in Brazil in late 2012, owing to softer demand, and had no immediate plans to restart them when it provided an annual outlook.
Chinese buyers have for some time treated most contractual commitments lasting longer than a month or quarter as anathema. Where spot prices fall below contractual agreements, mills in the country have been known to default on term tonnage, opting for the cheaper supply.
And European mills have mostly rejected following an annual “benchmark” set by Japanese and Korean mills, with most opting for a quarterly settlement. Paying even higher than $38/dmt for Q1, buyers – with one eye on China and another on Brazil’s new capacity starting as early as May – believe they can claw back premiums later this year.
China could revolutionize global
iron ore pellet trade.
HECTOR FORSTERTeam LeaderLondon
KEITH TANManaging EditorSingapore
PELLET PREMIUMS IN
HIGH GEAR
One of the world’s largest blast furnaces – at Nippon Steel’s Kimitsu Works, on Tokyo Bay.
Courtesy: Joe Innace
37MAY 2014 insight
IRON PELLETS
Many Europeans opting to pay higher premiums than $38/dmt in the interim are already optimistically talking about lower pellet premiums in Q2 somewhere in the $30s/dmt range, armed with lower spot deals occurring in China and a credit-driven steel sector implosion that took hold in Q1.
But buyers opting for quarterly pricing may end up disappointed, likely paying more than $38/dmt through the year, suggests Macquarie Bank. “We would expect agreed pellet premiums for later this year to be in the low $40s, with European demand continuing to pick up and Vale’s Tubarao and Sao Luiz pellet plants remaining offl ine,” notes Colin Hamilton, head of global commodities research at Macquarie in London.
China wielding double-edged swordChina’s eff ort to weed its domestic steel industry of obsolete capacity, by limiting credit, has softened iron ore demand. Consequently, prices of benchmark fi nes have declined substantially, falling to around $100/dmt in early March before rallying in April.
And China’s annual steel output growth is estimated to slow to 3.5% this year, down from the breakneck – and what some deemed unsustainable – 7.5% growth in 2013. Th is will clearly impact ore demand.
Australian iron ore production is also set to surge as a round of investments in mines and logistics approved around the time of the “commodity supercycle” fi nalize. Australia’s Bureau of Resources and Energy Economics expects the nation’s iron ore exports to rise annually by 23% to 650 million mt in 2014.
But Macquarie expects supply of lump to remain constrained. Lump and pellet are mutual substitutes. “Lump proportion mined at some of the key ore bodies is falling, so this on its own is not enough to off set pellet demand,” Hamilton adds.
And Beijing’s moves to further clamp down on sintering, coke ovens, and steelmaking may ensure stronger demand for higher-grade ores for mills to boost effi ciency, Macquarie said in January. “Sinter plants in particular have stringent criteria for SOx emissions. To alleviate this mills in China continue to raise their use of pellet,” Hamilton notes.
DRI pellet provides ‘twist’Perhaps a twist in the pellet story, new capacity may primarily be destined to become direct reduction material for use in electric-arc furnaces.
Vale, which has ramped up pellet output in Oman, signed a potential six-year pellet supply agreement with DRI-based Qatar Steel in March and has said previously the new Tubarao VIII unit in Brazil would be earmarked to largely serve DRI expansions in the US.
US miner Cliff s Natural Resources has said investments in DRI could lead to it supplying the EAF market as its “ability to produce DR grade products is optimized.” Voestalpine and Nucor have built, or are in the process of building, DRI plants in the country.
Th e concurrent changes in DRI-based steelmaking and demand for the usually higher Fe specifi cation pellets, amid such tight marginal supply for pellets generally, could push aside demand-led dynamics in the far larger blast furnace pellet market. Ferrexpo said in March strong Middle �
insight MAY 201438
IRON PELLETS
East demand for DRI pellet had reduced availability in the overall market.
How pellet producers tailor their portfolios between markets and regions as new volumes enter the market may be important to how fast pellet premiums can fall.
In fi rst-half 2014, Vale’s 7.5 million mt/year Tubarao VIII and Samarco’s 8.25 million mt/year No. 4 plants are set to come on stream. Both will take time to ramp up and may switch between DRI and blast furnace pellets based on market conditions.
Globally there may be around 330 million mt of blast furnace pellet consumed and 90 million mt of DRI pellet, estimates Macquarie.
A European buyer downplayed concerns heard by other integrated mills that new
pellet capacity in Brazil may not do much to alleviate pressure in the short-term, given potential for DRI. He said the pellet market would benefi t directly or indirectly from the additional supply, as the entire market readjusts to accommodate whatever is produced.
Th ere is some substitutability for DRI with BF pellets. A Russian producer was heard selling a high Fe BF pellet into India for a sponge iron application late last year.
China price roleTh e Chinese steel industry is inclined to use short-term pricing by the very nature of its domestic market framework for fi nished steel products and raw materials. Price renegotiation risk and distressed cargoes popping up due to “price majeure,” along with sporadic swings in credit availability in China, routinely challenge international miners and traders.
As China buys more seaborne pellets and lump, along with high-grade fi nes and concentrate pellet feed, arguably it stands to infl uence global pellet pricing even more.
Pellet invoices already use the Platts IODEX CFR China iron ore fi nes price as the basis of the fi nal price charged, including an iron units quality adjustment and a premium on top to cover pelletizing costs and extra value-in-use provided to the steelmaker.
Th e premium over price made up of IODEX and the multiple of the Platts 1% Fe mid-range diff erential value has come down for many higher-grade products. Premiums for some high Fe fi nes have declined recently from +$9/dmt to $2-3/dmt in spot deals.
Source: Platts
0
1
2
3
4
5
6
7
100
110
120
130
140
150
160
170
180
1/0
2/2
01
3
2/2
2/2
01
3
3/1
3/2
01
3
2/0
4/2
01
3
4/1
9/2
01
3
9/0
5/2
01
3
5/2
9/2
01
3
6/1
7/2
01
3
4/0
7/2
01
3
7/2
3/2
01
3
8/1
3/2
01
3
8/3
0/2
01
3
9/1
8/2
01
3
7/1
0/2
01
3
10
/25
/20
13
11
/13
/20
13
2/1
2/2
01
3
12
/19
/20
13
9/0
1/2
01
4
1/2
8/2
01
4
2/1
7/2
01
4
6/0
3/2
01
4
$/DMT $/DMT
IODEX 62% Fe + 3*Mid Range Diff IO fines 65%
Premium for 65% Fe over IODEX 62% Fe + 3*Mid Range Diff (RHS)
HIGHER-FE IRON ORE PRICES STRENGTHENED IN SECOND-HALF 2013
39MAY 2014 insight
IRON PELLETS
Th e surge in the extra premium over the two price components last year for 65% Fe grade fi nes may help partly refl ect the $10 increase achieved in annual pellet premium (see graph).
Spot seaborne pellet trade is still irregular as much of global capacity is tied up in long-term contracts, so volumes are building slowly. Large trading houses and CIS producers are heard selling spot, and some Brazilian Samarco high Fe material sold late last year achieved premiums of $40-45/dmt.
Since then, China pellet premiums in spot deals were at $30-35/dmt and later dropped to $27-28/dmt, one trader said.
In the meantime, spot prices in China of lump ore, high-grade Brazilian and Venezuelan fi nes and pellet feed are
becoming more scrutinized by mills globally seeking to extrapolate changes in their relative premiums over spot fi nes and what that means in pricing for their specifi c iron ore pellets.
Th e Platts weekly spot lump ore assessment for imports into China, for example, saw a straight seven-week decline in February and January. February averaged at $0.2338/dmtu, down from $0.27/dmtu for January.
But the fi nal say on prices may come down again to Chinese demand and eventual steel growth. As a Chinese mill source maintains, regardless of pollution, if steel margins are very weak many plants will cut crude steel output on tight credit and low profi tability. Th is bodes badly for higher-priced imported lump and pellets. �
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insight MAY 201440
BRAZIL PIG IRON
Home to native forests bearing eucalyptus trees, a rich land with high-quality iron ore and in close proximity to US steel mills, North Brazil was a natural fi t for merchant pig iron producers to establish a foothold and take advantage of US mills’ demand for the steelmaking raw material.
And they did just that, by the mid-1990s, merchant producers were popping up all over North Brazil, an area without a domestic steel market.
Th ere were other markets the pig iron producers could target from North Brazil including the Far East and Europe, but the US – with freight to New Orleans as low as $15/mt on a two-week voyage – was always meant to be the primary destination for the material.
North Brazil is home to high-quality iron ore that allows the producers to supply low-phosphorus (less than 0.1%) pig iron that US mills require. Nearly every single US mill cannot utilize high-phosphorus pig iron.
Th is provides a distinct advantage to the North Brazilian producers over their
neighbors to the south who mostly produce high-phosphorus material. Th e Southeast, however, has always had a domestic market to sell into – regional steel mills. Th is domestic market provided fi nancial stability and leverage in negotiations with potential overseas buyers in Europe and Asia.
In the north, there was no such domestic market. Th e pig iron produced was strictly for export. With interest from the Far East at a bare minimum and no domestic outlets, the North Brazilian producers became dependent on the US.
Shipments of low-phosphorus pig iron to the US from Brazil grew from 1.63 million mt in 1996 to 2.94 million mt by 2000 and 3.38 million mt in 2001. In 2004 Brazil exported a record high of 4.68 million mt of pig iron to the US.
In 2005, the 4.39 million mt of Brazilian pig iron imported into the US, accounted for 75% of all US pig iron imports.
Shipments to the US from Brazil continued to slow as the US reduced
BRAZIL’S
PIG IRONSTRUGGLES
Merchant producers in the north
team up to tackle changing export
patterns.
NICHOLAS TOLOMEOAssociate EditorPittsburgh
PRISCILLA ANTUNESAssociate EditorSao Paulo
Courtesy: iStock.com
41MAY 2014 insight
BRAZIL PIG IRON
overall pig iron buys and began sourcing more material from Russia and Ukraine. In 2008 pig iron shipments from Brazil to the US totaled 3.61 million. Th at was when there were 16 pig iron companies operating in the North Brazilian pig iron strong hold of Carajas.
In 2009 shipments plummeted to 1.26 million mt. In 2012, Cargill, the world’s largest pig iron trader, announced it was exiting the business. Later that year, North Brazilian pig iron pioneer Cosipar, a major producer in the country, permanently closed after 26 years. Th e companies cited various reasons for their exits, but the overarching theme appeared to be a dim outlook for the future of pig iron trade.
In 2013 only fi ve pig iron producers remained in Carajas – Sidepar in Pará, and Viena Siderúrgica, Queiroz Galvão, Gusa Nordeste and Margusa in Maranhão. Th at same year Brazilian pig iron exports to the US of 1.75 million mt accounted for only 43% of total US pig iron imports, with Russia not far behind (1.60 million mt).
With only fi ve producers and operating rates falling to critical levels below 30% some months, including February 2014, the producers are fi ghting an uphill battle.
In September 2010, US-based steelmaker Nucor announced a $750 million 2.5 million mt/year direct reduced iron facility to be built in the US. Th e facility would take advantage of low-cost natural gas to produce DRI in the US for the fi rst time. In a news release at the time of the announcement the company discussed the “value in use” comparison between DRI and pig iron.
A dramatic shift in purchases by Nucor – the largest buyer of North Brazilian pig iron – coupled with already crippled production levels, could have meant the nail in the coffi n for the North Brazilians. But concerns in Brazil were somewhat allayed after the December 2013 startup of the facility because Nucor continued to book pig iron.
Th e remaining North Brazilian producers have bonded together via two consortiums, VPS and CPI. By operating together, the producers are able to fi ll Panamax vessels with about 70,000 mt of pig iron despite only operating at around 30% capacity. Th e consortiums allow the area producers to fi ll a cargo in a month, therefore not exposing an individual producer to extended time periods with potential price fl uctuations.
A mid-2014 planned startup of a steel mill in North Brazil by Siderúrgica Latino Americana (Silta) could be a boost for the local pig iron market. Th e mill is part of the Ferroeste Group that produces merchant pig iron in the region at the rate of about 22,000 mt/month. Th at pig iron will now be taken out of the market and used for internal consumption and the mill could become a buyer of North Brazilian pig iron, giving the area producers local options – a benefi t South Brazilian pig iron producers have always enjoyed.
For the surviving North Brazilian pig iron producers, the reduced output, the solidarity of the consortiums along with continued interest from Nucor and the startup of a local domestic mill, provide a new lifeline and improved outlook for a bustling industry once brimming with promise. �
METALS MARKET TRENDS TO WATCH
SPECIAL ADVERTISING SECTION
As the metals industry grapples with on-going challenges of fl uctuating demand, volatile raw materials costs and continuing pressure on margins, Platts asked some of its Global Metals Awards fi nalists from around the world to defi ne true industry leadership, reveal challenges they foresee in the coming year and share their insights on potential opportunities and investments on the horizon. Here are the edited excerpts:
Singapore Exchange
Q: What defi nes industry leadership in your sector?Strategic innovation is what keeps Singapore Exchange at the forefront of our industry. Innovation in products and service off erings to address the needs of customers and the marketplace. As a market leader in Asia, SGX launched the world’s fi rst iron ore derivatives and fi rst Asian seaborne steel derivatives.
Q: What are the biggest challenges facing your organization in 2014-2015?Global regulation continues to be a key interest and concerns for exchanges worldwide. SGX is committed to introducing innovative solutions to address the needs of customers and remain relevant to the market.
Q: What opportunities do you see on the horizon?SGX continues to enhance its iron ore derivatives products to develop a more comprehensive iron ore and steel complex that will facilitate increased eff ective and effi cient hedging. SGX launched hot-rolled coil steel contracts recently, and looking to launch coking coal contracts next.
Beirut International Marine Industry & Commerce
Q: What are the biggest challenges facing your organization in 2014-2015?Launching the fi rst Floating Island in history, by the beginnings of 2015. Establishing and accomplishing the foundation of our Marine and Composite industries in Lebanon. And developing these industries at various locations around the world.
Q: What opportunities do you see on the horizon?Th e market demand is highly encouraging. Also partnership on an international scale.
Q: Where do you see your next investment?Th e kingdom of Saudi Arabia, and Europe.
Jersey Shore Steel Company
Q: What defi nes industry leadership in your sector?Continuous improvement and innovation are leadership essentials. Operating a mill for 76 years has required fundamental changes in the way we operate. We are continually challenged to improve our products, our process and add-value for our customers. Helping customers maintain their competitiveness is signifi cant in any success we have had.
Q: What are the biggest challenges facing your organization in 2014-2015?Economic uncertainty remains the biggest challenge. In North America, we faced fi scal headwinds for fi ve years that slowed business. Consumers have been cautiously slow to increase spending with any confi dence. Housing markets are rebounding and that is good for our specifi c markets. We are optimistic, while continuing to monitor threats.
42 MAY 2014insight
Laplace Counseil
Q: What defi nes industry leadership in your sector?Consulting in steel and metal industries requires an in-depth expertise and understanding of global evolution from the triple point of view of technology, fi nance and human behavior. Acquiring a balanced perspective is essential to help clients make informed decisions for the benefi t of all stakeholders.
Q: What are the biggest challenges facing your organization in 2014-2015?Th e industry is getting increasingly diverse as China and other emerging nations produce more and more steel while OECD countries face declining domestic demand. Yet, the industry global health and profi tability depend on rational and tough decisions of all producers to reduce overcapacity. Convincing clients to take those unpleasant decisions is the hardest part of our work.
MidWest Materials
Q: What defi nes industry leadership in your sector?Our company, and our industry for that matter, is part of a much broader community, and I feel that corporate responsibility isn’t just an option but rather a requirement. It’s also our duty to “Participate, Innovate and Advocate.” MidWest participates in industry trade groups to educate ourselves, our customers and various industries about latest opportunities, developments and requirements, we continue to innovate our corporate practices, facilities and technologies to meet industry needs and stay at the forefront, and feel obligated to advocate not only best practices, but the benefi ts of steel vs. competing products, and the disadvantages of over regulation and unfair competition.
Q: What are the biggest challenges facing your organization in 2014-2015?Th ere is a skills gap staring at most manufacturers today. Many of us are faced with seasoned employees who are aging without a succession plan due to a lack of interest by or training of younger workers.
Smart Timing Steel
Q: What defi nes industry leadership in your sector?Our corporate value of honoring commercial integrity with the best business ethics demonstrates the genuine element required for industry leadership. It is our professional risk management principle that enables us to develop mutually successful partnerships with our customers.
Q: What are the biggest challenges facing your organization in 2014-2015?Uncertainty of government policy has deepened across trade regions. Steel prices have remained volatile. We have consistently invested in the right personnel and continuously improve the risk management systems to manage the evolving market environment.
London Mining
Q: What are the biggest challenges facing your organization in 2014-2015?Pricing uncertainty in the next two years while we undertake our next phase of capital investment. Realizing the highest price possible for our product and reducing costs at all levels of the business is therefore of paramount importance.
Q: What opportunities do you see on the horizon?Continued strong demand for iron ore and prolonged delay in the supply response will provide opportunities for proven operators in developing economies. In Sierra Leone we see huge benefi ts in developing skills in the local workforce over the longer term. In the short term the ability to load all types of bulk ocean-going vessels should improve margins.
Q: Where do you see your next investment?Small high return investments in incremental production increases and unit cost reduction initiatives.
43MAY 2014 insight
insight MAY 201444
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Beirut International Marine Industry and CommerceBeirut International Marine Industry & Commerce s.a.r.l (B.I.m.i.c) was established in 2003 as a family company with its shareholders Dr. Abdullah Daou, Mrs. Nawal Shehayeb and their two siblings, engineer Sumer Daou and architect Soir Daou.
Th e company was dedicated to start the industry of Floating Islands, Multihull Yachts & Ships, and Fiberglass Houses, all engineered according to the advanced engineering of the Floating Island Dhow 4, a new breakthrough in marine engineering, researched and proved by Dr. Abdullah Daou.
Th e long march for the research of the advanced engineering of the Floating Island started in 1982, and was concluded with a real prototype that was built in 380 days of continuous day and night work by a team of 15 technicians and engineers, led by Dr. Abdullah Daou in his workshop in his village, Al-Bennay, in Lebanon, from February 1997 until March 1998.
Th e advanced engineering of the Floating Island Dhow 4 was accredited and admitted by the French Marine Society Bureau Veritas on June 29th 2005.
B.I.m.i.c designed and is now building the fi rst Floating Island in the history of mankind in Lebanon. It will be launched in its coastal Mediterranean sea, in early 2015. B.I.m.i.c currently has 290 employees and is expected to have 560 employees in July. Th e island is under construction at diff erent sites, covering about 25000 sq.m., in three locations: Jounieh, Tripoli and the town of Kabershmoun. Th e construction is supervised by the International Naval Surveys Bureau INSB (Greek). Th e main deck area of the Floating Island is 3600 sq.m. Th e total built area is about 12000 sq.m. Draft variable is 2.8 m to 6.5m. Th e cruising speed is 4.5 knots.
Dhow4 engineering eliminates capsizing of fl oating structures, because the center of gravity is below the center of
buoyancy, and rolling and pitching are dimmed for human comfort.
Dhow4 Engineering builds small or giant ships with shallow keels, higher speed, less fuel consumption, better maneuverability, much better stability and less risk of sinking. A prototype was launched in the Red Sea in 2005, and proved a full success. Th is catamaran is a real prototype of a ship that can be a catamaran or a multihull ship built of steel and fi berglass. Th e prototype yacht at Yanbu-KSA proved to have excellent sea handling and sea worthiness.
Dhow4 Engineering also builds fi berglass houses. Th e fi rst fi berglass house on the globe, with full technical functionality and fi nancial feasibility, and compliance with the International Engineering and Environmental codes, was built with a remarkable one day assembly time at Dr. Daou’s village in Mount Lebanon, Al-Bennay. A small villa of a total 100 sq.m, with a terrace of 11m x 4m made totally from a fi berglass sandwich. It was built in 2007 as a radical solution for housing projects all over the world.
Th e products of the Dhow 4 Engineering conform successfully to the international marine codes such as IMO, FTP, SOLAS and internationally applied environmental regulations.
B.I.m.i.c negotiated tourist fl oating islands with diff erent Arab Gulf authorities up to a value of 8 billion dollars. Th e market need expands above that fi gure. B.I.m.i.c studied the idea of a naval base in high ocean water that can dock aircraft carriers, aero planes and nuclear submarines. Th e value of such afl oating island can go above 10 billion dollars.
Catamarans & multihull ships could change the destiny of the major navies in the world.
In conclusion, B.I.m.i.c is starting unprecedented industries that will create unforeseen markets for the steel, fi berglass, and resin industries all over the world. And at the same time, answering essential needs of the 21st century.
Dr. Abdullah DaouChairmanBeirut International Marine Industry & Commerce
45MAY 2014 insight
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GLOBAL LEADERS PROFILE
Jersey Shore Steel CompanySustainable, Genuine Green Steel ManufacturingAn American steel company already known for producing the world’s “greenest” steel, Jersey Shore Steel Company continues implementing process changes, with dramatic results benefi ting productivity, quality, the environment, and the bottom line.
Jersey Shore Steel Company, in continuous operation for more than 75 years, reheats and re-rolls used railroad T-rails into high strength, high carbon rail steel angles and shapes. Th e company’s steel has the highest recycled content – 100% post-consumer product – and the lowest embodied energy of any steel on the market.
Jersey Shore Steel’s computer-controlled, fully recuperative furnace is capable of using landfi ll gas (LFG), natural gas, or a mixture of the two. Process controls allow for precise control of LFG, natural gas, and oxygen levels in the furnace to maximize combustion effi ciency and economics.
Landfi ll gas, an alternative, renewable fuel source, contains a high percentage of methane and Jersey Shore Steel’s process removes this potent greenhouse gas from the environment, while converting a waste product into useful energy. In reducing reliance on fossil fuels and incorporating a host of additional eco-responsible practices, Jersey Shore Steel has reduced the company’s carbon footprint over all competing steelmaking processes.
Innovations during 2013 continued the company’s leadership in sustainable steel manufacturing. Operational changes reduced both water consumption and treated-water discharges
by 50%. Cutting these in half makes a diff erence of hundreds of thousands of gallons each day. Another 2013 process change added computerized analysis enabling operators to direct lengths of rolled steel to diff erent in-line shearing operations, optimizing fi rst-pass yield.
Additional “green” practices include using variable frequency drive motors, energy conservation lighting, eco-safe hydraulic fl uids, and many others. Even shredded offi ce paper is donated to local farmers for animal bedding.
Jersey Shore Steel schedules operations at off -peak hours of the electric energy grid, establishing a lower demand rate and allowing other users to have energy from the grid at peak demand. Jersey Shore Steel’s process and effi ciencies result in its rolling mill using only 13% of the energy required by conventional integrated mills and only about a third of the energy needed for comparable production in mini-mills.
Th ese eff orts were recognized in 2013 when Jersey Shore Steel received the Governor’s Award for Environmental Excellence from the Commonwealth of Pennsylvania. At the international level, for the second year in a row, Jersey Shore Steel Company has received recognition as a Global Metals Awards fi nalist in two categories. Th is year Jersey Shore Steel has been named as a fi nalist for “Breakthrough Innovation of the Year” and “Industry Leadership.”
Th e company and its steel fulfi ll needs for strong, sustainable products to meet customers’ own green objectives. Jersey Shore Steel’s rail steel provides structural strength in furniture, bedding support, orchard and vineyard trellis support systems, shelving support, sign posts, barricade legs, and other applications. Major companies and leading brands use Jersey Shore Steel in their products. Th e company continues exploring new uses and markets for its genuine green steel.
Jack SchultzPresident and CEOJersey Shore Steel Company
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Statistics ■ 10 commodity products launched in 2013 ■ Commodity sectors include iron ore, steel, rubber, freight, oil, and coal
■ Cleared 269 million metric tons of iron ore last year ■ Cleared 31,000 tons of hot-rolled coil steel from launch till end of March 2014
Singapore ExchangeSingapore Exchange (SGX) is the Asian Gateway, connecting investors in search of Asian growth to corporate issuers in search of global capital. SGX represents the premier access point for managing Asian capital and investment exposure, and is Asia’s most international exchange with more than 40% of companies listed on SGX originating outside of Singapore. SGX off ers its clients the world’s biggest off shore market for Asian equity futures, centered on Asia’s three largest economies – China, India and Japan.
In addition to off ering a fully integrated value chain from trading and clearing, to settlement and depository services, SGX is also Asia’s pioneering central clearing house. Headquartered in Asia’s most globalised city, and centered within the AAA strength and stability of Singapore’s island nation, SGX is a peerless Asian counter party for the clearing of fi nancial and commodity products.
As a fi nalist in the Global Metals Award Industry Leadership category, SGX has a history of pioneering innovative new derivative products. Four years ago, on 27 April 2009, the Exchange launched the fi rst cleared over-the-counter (OTC) iron ore swap contract. Today, the SGX iron ore contracts continue to prosper with new monthly and quarterly record volumes of 48.8 million metric tons and 107.9 million metric tons respectively in March 2014. Open interest was also at a record high of 35.5 million metric tons as of 31 March 2014.
More recently, on 17 February 2014, SGX introduced the world’s fi rst Asian seaborne steel derivatives, SGX Hot-Rolled Coil Steel CFR ASEAN (HRC Steel) swaps and futures. With emerging economies in Asia (mainly China, India, and ASEAN) accounting for 70% of global steel production and consumption, SGX’s iron ore and steel derivatives play an important role in providing physical players and producers/ consumers with instruments for more eff ective hedging of iron ore and steel prices. Meanwhile, SGX’s iron ore and steel derivatives also present traders with an unprecedented
opportunity to gain exposure to the iron ore and steel price.
Notably, with over 90% of global iron ore swaps and options being cleared at SGX, the Exchange also allows for market participants to better manage the hot spread* between iron ore and fi nished steel. Th e hot spread is the diff erence between the price of hot-rolled coil and 1.6 times the price of iron ore. Steel mills can now hedge their raw material costs through SGX iron ore derivatives and simultaneously lock in profi ts on fi nished steel through SGX HRC Steel derivatives. Signifi cant margin off sets between SGX Iron Ore and HRC Steel derivatives also improve capital effi ciency in a rising interest rate environment.
As the Asian steel derivative space becomes more active amidst rising price volatility, rapid urbanization and industrialization, as well as caution about slowing growth; SGX is at the forefront of this change through active engagement in workshops, seminar, and conferences to educate participants about iron ore and steel derivatives. Th e Exchange has also been diligent in writing educational articles that not only theoretically explain iron ore and steel derivatives but also illustrate how they can be eff ectively used by various stakeholders.
Having launched a total of 5 products within the iron ore and steel derivative space over a short span of less than 5 years, SGX is committed to continually expand its product off erings so as to provide the steel market with more sophisticated and eff ective hedging and speculating opportunities. Currently, SGX is looking into launching derivatives for coking coal – another key raw material for steel production.
Lily ChiaHead of Product Management, CommoditiesSingapore Exchange
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GLOBAL LEADERS PROFILE
Laplace Conseil
Marcel Genet is the founder of Laplace Conseil, an independent expert consulting fi rm specialized in steel, metal and mining.
Marcel is an engineer from the University of Liège and holds an MBA from Wharton.
He started his career with McKinsey&Company where he became a senior partner in charge of the fi rm’s global steel practice.
In 1995, he launched Laplace Conseil to pursue an expert consulting career.
He leads a global network of experts from China, India, CIS, Middle East, EU28, NAFTA, Brazil and Australia.
Marcel GenetPresident and Managing DirectorLaplace Conseil
London Mining
Graeme Hossie co-founded London Mining in early 2005 and has been instrumental in building the company from its inception to its current status as one of the leading new producers of iron ore. He has driven the overall development of London Mining’s projects and international management team as well as fundraisings and share placings of over USD 600 million, asset and company acquisitions, the establishment of off take and strategic relationships, and the IPOs on Oslo Axess and the London AIM stock exchanges.
Graeme led the acquisition in 2007, successful development plan (10-fold production growth) and subsequent disposal in 2008 of the Group’s Brazilian operations for a 1,200% return on investment. Th is led to full Group debt repayment, a GBP 220 million special shareholder dividend and an ongoing capital investment programme to develop the Group’s other projects, in particular the Marampa mine in Sierra Leone which began production, exports and 5.4Mwmt/a ramp-up within 22 months of receiving government and full parliamentary approvals to develop the project.
Graeme HossieCEOLondon Mining
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MidWest Materials, Inc.MidWest Materials, Inc. is a premier carbon fl at rolled steel service center serving the metal needs of leading manufacturers across North America. Th e company celebrated its 60th anniversary in 2012 with the completion of a multi-million dollar expansion of its production facilities, which currently distributes hot rolled, HRPO, cold rolled and coated steel products.
Th e 240,000 sq. ft. warehouse near Cleveland, Ohio, USA, is home to the largest and most advanced Leveltek Stretch Leveling System in North America that uniquely provides unmarked, fl at, memory-free steel over 5/8” thick and over 100” wide.
Th e processing facility also includes corrective levelers, slitters, shears, on-site materials testing laboratory, direct rail access, a dedicated fl eet of trucks, and is ISO 9001:2008 certifi ed.
MidWest is honored to be named as a fi nalist in two categories of the 2014 Global Metals Awards – “Metals Mover of the Year” and “CEO of the Year”.
CEO Brian D. Robbins is the 3rd generation of the family owned and operated company thriving on the principles of quality, service, safety, innovation and dedication to long term relationships with vendors, customers, employees and the community. Mr. Robbins was recently named President of the international Association of Steel Distributors (ASD). For more information please visit www.midwestmaterials.com.
Brian D. RobbinsCEOMidWest Materials, Inc.
Smart Timing Steel LimitedSmart Timing Steel Limited is a reputable regional steel trading house based in Hong Kong that supplies a variety of steel products to its customer network in Southeast Asia, East Asia, North & Latin America and beyond. Th e company aims to maintain a resilient risk management approach and generates the most eff ective customer solutions to its global partners and stakeholders. Guided by the corporate value of ‘trading steel honestly’, its customer network grew extensively after it was founded in 1997.
All of its key traders are veterans originating from reputable trading houses, such as Cargill, Macsteel, Corus and Stemcor, with more than 20 years steel experience. Th rough fi rst-hand understanding of the Chinese and Asian steel markets, extensive networks, professional sourcing expertise and strong fi nancial
support from premier bankers, Smart Timing has been continuously evolving as a trustworthy trading partner that supplies unrivalled industry insight and distribution solutions around the globe. Its competitive advantage is the alignment of physical and paper market operations under a fl at organizational structure for prompt decision making at the ‘smartest timing’. Th is enables prompt decision making and accurate judgements of the market fundamentals.
Th e company also invests heavily in risk control and fundamental research. A rigorous risk reporting and control process is maintained. Execution lag time caused by bureaucratic red-tape is largely avoided. Th e research team helps to generate distinctive in-house price view and product strategy. Th e company has been steadily expanding its turnover of both fl at and long products, client coverage, market share and client base.
K.S. WongCEOSmart Timing Steel Limited
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insight DECEMBER 201350
GLOBAL METALS AWARDS
Th e second annual Platts Global Metals Awards, modeled after the highly respected Platts Global Energy Awards, honor excellence and accomplishments across the entire global metals complex. Th e winners of this year’s awards excelled despite a continued climate of economic uncertainty, facing challenges such as oversupply, price volatility and increased competition.
Success under these trying global market conditions called for transformation, and the winners of the Global Metals Awards delivered. Th ey focused on controlling what they could: improving their processes, developing new materials, investing in more effi cient equipment, and breaking ground on new facilities in their most promising markets. Some winners stood out for their product and process innovations, while others found success by doubling down: digging in and expanding their businesses when competitors pulled out.
Th e esteemed panel of independent judges who analyzed this year’s nominees included Alberto Hassan, Former President & CEO, Orinoco Iron; David
E. King, Former CEO & Director, London Metal Exchange; Moon-Soo Lee, Former President & CEO, United Spiral Pipe LLC; Jim Lennon, Former Chairman of Commodities, Macquarie; and Rana Som, Former Chairman, NMDC and Hindustan Copper. Th ey chose winners in a dozen categories from an impressive fi eld of nominees representing 20 countries. Winners were honored on May 21 at a black-tie dinner in central London.
As global markets begin to show signs of strength, and growth in a number of major industries such as automotive, construction and aerospace have a positive eff ect on the metals companies that supply them, judges felt that the winners of this year’s Global Metals Awards are well-positioned for growth.
CEO OF THE YEARAfter careful review of many outstanding candidates, judges elected to honor the standout performance of two nominees for CEO of the Year. Both winners distinguished themselves and their companies within two very diff erent, very challenging industries, and thrived
SUCCESS IN
STRENUOUS TIMESThe winners of the Platts Global
Metals Awards
MURRAY FISHERSenior Manager,Global Metals Awards
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GLOBAL METALS AWARDS
under diffi cult market conditions. Judges felt that their many notable achievements made it impossible to select one over another.
CEO of the YearKlaus Kleinfeld, AlcoaUnited States
Th e standout qualities of decisiveness and strong leadership made Klaus Kleinfeld, and the company he is transforming, shine to the Global Metals Awards judges. Kleinfeld joined 126-year-old aluminum industry giant Alcoa in 2007 as president and chief operating offi cer, and seven months later assumed CEO responsibilities. He has since shifted Alcoa from a commodity-dominated enterprise to a new focus on innovation and high-end growth markets, ensuring that Alcoa is less dependent on factors beyond its control.
Kleinfeld’s approach, fi rst implemented at the height of the global economic crisis, called for the company to grow its value-add businesses and lower the cost base of its commodity businesses. Alcoa closed or curtailed high-cost global smelting capacity to lower its position on the global aluminum cost curve and improve its competitiveness. It also invested in the world’s lowest-cost smelter in Saudi Arabia, and worked to capture strong growth opportunities in the automotive and aerospace industries. Kleinfeld’s decisive actions gained signifi cant traction in 2013, as Alcoa’s value-add businesses accounted for 57% of 2013 revenues and 80% of segment profi ts, a 10 percentage point profi t increase over 2012.
By successfully executing this strategy and with an expanded use of a variety
of metals and materials, Kleinfeld’s Alcoa was comparatively well-prepared to weather the 9% drop in the average aluminum price on the London Metal Exchange (LME) that negatively aff ected the industry. Subsequently, the company delivered a 2013 total shareholder return 45% better than its aluminum industry peers and reported a remarkable $1.1 billion in year-over-year productivity gains for full-year 2013.
Th e Global Metals Awards judges praised Kleinfeld for having clear values that translate into measurable improvement. As the company’s transformation accelerates, with a reshaped commodity business and new growth in value, the new Alcoa is well-positioned to remain resilient and maximize profi table growth.
CEO of the YearChandra Shekhar Verma, Steel Authority of India Limited (SAIL)India
With an annual production of 13.5 million metric tons, state-owned SAIL is India’s largest steel-producing company and the 24th largest steel producer in the world. SAIL owns and operates eight steel plants, as well as the country’s second-largest iron ore mines network. CEO Chandra Shekhar Verma presides over this mammoth organization of more than 100,000 employees with what judges felt was a unique ability to strengthen its present performance and shape its future.
Verma, named SAIL’s Chairman in 2010, has motivated employees to improve the company’s operational performance to 112% of saleable �
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steel capacity utilization. Th e company is implementing a massive modernization and expansion program to take its steel production capacity to 21.4 million tons per annum (mtpa) from 12.8 mtpa, primarily through brownfi eld expansions in its existing steel mills. Th ese eff orts have kept SAIL performing above industry average, and position it favorably to respond to growth in India’s steel demand, expected to increase 5.6% in 2014 according to the World Steel Association. Incredibly, Verma achieved these results while simultaneously chairing the International Coal Ventures Limited and National Minerals Development Corporation.
Corporate social responsibility (CSR) has been critical to SAIL since the company’s inception in 1973. Under Verma’s leadership, SAIL provides health services, meals, education, roads and sanitation in 79 Model Steel Villages, and off ers similar services around the country. Verma pioneered mandatory Integrity Pacts, which discourage corruption in public contracting by binding all parties to ethical conduct. Verma was in 2013 elected as the Chairman of India’s Standing Conference of Public Enterprises, where he encourages collaboration among member organizations to become globally competitive.
Global Metals Awards judges admired Verma for leading SAIL’s expansion while simultaneously chairing multiple organizations, exhibiting excellent company values, and producing a strong CSR track record. His comprehensive leadership has resulted in game-changing fi nancial success for what one judge called “the most important steel player in India.”
Corporate Social Responsibility AwardGerdau Long Steel North AmericaUnited States
Th e judges’ unanimous choice for this year’s Corporate Social Responsibility (CSR) Award, Gerdau Long Steel North America, follows principles of sustainable development and believes that its growth is directly related to its respect for the environment and its commitment to society. Th e company has woven CSR into its fabric, where it is both a broad, institutionalized program and a voluntary commitment that greatly motivates employee morale.
Gerdau Long Steel North America is a division of 110-year-old steel company Gerdau, the leading producer in the Americas and one of the world’s largest suppliers of specialty long steel. Th e company is a leader in mini-mill steel production and steel recycling in North America, with an annual manufacturing capacity of approximately 10 million metric tons of mill fi nished steel products.
In order to contribute more signifi cantly to the development of the communities where it does business, Gerdau established the Gerdau Institute in 2005 as the philanthropic sector of the company. In 2012, it invested a total of $52.7 million in projects implemented in the communities neighboring its business units, with the voluntary participation of approximately 9,500 employees. Th e company trains its employees for volunteer work, and recognizes and rewards their participation.
Th e Gerdau Institute is governed by Gerdau Institute Committees, which in
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2014 will be in place at all North American mill locations. Committees are comprised of Gerdau employees who are encouraged to make social responsibility decisions based on local social need, with an overall focus on education, children and young people. Employees volunteer to participate in projects such as the 5S in Schools program, which improves teaching conditions in local public schools; Junior Achievement, which aims to spark an entrepreneurial spirit in young students; and the holiday campaign, one of the company’s main community support events, which collects canned food items and new toys to benefi t local communities.
Judges were inspired by both the widespread impact of Gerdau Long Steel North America’s CSR programs and the direct, proactive involvement of the company’s employees in determining the programs’ course. Th e company’s commitment to social responsibility benefi ts the entire public – associates, customers, suppliers, shareholders, government and society – and is helping to fuel its economic growth.
Deal of the YearArcelorMittal and Nippon Steel & Sumitomo Metal CorporationUnited Kingdom
Given how closely metals sector dealmaking is tied to global economic conditions, judges were impressed with the timeliness and foresight of one particularly complex, triangulated deal. It took 15 months to negotiate and less than three months to close, arriving just as demand begins to accelerate in the automotive industry.
Th e deal involved the acquisition of Th yssenKrupp Steel USA from German parent Th yssenKrupp, by UK’s ArcelorMittal and Japan’s Nippon Steel & Sumitomo Metal Corporation (NSSCM). Th e acquirers have signifi cant automotive businesses and a successful history of working together in the USA. Th e $1.55-billion transaction’s structure involved the sale of two assets: Th yssenKrupp’s CSA steel mill in Brazil and Th yssenKrupp Alabama in the USA. However, ArcelorMittal and NSSCM’s interest was limited to the strategically located Alabama facility, which supplies automotive and construction steel. To address Th yssenKrupp’s desire to secure the CSA plant’s future, the transaction included a six-year agreement to purchase 2 million tons of steel slab annually from the plant.
Th e renamed AM/NS Calvert plant, the world’s most modern steel fi nishing facility, has an output capacity of 2.2 million tons per year, and will double the combined production capacity of NSSMC and ArcelorMittal in the USA to 4.2 million tons. Th e acquisition places the companies in a strong position to take full advantage of predicted growth in the automotive market, which NAFTA expects to jump by around 15% over the next decade. Specifi cally, the plant will help meet increasing demand for advanced high-strength steels needed to produce lighter, more fuel effi cient vehicles. It will also improve the consortium’s position to supply NAFTA energy, which is expected to demonstrate growing demand for energy pipe and tube products due to increases in oil and natural gas exploration and production.
Judges noted that the transaction price represents a steep discount from �
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the $5 billion Th yssen spent to build the plant – “they got a great deal,” as one noted – and makes excellent strategic sense for all stakeholders. Th e judges are pleased to recognize these winners for exercising leadership, patience and strategic vision to transcend cultural diff erences, obtain regulatory approvals, and close this complex deal at just the right time.
Industry Leadership Award: AluminumNovelisUnited States
Th e aluminum industry produced several strong contenders for this year’s Industry Leadership Award. Th e judges ultimately chose to honor Novelis, the world’s premier producer of rolled aluminum and the global leader in aluminum recycling, as the winner, in recognition of its ability to remain nimble and innovate in an evolving market.
Atlanta, GA-based Novelis, which was acquired by India’s Hindalco Industries for $6 billion in 2007, has operations in nine countries and approximately 11,000 employees, and reported revenue of $9.8 billion in its most recent fi scal year. Th e company shipped 2.8 million metric tons of fl at rolled products in 2013, an estimated 14% of the world’s supply. Th e majority (62%) of its products were used in beverage cans, while 20% went to foil and other products; 12% to architecture, electronics and transportation; and 6% to automotive. It counts major global brands including Coca-Cola, Ford Motor Company, BMW and Mercedes-Benz among its customers.
In light of a projected increase in demand from automotive industry
customers, which is predicted to begin outpacing that of cans and specialty products, judges applauded Novelis’ eff orts to improve and evolve its business. Its current global expansion plan, enabled by investments of close to $500 million, has an immediate goal of increasing recycling capacity to 2.1 million tons by 2015, and a longer-term goal of reaching 80% recycled metal input across its products by 2020.
Judges felt Novelis was the most innovative of the nominees in creating new products. Its new Novelis Global Research & Technology Center has developed groundbreaking innovations on multiple fronts: the world’s fi rst high-recycled content aluminum sheet, for use in beverage cans; the next generation of chemical pre-treatment for automotive aluminum; and scrap-friendly alloys, providing the ability to process scrap that contains plastic and paper contaminants. It is also partnering in development of more fuel-effi cient cars, methods to substitute aluminum for other materials in new markets, and closed-loop recycling systems, enabling Novelis to receive and reuse its customers’ scrap.
As this year’s Aluminum Industry Leader, Novelis was praised for its commitment to innovation, its high percentage of recycling, and a growth profi le that judges deemed “second to none.”
Industry Leadership Award: Raw Materials & MiningLondon Mining PlcUnited Kingdom
Mining can be risky business, especially in West Africa, where daunting infrastructural and logistical challenges
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have caused the majority of prospectors to withdraw from the area. When others left, one company remained: London Mining turned risk into reward by executing its projects in Sierra Leone with effi ciency and innovation.
Founded in 2005, London Mining produces high specifi cation iron ore concentrate for the global steel industry and is focused on identifying, developing and operating sustainable mines. Th e company is now in its third year of production from its 100%-owned Marampa Mine in Sierra Leone. In 2013, the company doubled production to 3.4 million wet metric tons (wmt), tripled sales, decreased operating costs by 21% and expanded plant capacity by 35%.
London Mining employed innovative measures to surmount frustrations faced by its former competitors in the region. It overcame major infrastructure challenges by creating a new logistics solution to transfer iron ore from Sierra Leone to the port; employed innovative fi nancing for mine development, delivering Marampa for half of industry average capital intensity for new projects; and focused on production of a high-grade product, in order to compete with lower-cost, lower-grade iron ore from Australia and Brazil.
Judges felt that London Mining operates with awareness of its responsibility to all stakeholders. While Marampa has contributed to the growth of the mining sector in Sierra Leone and is expected to generate much-needed economic benefi ts for decades to come, the company’s positive impact on Sierra Leone’s growing GDP goes beyond employment, direct taxes and royalties to include both economic development and a precedent
of successful investment for foreign investors.
Judges agreed that London Mining is “making an impact and leading the way,” both in West Africa and throughout the Raw Materials & Mining industry. It plans to increase capacity to 6.5 million wmt in 2015, with a reserve suffi cient for over 40 years of operation. Th e company also has potential to expand further from a resource base of over 1 billion tons in Sierra Leone and from development opportunities in Greenland and Saudi Arabia. Th e judges observed in London Mining the tenacity of an industry leader, and salute the company for demonstrating a path to success under diffi cult circumstances.
Industry Leadership Award: Scrap & RecyclingUpstate ShreddingUnited States
Nominees faced tight competition in this category, refl ecting dramatic changes in the metals recycling sector, with new players entering and deals altering the landscape. Judges ultimately rewarded Upstate Shredding for leading the way in this unstable environment.
Th e company is the largest privately held scrap processor on the east coast and one of the largest facilities of its type in the USA. It has grown from $3 million in sales in 1996 to approximately $750 million in 2013, employing approximately 400 at 18 locations. It sells its product to companies in the USA and abroad, loading up to 32,000 metric tons onto vessels from its $15 million facility on the port of Albany, New York. In 2014, the company expects to process more than one million tons of �
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ferrous scrap and 250 million pounds of nonferrous scrap.
Upstate Shredding has earned respect for its strong client focus. Th e company pays top prices for scrap metal, keeps offi ces open seven days a week, and off ers same-day cash payment. It also off ers prompt delivery of consistently high-quality product. Th is client focus is a driver of its growth: while others in the industry have downsized, Upstate Shredding has expanded. Judges were impressed by the company’s record of achieving profi tability for 30 consecutive quarters, all without staging a single layoff , and without asking for or receiving any government tax abatements, credits, or grants.
Judges found that Upstate Shredding exemplifi es what the company calls “the new age of scrap yards.” Th e company invests heavily in upgrades to its plant and equipment; keeps its yards paved, landscaped, clean and organized; and operates some of the world’s highest capacity, most technically sophisticated shredding and chopping equipment. Its environmental conservation eff orts include operation of its own storm water treatment plant and retention ponds to achieve environmental certifi cations.
With plans to open 33 additional facilities, and to increase sales to $1 billion in annual revenue in 2015, Upstate Shredding received praise from Global Metals Awards judges for its all-around performance in executing growth initiatives, while maintaining high levels of fi nancial performance and product quality. In the words of one judge, this winner “brings order to a messy business” – one true hallmark of an industry leader.
Industry Leadership Award: SteelArcelorMittalUnited Kingdom
Th e challenges of global overcapacity and continued economic turbulence have had a major impact on steelmaking, undermining consumption and demand and forcing companies to reevaluate not only their production footprints, but also the way they operate. ArcelorMittal under the leadership of chairman and CEO Lakshmi Mittal stood out to judges for its vital role in redefi ning the industry.
With a presence in more than 60 countries, ArcelorMittal is the world’s leading supplier of steel to major global steel markets including automotive, construction, household appliances and packaging. It is one of the world’s fi ve largest producers of iron ore and metallurgical coal, with geographically diversifi ed assets that position the company to serve its network of steel plants and the external global market. In 2013, the company reported revenues of $79.4 billion and crude steel production of 91.2 million tons, while iron ore production reached 58.4 million tons. Its M&A eff orts such as its Deal of the Year Award-winning partnership with NSSCM to acquire Th yssenKrupp Steel USA have positioned it for a strong emergence from challenging economic times.
Beyond success in its core business, ArcelorMittal’s research and development operations are creating new generation steels for a range of sectors. Th e company has pioneered advanced high strength steel grades and manufacturing processes that help
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automotive customers create lighter, stronger vehicles. Th e company is also developing low energy buildings for the construction sector, with solutions ranging from insulated fl oor systems to photovoltaic steel roof products. For the energy markets, the company is developing higher strength materials for use in off shore oil platforms and wind turbine towers. With these varied eff orts, judges believed that the company truly distinguished itself as an industry leader, improving steel’s position in its markets while simultaneously increasing its own market share.
Judges also saluted ArcelorMittal’s eff orts to operate with the best safety record in the industry, aiming to produce steel and extract minerals with zero fatalities, zero lost-time injuries and zero occupational illnesses. Its company-wide safety program has already achieved a signifi cant improvement in safety performance and expects to further reduce its incident rate in 2014.
ArcelorMittal ticked all the boxes for Global Metals Awards judges, who felt that “no one else compares in terms of leadership.”
Breakthrough Innovation of the YearLanzaTechUnited States
Th is winner may be a comparatively small company, with approximately 130 employees globally, but it seized the judges’ attention with a remarkable new technology that does double duty. LanzaTech, founded in New Zealand in 2005 and now headquartered in the
United States, has developed a proprietary gas-fermentation microbe to transform carbon-rich synthesis and waste gases from industrial sources such as steel mills into fuel-grade ethanol or chemicals with widespread applications. Th e result: LanzaTech is reducing emissions while creating a new market from what has long been seen as a waste product.
LanzaTech is the fi rst company in history to scale gas fermentation technology to a pre-commercial level. In 2013, LanzaTech completed the successful demonstration of its technology at a Shougang steel plant in China. Th e Shougang plant joined LanzaTech’s previous success at a Baosteel plant in 2012, with both plants scaled to an annualized production capacity of 100,000 gallons of ethanol. Plans for two commercial facilities began in 2013, and full commercial production is expected to begin in 2015. Th ese facilities will make the steel industry a model for others that must improve their environmental footprints in the coming decades.
LanzaTech has raised more than $100 million in capital and has a diverse pipeline of products in development: ethanol for use as fuel and as a chemical intermediate, platform chemicals, and hydrocarbon fuels including diesel, jet and gasoline. Th e company estimates 65% of steel mills worldwide use technology that could be retrofi tted to include its process, which translates to 30 billion gallons of ethanol or 15 billion gallons of sustainable aviation fuel – about 19% of the current world aviation fuel demand. It has also partnered with �
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or entered into agreements with leading global metals entities including Baosteel, Shougang Group, POSCO, HARSCO, Siemens VAI, Mitsui, and Concord Blue.
Judges recognized the potentially transformational impact that LanzaTech’s dramatic advance along the biotechnology frontier could have on the world’s carbon-intensive, emissions-heavy steel industry. For turning the industry’s waste carbon from a problem into an opportunity, and enabling it to grow sustainably while taking advantage of new revenue streams from fuel and chemical production, the judging panel agreed that LanzaTech is truly a model of breakthrough innovation.
Rising Star AwardFortescue Metals GroupAustralia
Th is year’s Rising Star Award winner boasts a story reminiscent of David and Goliath. Impressing the judges with a series of bold fi nancial and technological decisions, Fortescue Metals Group ascended from industry newcomer to global leadership and stabilized the world’s iron ore market order in the process.
Founded in 2003 in Perth, Western Australia around the kitchen table of Chairman Andrew Forrest, Fortescue began with the belief that the nearby major markets of China and Asia would create long-term demand for commodities, and that the region had signifi cant untapped supply potential. But the newcomer faced the formidable challenge of entering a global iron ore industry already dominated by large multinational companies.
Fortescue fi rst secured tenements in the remote and resource-rich Pilbara region of Western Australia, where it began exploring for iron ore. Th e company applied innovative techniques to decades-old maps, discovering major deposits in the Chichester and Hamersley Ranges. Construction soon began on the company’s fi rst mining and infrastructure projects: the Cloudbreak mine, a 256 KM railway to the coast, and world-class port facilities. Five years after its founding, Fortescue shipped its fi rst cargo of iron ore bound for China.
In the fi rst full year of operations, Fortescue mined, railed and shipped more than 27 million tons of iron ore to customers in China. Th e following year saw 40 million tons delivered, more than 55 million tons in 2012, and record production of 80.9 million tons shipped in 2013. Expansion plans, with construction currently underway at the company’s Solomon mining operations and accompanying infrastructure, call for increasing Fortescue’s production capacity to 155 million tons per year.
One judge noted that at Fortescue, “Forrest stepped up, and fi nancially and technologically transformed this smaller player into a competitor.” In less than a decade, the company has become the world’s fourth largest producer of iron ore and one of Australia’s largest mining companies. It operates four world-class iron ore mines, boasts the fastest, heaviest haul railway in the world, possesses Australia’s most effi cient iron ore port, enjoys strong customer relationships worldwide, and has huge untapped exploration. Th e judges unanimously praised Fortescue for transforming the global iron ore
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industry and becoming one of Australia’s great corporate success stories.
Lifetime Achievement AwardGreg Ludkovsky, ArcelorMittalUnited Kingdom
Th is category drew a remarkable set of fi nalists, all of whom impressed judges with their contributions to the metals industry. Ultimately, the story that resonated most was that of ArcelorMittal’s Gregory Ludkovsky, who overcame humble beginnings to develop technology that not only improves his company and his industry – it saves lives.
Ludkovsky began his career in Russia as a researcher in the fi eld of solid state physics. He arrived in Chicago, IL in 1979 as a political refugee with $56.40 in his pocket. Twenty hours of interviews led to a position at a research laboratory operated by Inland Steel, which Mittal Steel purchased in 1998. Ludkovsky progressed through the research and development (R&D) department to his current post as Vice President of Global R&D at ArcelorMittal. He holds two dozen patents and is an author of numerous publications in the fi eld of physical metallurgy.
Ludkovsky earned admiration from judges for blending the R&D units in North America and Europe following the ArcelorMittal merger. He respected their diff erent cultures and missions while boosting synergies to improve knowledge sharing, streamline project execution, and encourage mutual support. Th e resulting R&D organization provides both product and process solutions that are truly global.
Ludkovsky now presides over eleven laboratories in Europe, USA and Canada, 1,300 researchers, and a total global R&D budget of $285 million. Refl ecting the company’s concentration on growth in the automotive industry, fi ve of those laboratories, housing 600 researchers and operating with a $94 million budget, are dedicated to automotive R&D.
Ludkovsky was an initiator of the steelmaker’s early involvement with car manufacturers, dating back to the introduction of the Ford Taurus in 1986. His R&D eff orts have resulted in increased collaboration with OEMs on co-engineering activities. He takes pride in knowing that the high strength steels produced by ArcelorMittal for the automotive market, and products they design such as a door ring currently in use by Honda, play a large part in passenger safety and save the lives of people every day.
Ludkovsky’s enthusiasm for his work and his commitment to the industry were evident to the Global Metals Awards judges, and make him an outstanding statesman for steel and a worthy recipient of the Lifetime Achievement Award.
Metals Mover of the YearReliance Steel & Aluminum Co.United States
Th e nominees for the Metals Mover Awards go beyond simply delivering materials; they add value to their links in the commodities chain on a daily basis, off ering superior customer service and dedication to safety, speed and quality. Reliance Steel & Aluminum impressed the Global Metals Awards judges by �
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doing so on a massive scale; “it’s all in the numbers,” one noted.
Founded in 1939 in Los Angeles, CA, Reliance Steel & Aluminum is the largest metals service center company in North America. Th rough its network of more than 240 locations in 39 states and 10 countries, the company provides value-added metals processing services and distributes a full line of over 100,000 metal products to more than 125,000 customers in a range of industries. Reliance reported revenue of $9.2 billion in 2013, an increase of 9.3% over the prior year.
Although Reliance sells directly to many large OEM customers, the company has developed a big business by focusing on small orders with quick turnarounds. Many of its customers purchase smaller quantities of metal than the minimum orders specifi ed by mills and require intermittent deliveries or specialized processing services – such as burning, cutting to length, precision plate sawing, and more – before distributing metals products to end-users. Reliance steps in to provide quick delivery, inventory management services and processing that other, larger metals service center companies are unable to provide. Th e company wrote and delivered over 5,538,000 orders during 2013 at an average price of approximately $1,660 per order.
Reliance has expanded both through acquisitions and internal growth. Since its IPO in September 1994, it has successfully purchased 56 businesses, including its largest to date, the $1.25 billion acquisition of Metals USA in 2013. Th e company’s recent internal growth activities, supported by its capital
expenditures, have included opening new facilities, expanding processing capabilities and relocating existing operations to larger, more effi cient facilities. Th e company plans continued diversifi cation of its products, customer base and geographic locations.
Judges remarked on Reliance’s ability to develop collaborative partnerships with its customers on a grand scale. Th ey agreed that the company’s strong fi nancial profi le, management philosophy, and acquisition expertise are moving the company squarely along a path of continued growth and profi tability.
Metals Company of the YearFortescue Metals GroupAustralia
Th e highest honor at the Global Metals Awards is Metals Company of the Year, recognizing fi rms that exemplify leadership and innovation. Th ere are no nominations accepted for this award; instead, the panel of judges selects and evaluates fi nalists from all categories representing a diverse range of countries and focuses. Fortescue Metals Group, also named as the winner of this year’s Rising Star Award, was the panel’s unanimous choice.
Fortescue’s accomplishments impressed the judges because of the extreme nature of their signifi cance against the backdrop of diffi cult markets. Th e company faced potentially disastrous fi nancial challenges in 2012, when it halted the $1.1 billion expansion of the Kings mine at its Solomon hub following a 25% drop in iron ore prices. By the end of that year, Fortescue had recovered, restarting expansion at
Solomon and achieving a record run rate. After defying expectations in 2012, the company registered a phenomenal year in 2013, and is poised for continued growth.
Th e company has had signifi cant positive impact in many areas of its home country. Fortescue created thousands of jobs as it expanded its operations, directly employing nearly 4,000 people at the end of FY2013, with contractors employing more than 14,000 more. Th e company boasts more than 12% Aboriginal employees, part of its commitment to providing opportunities for the First Australians. More than 1,000 people have participated in its Vocational Training and Employment Centres (VTEC) program, which ensures graduates of employment with Fortescue or its contractors. It also invests in initiatives and technologies that not only make good business sense but also reduce its environmental impact. For example, the company recycles approximately 80% of waste materials at its mines, and reinvests fi nancial gains from the sale of those materials back into community programs.
Global Metals Awards judges praised Fortescue’s many accomplishments within a short period of time: the company developed mines, built its own railways, and established a complete infrastructure to support its ascension as a world player. Th e company’s founders may have begun by studying old maps, but Fortescue has forged its own path to success in the global metals industry. In recognition for these achievements, and for its all-around excellence in executing a total metals strategy, the judges are proud to name Fortescue as Metals Company of the Year. �
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