OECD Steel Committee

December 6th 2012

SCRAP SUPPLEMENTS UPDATE

Stuart Horner
Secretary General Designate

Disclaimer
This presentation is intended for information purposes only and is not intended as
promotional material in any respect. The material is not intended as an offer or
solicitation for the purposes of sale of any financial instrument, is not intended to
provide an investment recommendation and should not be relied upon. The material is
derived from published sources, together with personal research. No responsibility or
liability is accepted for any such information of opinions or for any errors, omissions,
misstatements, negligence or otherwise for any other communication, written or
otherwise.

IIMA: 100 members in more than 35 countries

Producers of Merchant Pig Iron

(MPI), Hot Briquetted Iron
(HBI), Direct Reduced Iron (DRI)
and Iron Nuggets
Traders/Distributors
Suppliers of raw materials,
logistics, technology,
equipment, consultancy, etc.
Consumers of ferrous metallics

December 6th - 7th 2012

OECD Steel Committee

SCRAP SUPPLEMENTS

Merchant Pig Iron (MPI), Hot Briquetted Iron (HBI),

Direct Reduced Iron (DRI) and Iron Nuggets

December 6th - 7th 2012

OECD Steel Committee

TOTAL SCRAP SUPPLEMENTS TRADE 2011

Cross border
DRI/HBI, 6.8

Domestic
DRI/HBI, 8.0
Cross border
MPI, 12.5

Domestic
MPI, 9.0

China MPI, 55.0

Metallics trade: 2011 - mt

December 6th - 7th 2012

Total 91.3 mt

OECD Steel Committee

BENEFITS OF SCRAP SUPPLEMENTS

Consistent quality and low residual content

Dilute impurities in scrap
Better slag foaming
Controlled C content, consistent C recovery
N2 scavenger/diluter = low N2 content in steel
Easier on hearth refractory & electrodes
High density feedstock (pig iron & HBI), less
charging time
DRI/HBI can be continuously charged to EAF
December 6th - 7th 2012

OECD Steel Committee

STATE OF THE MARKET

Scrap supplements: price development $/tonne
$1,200

MPI FOB Barge NOLA [RN]

HBI FOB Venezuela [Metal Expert]
Iron ore CIF China 62% Fe 2% Al2O3 $/DMT
No. 1 Bushelling - Chicago [SPB]
Shredded scrap - Chicago [SPB]
Rebar / N.America domestic FOB US Midwest mill [SBB]
HRC / N.America domestic FOB US Midwest mill [SBB]

$1,000

$800

$600

$400

$200

$0
Jan 10

December 6th - 7th 2012

Apr 10

Jul 10

Oct-10

Jan-11

Apr-11

Jul-11

OECD Steel Committee

Oct-11

Jan-12

Apr-12

Jul-12

Oct-12

MPI CASH COSTS

Value chain for Brazilian MPI
$500

$424 delivered US midwest

$450
$400

$124.6

$350

iron ore @ $75.40/tonne

+ $4 per tonne logistics
1,600 kg / tonne pig iron

$300

$175.0

$250
$200

$399 CFR

$385 FOB
@$70/m3

$150

Charcoal
2.5 m3 / tonne pig iron

$100

$50.0

$50

$35.0
$14.5
$25.0

$0

December 6th - 7th 2012

Logistics USA
Other cash costs

Ocean Freight
Charcoal/coke

OECD Steel Committee

Not included:
- shrinkage
- working capital cost
- depreciation/amortisation
- margin

Logistics to FOB
Iron ore

HBI PRODUCTION COST

Value chain for notional HBI supply to US Midwest steel mill
$400

$347 delivered US midwest

$350
$232.0
$300
$250

iron ore pellets @

$160/tonne
1,450 kg / tonne HBI

$200

$322 CFR

$292 FOB

$150
$35.0

$100

106 BTU @ $3.50/BTU x 106

$22.0

$50

$30.0
$25.0

$0
Logistics USA
Other cash costs

December 6th - 7th 2012

Ocean Freight
Natural gas

OECD Steel Committee

Not included:
- shrinkage
- working capital cost
- depreciation/amortisation
- margin

Logistics to FOB
Iron ore

SPOT IRON ORE PRICE DEVELOPMENT

$/tonne CFR China for 62% Fe, 2% Al2O3 - TSI data
$250

$200

$150

$100

$50

$0

December 6th - 7th 2012

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10

NATURAL GAS PRICE DEVELOPMENT

Henry Hub Natural Gas Price
dollars per million btu
8
Historical spot price
7

STEO forecast price

NYMEX futures price

95% NYMEX futures upper confidence interval

95% NYMEX futures lower confidence interval

5
4
3
2
1
0
Jan 2011

Jul 2011

Jan 2012

Jul 2012

Jan 2013

Jul 2013

Note: Confidence interval derived from options market information for the 5 trading days ending November 1, 2012.
Intervals not calculated for months with sparse trading in near-the-money options contracts.

Source: Short-Term Energy Outlook, November 2012

December 6th - 7th 2012

OECD Steel Committee

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GLOBAL DRI/HBI PRODUCTION

December 6th - 7th 2012

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DIRECT REDUCTION IN NORTH AMERICA

December 6th - 7th 2012

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DIRECT REDUCTION IN NORTH AMERICA

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SHALE GAS IN NORTH AMERICA

Opportunities for steelmaking:
For EAF steelmakers, higher share of
electricity from natural gas
Scope for shift in auxiliary BF fuel
[typically 150-200 kg/tonne hot
metal] towards natural gas
Indirect use of natural gas in the BF
through use of DRI/HBI as charge
material to boost productivity
Futures contracts enable lock-in of forward
gas prices - underpins viability of investment
in DR capacity

December 6th - 7th 2012

OECD Steel Committee

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DIRECT REDUCTION PROJECTS: USA/CANADA

Actual: Nucor Louisiana plant - 2.5 mtpy capacity, due to
start up in mid-2013
Projects: potential second and third modules at Nucors
Louisiana plant
Projects: 6-10 companies are actively considering DR plants
in North America, some very seriously, with a couple of
contracts possible in 6-12 months
US Steel, Severstal and Northstar BlueScope have received
press mention

December 6th - 7th 2012

OECD Steel Committee

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CONCLUDING REMARKS
There seems to be every prospect that the third wave of direct
reduction plants in North America is upon us - the big
differentiator from the past being the ability to lock in long term
gas prices.
There seems to be significant scope for rationalisation of the
various projects to ensure maximum efficiency and cost
effectiveness across the industry.
This will doubtless have a significant impact on the metallics
supply chain, meaning that offshore HBI and pig iron suppliers
may well have to seek alternative markets for their displaced US
imports.
Nevertheless, offshore suppliers of pig iron offer the US steel and
metal casting industries a useful hedge against higher gas prices.
December 6th - 7th 2012

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