gilles calis, steelconsult international cost competitiveness of … · 2010. 6. 1. · •market...
TRANSCRIPT
November 2009
Cost competitiveness of steelmaking in the GCC:
who will supply future growth?
Gilles Calis, SteelConsult International
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2%
5%
3%
6%
2%
14%
7%
3%
6%
10%
0%
2%
4%
6%
8%
10%
12%
14%
16%
North
America
Latin America Europe CIS East Asia
(excl. China)
China India Other World MENA Global
Finished steel consumption, CAGR 1995-2008
Source: WSA
The MENA steel market has shown fast growth during the last decade
Population, 2008/2009 (mln)
35 34
11
6
83
29
1 3
66
29
7 4
2024
613
5
0
10
20
30
40
50
60
70
80
90
Mor
occo
Alger
ia
Tunisa
Liby
a
Egy
pt
UAE
Sau
di A
rabia
Bah
rain
Om
an
Kuw
ait
Qat
arIra
nIra
q
Isra
el
Jord
an
Leba
non
Syr
ia
Yem
en
Source: UN Population Statistics
Despite also being hit by the crisis, the long term outlook for the region is favorable. It has a market potential of 365m consumers…
1.1%1.3%
0.3%0.1%
1.4%
0.7%
1.6%
2.0%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
North
America
Latin
America
Europe Japan SE Asia China India MENA
Population, CAGR 1995-2008
Source: UN Population Statistics, CIA World Fact Book
118
102
57
4740 37 34 33
2021
0
20
40
60
80
100
120
140
LiechtensteinQatar
KuwaitUSA
UAE
BahrainJapan EU
Saudi Arabia
Oman
GDP/head (PPP), 2008 (1,000 US$)
A fast growing population and rising GDP/head
Source: EIA, WSD, SteelConsult
0
20
40
60
80
100
120
140
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09e '10 '11 '12 '13 '14 '15 '16 '17 '18 '19 '20 '21 '22 '23 '24 '25 '26 '27 '28 '29 '30
Oil price (annual average), US$/barrel
Critical level of oil price in the
past for go ahead of investments
in construction and industry in
the Gulf region
The main driver of economic development and demand for steel in the region, the price of oil, is forecast to recover to levels above $100/bl
Supply of steel in MENA region by source (m tonnes)
13 13 14 13 15 16 18 19 21 2225 26
28 2713 3
34
57
7
89
10 11
7
89 10
1011
14
15
1413
1517
27 28
2 3
0
10
20
30
40
50
60
70
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
0%
10%
20%
30%
40%
50%
60%
70%
Net imports of finished steel
Net imports of semi-finished steel
Crude steel output in MENA region
% dependency on imported steel
% of steel requirements imported from outside
Source: SteelConsult, ISSB, UN trade statistics
The region is a large and growing importer of steel…
63%57% 55%
51% 53% 50% 48%51% 50%
43% 41%
10%
9%8%
9%8% 6%
8%8%
11%11% 12% 11%
11% 17%
0%
5%6%
6%8%
13% 16%16%
15%15% 15%
14%
11%
11%
0%7% 9%
8%
11%
11% 9%10%
10% 8% 11%
9%
10%7%0%
0% 0%
0%
0%
0%0%
0%
0% 0%1%
5%
12% 9%
28%23% 23%
27%20%
14% 16% 18%14% 13% 10% 11% 13% 15%
50%55% 52%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
MENA Turkey Ukraine
Russia China Other
Source: SteelConsult, ISSB, UN trade statistics
Supply of steel consumed in MENA region by source of crude steel production (%)
45% of steel is supplied by just 4 foreign countries: Turkey, Ukraine, Russia and China
0 2 4 6 8 10 12 14 16
Japan
Europe
Turkey
USA
China
Ukraine
MENA
Source: International Energy Agency (IEA), SteelConsult
Natural gas cost for industry by country 2008 (US$/Mbtu)
Range of gas prices for steel mills in MENA, depending on country and
whether existing mill or new project
Natural gas is lowest cost in the world…
Donetsk
Alchevsk I&S
ZaporizhstalKryviy Rih Mariupol
im. Ilyich
DMZ
Azovstal
Petrovsky
Enakievo I&S
Makeyevki
DnMK
• MENA DRI based mills do not
compete with DRI mills in other
countries, but with integrated mills
in Ukraine, Russia and China and
with scrap based EAFs in Turkey
• The 200km radius around
Donetsk alone holds 49BFs and
45m tpy of steel capacity
• Turkey has over 15 significant
scrap fed EAF based producers
with combined capacity of >20m
tpy
• More important for
competitiveness than the price of
natural gas in these countries, are
the prices for coal/coke, scrap and
freight
Cebitas Demir Celik
Cemtas Celik
Colakoglu Metalurji
Cukurova CelikDiler Demir CelikEge Metal Demir CelikEkinciler DemirHabas
Icdas - Celik Enerji
IDC - Izmir Demir
Kaptan Demir Celik
Kroman Celik
Metas Izmir Metalurji Fab.
Sivas Demir Celik
Tuber Celik
Yasizi - Asil Celik Sanayi
Izmir
Istanbul
Iskenderun
Sivas
However, MENA mills do not compete with other DRI mills in other countries, but with BFs in the CIS and China, and scrap fed EAFs in Turkey
MENA steelmakers have seen costs of steelmaking jump since 2002, driven mainly by rising raw materials costs and freight
Source: SteelConsult analysis
Note: *Weighed average of main steel mills incl. partial hot DRI charge from 2007
Operational production cost/t billet, GCC* DRI/EAF based mill, US$/t
90 94 97 89 80 85 81 83111
145187 185
206
319
18027 25
2535
24 26
32
47
55 59
94
104
52
26 26 25 2625
2624 24
24
24
24 24
25
26
28
22 22 22 2424
2523 24
24
25
25 26
27
29
29
48 47 44 4644
4341 42
42
43
43 44
45
47
46
2525
0
100
200
300
400
500
600
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Other operational production costs
Labour
Energy
Freight raw materials
Raw materials
Essentially, MENA mills are competing with the price of coking coal in Ukraine, Russia and China and the price of scrap delivered to Turkey
0
100
200
300
400
500
600
700
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09
Coking coal Iron ore Freight Scrap
Development of steelmaking cost drivers (index, 1995=100)
Source: SteelConsult analysis, MB, SBB
Source: SteelConsult Notes: *DRI/EAF mill **Integrated mill ***scrap based EAF Import tariffs have been left out of consideration
180 180 180 208242
212
52 52
1441
96 6528 33
5114
2929
4646
46
24
285427
23 27
52 17
29
0
100
200
300
400
500
600
700
800
900
GC C ( ex
works) *
energy at
$5/ mbt u
GC C ( ex
works) *
energy at
$3 / mbt u
GC C ( ex
works) *
energy at
$1/ mbt u
U kraine ( del
Gulf ) **
Turkey ( del
Gulf ) ***
C hina ( del
Gulf ) **
Freight billet to Gulf
Other operational production costs
Labour
Energy
Freight raw materials
Raw materials
Operational production cost/t billet, US$/t, 2008
319 319 319
423 436385
104 104
30
54
9564
2729
44
13
2929
4747
47 32
31
53
5546
64
104
2129
0
100
200
300
400
500
600
700
800
900
GC C ( ex
works) *
energy at
$5/ mbt u
GC C ( ex
works) *
energy at
$3 / mbt u
GC C ( ex
works) *
energy at
$1/ mbt u
U kraine
( del Gulf ) **
Turkey ( del
Gulf ) ***
C hina ( del
Gulf ) **
Freight billet to Gulf
Other operational production costs
Labour
Energy
Freight raw materials
Raw materials
Operational production cost/t billet, US$/t, 2009
2008 2009Cost at
various gas
prices
Cost at
various gas
prices
With low cost gas, local production is competitive
The MENA region’s low energy/reductant cost is essential to offset cost disadvantages in other areas, in particular for freight and labour
106
28
25
15
38
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
Raw
materials
+ energy
Freight raw
materials
+ billet
Labour Other
operational
production
costs
Total
penalty
benefit
Source: SteelConsult analysis
Notes: *DRI/EAF mill **Integrated mill
2008: market peak
34
2322
8
27
-100
-80
-60
-40
-20
0
20
40
60
80
100
120
Raw
materials
+ energy
Freight raw
materials
+ billet
Labour Other
operational
production
costs
Total
penalty
benefit
2009: current year
Cost benefits of producing in GCC* vs. Ukraine** for supply to
GCC region, US$/t billet, 2008
Cost benefits of producing in GCC* vs. Ukraine** for supply to
GCC region, US$/t billet, 2009
Freight and labour are areas which offer
significant potential savings to MENA
steelmakers
Shipping distances for DR quality iron ore to the Gulf are long and vessel size is restricted
IOC, Sept-Iles
QCM, Port Cartier
Vale, Tubarao
Samarco,
Ponta do Ubu
SSAB, Narvik
Distance 7,990 miles
Duration 25 days
Distance 7,600 miles
Duration 24 days
Suez Canal charge
Distance 7,150 miles
Duration 22 days
Suez Canal charge
41%
26%
31%
2%
Vale Samarco
LKAB IOC/QCM
Seaborne ore supplies to
MENA region by source*
Source: SteelConsult analysis, ISSB
Notes: *incl. GIIC Bahrain, data based on average 1995-2006
Ukraine has local ore and coal and, though local railway tariffs are rising, freight costs remain limited compared to seaborne freight
Odessa
• Ukraine’s iron ore reserves are close to the
Black Sea coast, at upto 500km distance.
Russian mines are about 1,000km from
Ukraine’s ports.
• Ukraine also has a considerable coal mining
industry, though its reserves are of lower
quality.
• Both ore and coal mines are located close
the country’s steel industry in the Donetsk
region.
Ukrainian iron
ore mines
Russian iron
ore mines
Mikhailovsky
Lebedinsky
Yuzhny Mariupol
Severny Inguletsky
Tsentralny Yuzhny
Krivbassruda
Novokrivorozhsky
Poltavsky
Ukrainian
coal mines
Turkey has scrap locally and imports from North America, the CIS and Europe, distances are much shorter than for DR quality ore to the Gulf
Hampton Roads
Distance 5,250 miles
Duration 16 days
32%
27%
23%
18%
Domestic EU
CIS North America
Scrap supplies to Turkey
by source*
Source: SteelConsult analysis, ISSB
Notes: *data based on average 1995-2006
Rotterdam
Distance 3,375 miles
Duration 10 days
Mariupol
Distance 1,300 miles
Duration 3.5 days
Iskenderun,
Turkey
Odessa
Distances to ship billet (or rebar) from Ukraine and Turkey to the Gulf are also relatively modest
Source: SteelConsult analysis
Mariupol
Distance 4,175 miles
Duration 13 days
Suez Canal charge
Iskenderun
Distance 3,260 miles
Duration 10 days
Suez Canal charge
Odessa
Shanghai
Distance 5,580 miles
Duration 17 days
While possibilities to reduce energy, raw materials and labour costs are limited, there are ways to reduce freight costs
Vale, Tubarao
Distance 7,800 miles
Duration 24 days
Source: SteelConsult analysis
Vale, Sohar
• Vale’s plant under construction in
Sohar is outside the Strait of
Hormuz with water depth of 22-
23 meters, and is accessible to
400,000dwt vessels
• Redistribution to Gulf countries
beyond Strait of Hormuz possible
by smaller ships, only last 200-
300 miles done by
Panamax/Handymax
• Large scale operation, also
allowing discharge speed benefits
• Investment cost is huge, but
operational cost benefits are
significant
• The region has been one of the star performers in terms of market growth during the last decade.
Whilst also hit by the crisis, fundamentals should support fair growth in the medium to long term,
though not back to pre-crisis growth rates.
• The international cost competitiveness of steel production in the MENA region is a fine balance
between the costs of iron ore pellets, freight and natural gas vs scrap, coking coal and electricity.
• Low energy costs are essential for MENA mills to offset other ‘natural’ competitive disadvantages
steelmakers in the region have to face, mainly high costs for freight of iron ore and for labour.
• Local gas availability has become increasingly tight and prices are under mounting upward pressure
due to rising domestic requirements, expanding gas export infrastructure and rising international
prices.
• Provided local plants continue to have access to low cost gas, which cannot be taken for granted,
they are well positioned to retain or even increase their share of the market.
• However, Ukrainian and Turkish mills, in particular, have been suppliers to the region for decades
and have a strong position in the MENA market. Large amounts of established (over)capacity are
present in these countries and the MENA region will remain an attractive destination.
Conclusions
• Freight has indeed been one of the main cost inflators for steel production in the MENA region in
recent years. While priorities may be different in the short to medium term, we recommend MENA mills
to take actions to reduce freight costs, especially in view of the next market upturn.
• Vale is providing an interesting example by investing in the industrial and distribution complex in
Oman.
• Similar initiatives in countries with deep water access near the Gulf region - in addition to Oman,
possibilities may exist in Pakistan and India - may be interesting for MENA based mills, possibly in co-
operation with raw materials suppliers.
Conclusions
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