Iron Ore

Liquid Molten Steel IndustryOne Australian miner is requesting Chinese steel mills pay a premium for its highest grade iron ore, a move that experts say will revive the once dormant pricing war.

According to a report from Reuters, Rio Tinto is the world’s No. 2 iron ore miner and demand from Chinese steel producers was at a six-year high when the annual pricing system collapsed. Iron ore supply issues are expected to reignite tensions between miners and mills over pricing.

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“The steel market is so hot this year and they think it’s something that buyers can accept,” an anonymous source told Reuters. “If Rio gets it, other miners may follow.”

It is reported that Rio is looking for up to $1 per ton more than the index price for its Pilbara iron ore product on long-term contracts from Chinese mills for the year ahead. Rio was previously selling iron ore at a premium exclusively to traders.

Steel Prices on the Rise in Asia

Our own Stuart Burns recently wrote that the Asian market has seen steel prices rise due to much of the same dynamic that has pushed steel prices higher domestically. These movements suggest the trend will remain up for the remainder of the year.

How will steel and base metals fare for the remainder of 2016 and into 2017? You can find a more in-depth copper price forecast and outlook in our brand new Monthly Metal Buying Outlook report. For a short- and long-term buying strategy with specific price thresholds:

 

Tata Steel’s Canadian subsidiary recently signed definitive agreements with Resources Quebec and Investment Quebec, the investing arms of the provincial government for investment of $92.46 million (125 million Canadian dollars) in equity and $36.98 (50 million Canadian) dollars in debt, giving an 18% stake in Tata’s Canadian susbsidiary to Resources Quebec.

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Tata Steel Minerals Canada (TSMC) is a joint venture between Tata Steel and Canada’s New Millennium Iron Corp. It will start mining iron or in Quebec, Newfoundland, and Labrador Peninsula, and set up multiple processing facilities, including a beneficiation plant.

After the transaction is completed, Tata Steel and New Millennium’s iron or stakes will be reduced to 77.68% and 4.32%, respectively.

The deal aims to advance development of the Direct Shipping Ore (DSO) property, which straddles the border between Quebec and Labrador, with mineral deposits on both provinces.

Tata Steel Group has invested over $1.35 billion (1 billion Canadian) in the direct shipping ore project to date.

Tata Steel Executive Director, Finance and Corporate, Koushik Chatterjee was quoted saying the investment signaled the Government of Quebec’s cooperation in supporting sustainable development in line with the objectives of its Plan Nord Initiative.

After inking the deal, Tata is positive it will lead to increased production, improving cost competitiveness and the development of the mineral deposits in Quebec.

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Tata said the project — which involves mining, crushing, washing and drying the run-of-mine ore near Schefferville, Québec, — will produce 4.2 million meric tons of sinter fines and pellet feed annually.

The finished product will be shipped to Tata Steel Europe’s steelmaking facilities.

The development of natural gas and hydrogren technologies is a focus of research at Voestalpine AG‘s new DRI hot-briquetted iron ore facility near Corpus Christi, Texas.

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“We are hoping to run blast furnaces with hydrogen instead of coal and coke,” said Dr. Wolfgang Eder, Voestalpine’s chairman and CEO. “Development of such technology will take a 20-30-year time frame, but I am convinced we’ll hit that target.”

yoders_voestalpine3_550_110116

This blurry “art shot” of Voestalpine’s 450-foot HBI production facility signifies that this will be a “think piece” about research, smog and environmental sustainability. Or Jeff took this from the bus. Jeff seriously took this from the bus. Source: Jeff Yoders

Natural Gas and Natural Hydrogen

This isn’t the first time we’ve heard about the potential of converting natural gas (the fuel material for Voestalpine’s iron ore reduction tower) to hydrogen to decarbonize dirty production processes. Voestalpine’s head and environmental heart certainly seem like they’re in the right place, but what might be advantageous, for the U.S. and South Texas, is the jobs that that research will bring. Read more

The tight oil and natural gas story here in the U.S. is often framed as a struggle between environmentalists who want to keep it — and other fossil fuels such as tight oil — in the ground, and drilling and exploration companies who want to sell it as a home heating and transportation fuel that at least burns cleaner than coal.

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What’s often left out of the discussion is the advantages gas can provide for plants, factories and other major industrial users that have nothing to do with the light switches in your house or apartment.

Voestalpine's reducing tower

Voestalpine’s 450-foot-high direct reducing tower near Corpus Christi, Texas, takes iron ore pellets and reduces them to 91% iron briquettes. Customers include steel suppliers for BMW and Mercedes-Benz. Source: Jeff Yoders

Austria in Texas

Last week, I toured Austrian specialty steelmaker Voestalpine AG‘s new $1.4 billion, direct-reduction hot-briquetted iron (HBI) production facility near Corpus Christi, Texas. It’s estimated that company’s investment will generate an estimated $600 million over the next decade and the new facility has already added 190 jobs to the local economy.

HBI, or sponge iron is a pre-material used in steel production. The new Texas facility takes iron ore pellets that are roughly 60% iron and reduces them down to HBI that is 91% iron. They use a high-temperature, natural-gas fueled furnace tower, now the tallest building in South Texas at 450 feet, to “reduce” oxygen and other impurities out. Read more

GE’s energy unit agreed to merge with Baker Hughes today and Rio Tinto has given up on its long-stalled Guinean iron ore project.

GE and Baker Hughes Agree to Merge

The oil and gas business of General Electric will be merged into Baker Hughes to create an oil field technology company that boasts more than $32 billion in combined revenue and operates in more than 120 countries, the companies said Monday.

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GE will contribute its oil-and-gas business and $7.4 billion through a special one-time cash dividend of $17.50 for each Baker Hughes share. The new company will be publicly traded on the New York Stock Exchange and will be 62.5% owned by GE and 37.5% owned by Baker Hughes shareholders if it passes regulatory scrutiny.

Rio Tinto Will Quit Guinea Iron Ore Project

Rio Tinto has signed a preliminary deal to sell its stake in Guinea’s Simandou project to Chinalco, it said on Friday, injecting impetus into the long-stalled plan to develop the world’s largest untapped iron ore reserves.

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For all the project’s potential, mining company Rio has voiced frustration over the difficulty of drumming up financing and industry sources said the agreement could open the door to Chinese funding.

Rio Tinto has cut its guidance for iron ore shipments and U.S. consumer confidence unexpectedly fell this month.

Rio Tinto Cuts Back Iron Ore Guidance

Global miner Rio Tinto on Thursday cut its 2016 guidance for iron ore shipments by as much as 5 million metric tons after releasing lower third-quarter production data, citing shipping interruptions.

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The downward revision — equivalent to as much as $290 million at current ore prices — comes as the steelmaking commodity stages a recovery on the back of a surprise lift in demand from China.

U.S. Consumer Confidence Falls

Consumer confidence unexpectedly fell to a one-year low in October as Americans soured on the outlook for the economy amid a contentious presidential election campaign.

The University of Michigan preliminary index of sentiment declined to 87.9 from 91.2 in September, according to a report Friday. That was weaker than the lowest estimate in a Bloomberg survey of economists. Long-term inflation expectations declined to a record low.

The Philippines shut down 20 more mines recently, further curtailing nickel exports to China. There’s a chance a major Brazilian iron ore miner will divest some of its assets.

More Filipino Nickel Mines Shut Down

The Philippines has suspended 20 more mines for environmental violations, most of them nickel, a government official said on Tuesday, bringing to 30 the number of mines shuttered.

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The suspended mines account for 55.5% of nickel ore output in the Philippines based on last year’s production, Environment and Natural Resources Undersecretary Leo Jasareno told a news briefing.

Brazilian Iron Ore Miner Looks to Sell

Cia Siderúrgica Nacional SA is considering selling part of its stake in Congonhas Minérios SA, Brazil’s No. 2 iron ore producer, to China Brazil Xinnenghuan International Investment Co., two people familiar with the deal told Reuters on Monday.

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According to the people, the Chinese mill known as CBSteel is interested in buying about 25 percent of Congonhas directly from CSN. They said CSN, as Brazil’s No. 2 listed flat steelmaker is known, would remain in control of the unit, adding that talks are advancing slowly and may not necessarily result in a deal.

OPEC members are now talking about a deal that lasts one year, whether that means curtailing production for that period is still unknown. Australia is attempting to collect $766 million in taxes.

OPEC Deal Could Last a Year

A possible deal to support oil prices by the world’s leading producer-countries may last for one year, the secretary-general of the Organization of Petroleum Exporting Countries said on Tuesday, longer than other officials have indicated.

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OPEC and non-member producers including Russia are discussing a deal to stabilize the market by possibly freezing output, although key details such as the timing and baseline for any deal have yet to emerge.

BHP Vows to Fight Australian Tax Bill

BHP Billiton said it disagreed with Australian tax collectors’ assessment that the miner needs to pay $766 million in back taxes and charges for its Singapore commodities marketing hub, and that it could resort to court action to fight the claim.

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BHP is under investigation by the Australian Tax Office (ATO) for allegedly shifting billions of dollars in iron ore profits through marketing hubs in Singapore, where it operates under an effective tax rate of zero as part of a concessional tax deal.

There appears to be an almost universal expectation that iron ore prices will start to retreat soon, after surging some 62% through April. They have since eased back but are still up 28% on the year.

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Without doubt, much of iron ore’s gains in 2016 have been driven by strong demand from China, with imports up 9.3% to 669.65 million metric tons in the first eight months of the year from a year ago. But prices in Qingdao lost 5.8% in the seven sessions through Wednesday. That was the longest run of daily declines since March and while steel output remains robust, questions are again being asked how much longer prices can remain north of $55 per mt as yet more supply comes on stream. According to the MetalMiner index, finished steel prices have eased this month.

Iron Ore Output

You would expect the miners to refute this and, sure enough, in a Bloomberg report, Vale SA and Cliffs Natural Resources Inc. said that the impact of the new output won’t be as severe as expected and will see the $50 per mt level holding, but banking analysts are not so sure with Westpac saying last month rising supply will drive prices below last year’s lowest point of $38.30, while Citigroup expects an average of $45/mt next year. Read more

India will complete the second phase of its mining auctions later this month, after the first round last year received a lukewarm response. Going under the hammer will be gold, diamond and iron ore mines.

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Mines in five provinces — Karnataka, Andhra Pradesh, Madhya Pradesh, Rajasthan and Jharkhand — will be auctioned. This time, there are 14 iron ore mines, 12 blocks of limestone and one block each of gold, diamond and copper. While some analysts have predicted a better response than last time to the iron ore mining auction, the limestone blocks may not see much action because of the cement market slump.

Round One

In the first round of the auction, the states offered 47 mines bearing minerals such as gold, iron ore, bauxite and limestone.

They were able to auction seven mines in that phase, earning the government billions of dollars over the next 50 years. However, 17 blocks were not sold due to an insufficient number of initial bids on account of factors such as quantity and grade of ore and low quality of the mineralization studies, among other reasons.

The first round also came under scrutiny when the comptroller and auditor general of India (CAG), a body that audits all government expenditures, passed certain adverse observations. It said in a report tabled in the Indian Parliament that competition may have been restricted in the auction of 11 coal blocks on account of multiple bids by corporate groups made through joint ventures or subsidiaries.

What Does This Mean For India’s Steel Exports?

The iron ore auction comes at a time when the Indian government is contemplating a relaxation of export duties on iron ore. This has led to protests from the domestic steel industry.

In a representation to the steel ministry, the Indian Steel Association asked the government to continue with a 30% export duty on all grades of ore, to preserve natural resources for domestic use.

The government already cut the export duty on low-grade fines to 10% earlier this year but continued with a 30% levy on lumps.

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India’s ore production is lagging its growth of steel production. Production, according to steel ministry data, fell at a compound annual growth rate (CAGR) of 6.5% in the past five years.