01-Jun-2012

Steelmaking raw
materials: market and
policy developments

DSTI/SU/SC(2012)1
72nd Steel Committee Meeting
Paris
31 May-1 June 2012

Structure of the report

A. Market issues
1. Importance of raw materials for steel
2. Production and resources of key raw materials
3. Trade in raw materials
4. Price and market developments
5. How companies are addressing the challenge
B. Government policies
1. Mineral policy trends
2. Examples of raw material policies
3. Export restrictions

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 01-Jun-2012

Raw materials availability challenge

Strong increases in demand for raw materials
driven by steelmaking capacity increase from
1,079 mmt in 2000 to 1,963 mmt in 2011 (+82%)
Iron ore demand went up from 954 mmt to
1,805 mmt (+89%) between 2000 and 2010
Coking coal demand rose from 475 mmt to 880
mmt (+85%) between 2000 and 2010.
More limited increase in ferrous scrap
demand, from 367 mmt to 560 mmt (52%) from
2000-2010, as capacity expansion centered in the
iron ore/coking coal intensive BF/BOF production
process.

Raw materials availability challenge

Supply side response lagged:

The surge in demand was unexpected

5-10 years to bring a mine into operation, but
mining investments are now increasing rapidly
Significant imbalances in markets
As competition for raw materials increased, so
did the number of policy measures to restrict the export
of raw materials in some resource-rich economies.
Significant increases in raw material prices and
concerns about supply availability

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Steelmaking raw material prices

Steelmaking Raw Material Prices
Quarterly Indices, 2004=100
900
Scrap(USA)
800
Iron ore(contract)
700
Coking coal(contract)
600

500

400

300

200

100

0
2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1

Supply availability issues are important for steel

Huge requirements of raw materials by the steel

industry (more than 3,000 mmt/year)
One tonne of steel produced in a BOF requires:
1.6 tonnes of iron ore, 0.6 tonnes of coking coal and 0.21 tonnes of steel scrap
A tonne of steel produced via EAF requires:
0.85 tonnes of steel scrap, and some combination of liquid hot metal and steel
scrap supplements amounting to approximately 0.31 tonnes

High share of intermediate inputs in the steel

industrys gross output 80%
High trade dependency amongst steel-producing
countries for raw materials
=> The steel industry dependent on well-
functioning and open markets for raw materials

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Reactions of steel industry

stakeholders to the challenges
Miners are now investing heavily
Capital expenditures in mining near record highs
New supplies of iron ore will emerge in Oceania, Latin America and Africa
Coal projects in North America and Australia
Steelmakers are reacting by:
Investing upstream into raw materials;
Increased efficiency in raw materials use and substitution;
Establishing stronger relationships with suppliers.
Policy makers:
Many economies, who used to rely on low-cost resources from abroad, are
adopting new strategies focused on raising their own sources of supply, securing
access from abroad, and an increased focus on recycling
Some resource-rich economies also focusing on maintaining their own stocks of
raw materials and greater access from abroad, as well as measures to restrict
exports in some instances.

Export restrictions on steel raw

materials
Recent developments related to export
restrictions over the past several months:
Iron ore: In India, tax on exports of lump and fines
were raised to 30% in Dec.2011.
Coke: Chinas export quota on coke, was lowered to
4.24 mmt for the first half of 2012 from 4.6 mmt
allowed for the first half of 2011.
Scrap: planned export arrangements which may
effectively lead to reduced exports from St. Petersburg
and far east Russia.

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Price and market developments

550

500

450

400
Iron Ore(Fe63.5%) IN CIF
350 China $/MT

300
Prime Coking Coal CH
CIF U$/MT Aust
250

200 Scrap / HMS 1/2 80:20 /

Turkey import CFR
Turkish port $/t
150

100

Sources: Datastream, SBB

Share of global mining

70

60

50

40

30

20

10

0
1850 1870 1890 1910 1930 1950 1970 1990 2010 2030
Europe USA China USSR/CIS Australia/Canada 6 resource rich developing countries

Source: RMG

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 01-Jun-2012

Iron ore
Iron ore production and reserves* by country, 2010
Million metric tonnes

Rank Economy Production Rank Economy Reserves*

1 Australia 432.8 1 Australia 17,000

2 Brazil 375.0 2 Brazil 16,000

3 China 315.4 3 Russia 14,000

4 India 212.0 4 China 7,200

5 Russia 101.0 5 India 4,500

Rest of the Rest of the

world 390.9 world 21,300

Total world 1,827.1 Total world 80,000

Note: * Reserves in terms of iron content.

Sources: UNCTAD and USGS.

Coking coal
Coking coal production and reserves*, 2010
Million metric tonnes

Rank Economy Production Rank Economy Reserves

1 China 454.8 1 United States 108,501

2 Australia 152.1 2 China 62,200

3 Russia 71.1 3 Russia 49,088

4 United States 68.6 4 India 56,100

5 India 35.4 5 Australia 37,100

Rest of the world 109.1 Rest of the world 91.773

Total world 891.1 Total world 404,762

* Proved reserves of anthracite and bituminous coal. Coking coals are

premium-grade bituminous coals
Sources: IEA (2011) and BP Statistical Review of World Energy.

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Ferrous scrap
Steel scrap generation, 2010
Million metric tonnes

Rank Economy Generation Generation 2010/09,

2010 2009 2010 % change

1 China 65.2 92.9 42.5

1 EU 27 90.0 92.9 3.2

3 United States 62.0 75.1 21.1

4 Japan 38.9 43.9 12.9

5 Korea 18.1 20.5 13.3

n.a. Russia 23.3 n.a. n.a.

Rest of the world 77.6 n.a. n.a.

World total 375.1 n.a. n.a.

Source: Japanese Ferrous Raw Materials Association.

Iron ore
Iron ore exports and imports, 2010
Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 Australia 402.9 1 China 618.6

2 Brazil 310.9 2 Europe 134.4

3 India 95.9 3 Japan 134.3

4 South Africa 48.0 4 Korea 56.3

5 Ukraine 32.6 5 Chinese Taipei 18.9

Rest of world 180.3 Rest of world 90.4

World total 1070.7 World total 1052.9

Source: UNCTAD.

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Coking coal
Coking coal exports and imports, 2010
Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 Australia 154.5 1 Japan 57.7

2 US 50.9 2 China 48.4

3 Canada 27.5 3 India 30.4

4 Russia 13.7 4 Korea 27.7

5 Mongolia 10.9 5 Brazil 12.5

Rest of the world 13.4 Rest of the world 79.5

World total 270.9 World total 256.2

Source: IEA.

Ferrous scrap
Ferrous scrap exports and imports including intra-EU trade, 2010
Million metric tonnes

Rank Economy Exports Rank Economy Imports

1 United States 20.6 1 Turkey 19.2

2 Germany 9.2 2 Korea 8.1

3 United Kingdom 7.5 3 China 5.9

4 Japan 6.5 4 Spain 5.7

5 Russia 2.4 5 Germany 5.6

Rest of the world 55.9 Rest of the world 73.2

World total 102.1 World total 117.7

Source: World Steel Association

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Trade in raw materials: interdependency

China is the worlds largest producer of iron ore and a

significant exporter of coke, but still depends on imports
of iron ore from Australia, Brazil and India, coking coal
from Australia, and ferrous scrap from the United States.
Brazil and India are large exporters of iron ore, but
lack sufficient domestic coking coal resources.
The European Union and Japan are global scrap
exporters, but rely on imports of iron ore and coking coal
from Australia, Brazil and the United States.
The United States and Canada, for example, both
import and export significant volumes of iron ore.

Production/resources of steel RM

Mining activity increasingly difficult, due to:

Distance between mines and demand
Location in more extreme climates
Non-existent or weak infrastructure
Deposits often in regions that are politically unstable
Deposits being found at deeper levels
More complex chemical and mineralogical
composition of the mined ores is getting
Longer process for permits
Bottlenecks (lack of trained staff, suppliers lead time)

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Production/resources of steel RM
Raw materials are not scarce in the physical sense.
Reserves of most steelmaking raw materials are sufficient to
ensure tens of years of supply at current production rates.
Should raw materials become in short supply, higher prices
would encourage the increase of reserves.
But, their extraction is not always desirable, e.g. for
environmental reasons.
But market factors and restrictive policies can
cause significant supply disturbances for
steelmakers in the short term.

Miners answers to the RM challenge

Iron ore new supply forecasts by company
Million tonnes per annum

Source: Presentation by Dr. Neil Bristow, OECD Workshop on Steelmaking

Raw Materials, December 2011, based on data from Macquarie Research,
company announcements, H&W Worldwide Consulting.

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Miners answers to the RM challenge

Mining capital expenditure, USD billion

Source: Raw Materials Group (2012).

Miners answers to the RM challenge

Mining capital expenditure by region, 2010

Source: Raw Materials Group (2012).

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Miners answers to the RM challenge

Ten largest iron ore projects

# Name Country Status (current Type Controlled by Mine Ore Ore

mine/ (short) capacity resources reserves
deposit status) (Mt/yr) (Mt) (Mt)
1 Vale Northern System (Carajas) Iron Ore Mines Brazil Operating, exp/constr OP Vale 130.0 7260.000 7260.000
2 Simandou Iron Ore Deposit Guinea Prefeasibility OP Rio Tinto plc 70.0 2254.000
3 Chichester Range Iron Ore Mines Australia Operating, exp/feasib OP FMG 55.0 2839.000 1540.000
4 Gusevogorskoye Vanadium/Iron Ore Mine Russia Operating, exp/plans OP Evraz Group 50.0 3000.000 2704.724
5 Valentines Iron Ore Deposit Uruguay Prefeasibility OP Zamin 50.0 603.000
6 Yandi Iron Ore Mine Australia Operating, exp/feasib OP BHP Billiton Gr 45.0 5038.000 940.000
7 Area C Iron Ore Mine Australia Operating, exp/feasib OP BHP Billiton Gr 42.0 5516.000 760.000
8 Mbalam Iron Ore Deposit Cameroon Feasibility OP Sundance Res 35.0 521.700
9 Prioskolskoye Iron Ore Deposit Russia Conceptual OP MMK OJSC, Ural 35.0 2100.000 2145.000
10 Belinga Iron Ore Deposit Gabon Conceptual State of Gabon 30.0 1000.000

Notes: OP denotes open pit mine, exp/feasib denotes expansion feasibility, and
exp/plans denote expansion plans.

Source: Raw Materials Group (2012).

Miners answers to the RM challenge

Ten largest coal projects
# Name Country Status (current Type Controlled by (short) Resources Reserves Cap Expected
mine/ (Mt) (Mt) Mt/yr annual
deposit status) ROM
(Mt)
Rusal, Samruk Holding for Management of
1 Bogatyr Coal Mine Kazakhstan Operating, exp/plans OP State Assets JSC 4500.00 2525.00 60.0 38.0
2 Carmichael Coal Deposit Australia Prefeasibility OP,UG Adani 7800.00 60.0
3 China First Coal Deposit Australia Conceptual OP,UG Clive Palmer 3684.00 1105.00 40.0
4 School Creek Coal Mine USA Conceptual OP Peabody 725.00 725.00 36.0
5 Cerrejon Coal Mine Colombia Operating, exp/feasib OP Anglo American, BHP Billiton Gr, Glencore 1835.60 723.10 32.0
6 Alpha (Hancock) Coal Deposit Australia Feasibility OP Hancock Prospect 3600.00 30.0
7 East Kutai Coal Deposit Indonesia Feasibility OP Churchill Mining 2730.00 961.00 30.0
8 Kevin's Corner (Hancock) Coal Deposit Australia Feasibility OP,UG Hancock Prospect 4300.00 30.0
9 Gevra Coal Mine India Operating, exp/feasib OP Coal India 2400.00 1400.00 25.0 25.0
10 Mount Arthur Coal Mine Australia Operating, exp/constr OP,UG BHP Billiton Gr 23.0

Notes: OP denotes open pit mine, UG denotes underground mine, exp/feasib denotes
expansion feasibility, and exp/plans denote expansion plans.

Source: Raw Materials Group (2012).

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 01-Jun-2012

The Africa Mining Vision

Africas overall share of global mining production remains

relatively small.
Africa holds some of the largest untapped
reserves of global minerals.
The African Mining Vision for mineral resource
development was adopted at the first African Union
Conference for African ministers responsible for mineral
resource development in October 2008.
The main aim of the vision is to utilise the continents mineral
resources to meet the Millennium Development Goals and
achieve rapid and wide ranging economic and social
development

The Africa Mining Visions Action Plan

Cluster Focus Goal
1 Mining revenues and mineral rents To create a sustainable and well-governed mining sector
management that effectively garners and deploys resource rents.
2 Geological and mining information To develop a comprehensive knowledge of Africas mineral
systems endowment.
3 Building human and institutional To create a mining sector that is knowledge driven and is
capacities the engine of an internationally competitive African
industrial economy.
4 Artisanal and small scale mining To create a mining sector that harnesses the potential of
artisanal and small scale mining to advance integrated and
sustainable rural socio-economic development.

5 Mineral sector governance To create a sustainable and well-governed mining sector

6 Research and development
7 Environmental and social issues
8 Linkages and diversification
that is inclusive and appreciated by all stakeholders
including surrounding communities.
To create a knowledge driven mining sector that is a key
component of a diversified, vibrant and globally competitive
industrialising African economy.
To create a mining sector that is environmentally friendly,
socially responsible and appreciated by all stakeholders
and surrounding communities.
To create a mining sector that catalyses and contributes to
broad-based growth and development through upstream,
downstream, side-stream and infrastructure linkages.

9 Mobilising mining and infrastructure To increase the level of investment flows into mining and
investment infrastructure projects to support broad socio-economic
development.
The 2nd annual African Union Conference of Ministers Responsible
for Mineral Resources Development in December 2011

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Impacts of export restrictions

Export restrictions distort prices for traded

raw materials leading to higher international and
lower domestic prices of the taxed commodity.
Negative net outcome for the industry even
in countries that apply the restrictions.
As a number of countries impose export restrictions
simultaneously across a variety of raw materials
As most steel-producing economies are dependent on
imports of at least some of these raw materials

Steelmakers answers to RM challenge

Source: Presentation by Dr. Neil Bristow, OECD Workshop on Steelmaking

Raw Materials, December 2011, based on data from Macquarie Research,
and H&W Worldwide Consulting.

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