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Friday, 28 March 14
CHINA'S ENVIRONMENTAL MEASURES WILL NOT CURB GROWTH IN DOMESTIC STEEL PRODUCTION AND SEABORNE IRON ORE - WOOD MACKENZIE SAYS
 Steel plants in China have been targeted as a major source of the toxic smog enveloping Beijing and Shanghai. Emergency measures have been imposed on regional steelmakers with mills in Tangshan ordered to suspend at least 30% of production and idle coke batteries and sintering operations. Longer term measures include the introduction of more stringent emission controls. Wood Mackenzie notes that although this move has created market wariness for China steel production and iron ore demand, the impact on steel production will be minimal. This is because there is plenty of unused capacity within China's steel industry ready to replace any lost production, due to shut downs resulting from enforcement of the new emissions regulations. However, improving the environmental performance of Chinese steel plants will add further cost pressure to an already ailing industry. Mr Paul Gray, Principal Iron Ore Markets Analyst at Wood Mackenzie says, "The iron ore market is understandably spooked by what's going on in China due to the introduction of the environmental controls and their potential financial impact on the steel industry. This has sparked much uncertainty and speculation. This is one factor that has caused price volatility, with prices plunging to 17 month lows in recent weeks before picking up again very recently. However, during the remainder of 2014 we expect that fighting emissions will have negligible impact on total Chinese crude steel production and limited impact on iron ore demand in terms of quantity, with Chinese imports of iron ore predicted to rise by a further 90 million tonnes (Mt) in 2014 to a record 921Mt."
Dr He Ming, Steel Cost Consultant at Wood Mackenzie, adds, "Steel companies need to put emissions control measures in place. However, given that most Chinese plants are tight on capital after years of near-zero margins, they will struggle with the additional costs required to implement the necessary measures and many companies will be looking for a way to pass the cost onto consumers." To achieve emissions levels on a par with their counterparts in Japan or South Korea, most steel plants would have to invest and incur more than RMB 50-60/t (US$8.3-10/t) of additional operating cost, further eroding their already narrow margins. This comes following the announcement that the average net profit margin at steelmakers in 2013 was just over 0.64% for 86 of China Iron and Steel Association's (CISA) key steel enterprises.
If steel companies are unable to meet the new lower emissions targets, they may be forced to temporarily or even permanently shut production but Wood Mackenzie expects the targets will have more impact on small scale non-CISA steel plants. These smaller plants have outdated emissions control facilities and are estimated to have emission levels three to four times higher than their CISA counterparts. Dr He says, "Non-CISA steel plants contributed to less than 20% of China's steel production in 2013 therefore although an aggressive plan of capacity closures has been announced by the central and local governments, the scale of closures is expected to have a limited impact on a steel industry that is suffering from chronic overcapacity."
"Additionally, most of the announced closures to date have been for capacity already idled or curtailed for other reasons, with the lost production picked up by the larger steel plants. It is unlikely that we will see forced closures amongst the larger plants as this move will not reduce emissions significantly. Moreover, it will have a detrimental effect on local economies by creating large numbers of unemployed workers and unpaid debts. This is not ideal, especially since Xi Jinping's government is encouraging a market-based economy with increased domestic consumer power. Therefore we do not expect closures of the larger scale plants to be the next step enforced."
With the concept that environmental regulations will apply to each steel plant fairly, regardless of size or whether it is privately or state-owned, this would shift the entire Chinese steel industry cost curve higher and further erode margins. It is therefore likely that these incremental cost increases will be passed on to end users. Moreover, since sintering is the most polluting process within a steel plant, some plants will look to replace sinter rather than incur the additional operating costs required to meet new emissions standards. Sintering is responsible for 80%-90% of total dust and soot emissions and more than 60% of total sulfur emissions from the steel industry.
Wood Mackenzie anticipates that replacements for the sintering process will result in an increase in demand for the more expensive, higher quality and environmentally-friendly raw materials like iron ore lump and pellet; supporting higher premiums for these products. There will be a natural cap on how much capacity can be switched away from sinter to higher quality feed as the price premium will become equal to the additional cost of implementing the necessary environmental measures.
The limited impact on steel production accounts for the minimal consequences for iron ore demand. Mr Gray adds, "Of longer term significance is the seaborne market's anticipated transition as it moves towards a position of excess supply capability when Chinese demand struggles to absorb all the additional seaborne supply earmarked for the this year and next. 2014 will certainly be a transition year for iron ore but we think this is not necessarily related to China's environmental measures it's more symptomatic of rising Australian supply and slowing Chinese demand."
Dr He concludes, "Government and steel companies will need to work together to protect the industry while still gradually improving emissions. On the company-side, we expect China's larger steel plants will take alternative measures to meet environmental requirements but they will incur extra costs of implementing emissions control facilities in the longer term. On the government side, a more effective way to curb pollution is to improve monitoring methods at individual plants. This will enable the government to impose heavy fines on those with emissions beyond a well-defined threshold, while incentivising those with lesser emission levels by offering subsidies to offset extra costs incurred."
Editor’s notes:
Wood Mackenzie is the most comprehensive source of knowledge about the world’s energy and metals industries. We analyse and advise on every stage along the value chain - from discovery to delivery, and beyond - to provide clients with the commercial insight that makes them stronger. For more information visit: www.woodmac.com
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Thursday, 25 January 24
THE RED SEA ESCALATION IMPLICATIONS ON GLOBAL SEABORNE TRADE - MARIA BERTZELETOU
In recent days, discussions have intensified about the potential impact on the seaborne trade and ton-miles due to the evolving dynamics of market ...
Thursday, 25 January 24
RED SEA SHIPPING DISRUPTIONS KEEP GEOPOLITICAL PREMIUM FOR COMMODITIES - FITCH RATINGS
Shipping disruptions and re-routing away from the Red Sea will maintain the geopolitical premium in the main commodity markets, including for oil a ...
Friday, 19 January 24
INDONESIA TARGETS 710 MLN METRIC TONS COAL OUTPUT IN 2024 AFTER RECORD 2023 - REUTERS
Indonesia, a major thermal coal exporter, aims to produce 710 million metric tons of coal in 2024, its mining minister said on Monday, after postin ...
Friday, 19 January 24
DRUMMOND COLOMBIA COAL OUTPUT ROSE 7.1% IN 2023 - REUTERS
Coal production from miner Drummond’s Colombia operations rose 7.1% in 2023 to 29.5 million metric tons, while exports declined by 2.6% to 27 ...
Friday, 19 January 24
CHINA'S 2023 COAL OUTPUT HITS RECORD HIGH - REUTERS
China’s coal output reached a record high in 2023, data from the statistics bureau showed on Wednesday, amid an ongoing focus on energy secur ...
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- Kohat Cement Company Ltd. - Pakistan
- Simpson Spence & Young - Indonesia
- Bhatia International Limited - India
- PTC India Limited - India
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- Merrill Lynch Commodities Europe
- Parliament of New Zealand
- Wood Mackenzie - Singapore
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- Africa Commodities Group - South Africa
- Meralco Power Generation, Philippines
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- Metalloyd Limited - United Kingdom
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- Chamber of Mines of South Africa
- Indian Energy Exchange, India
- Directorate General of MIneral and Coal - Indonesia
- Electricity Authority, New Zealand
- PowerSource Philippines DevCo
- GAC Shipping (India) Pvt Ltd
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- Price Waterhouse Coopers - Russia
- Dr Ramakrishna Prasad Power Pvt Ltd - India
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- Miang Besar Coal Terminal - Indonesia
- Aditya Birla Group - India
- AsiaOL BioFuels Corp., Philippines
- Karbindo Abesyapradhi - Indoneisa
- Tamil Nadu electricity Board
- Asia Pacific Energy Resources Ventures Inc, Philippines
- Ambuja Cements Ltd - India
- Sojitz Corporation - Japan
- Malabar Cements Ltd - India
- Antam Resourcindo - Indonesia
- McConnell Dowell - Australia
- Heidelberg Cement - Germany
- Xindia Steels Limited - India
- Port Waratah Coal Services - Australia
- Toyota Tsusho Corporation, Japan
- Ind-Barath Power Infra Limited - India
- Gujarat Mineral Development Corp Ltd - India
- Salva Resources Pvt Ltd - India
- Global Business Power Corporation, Philippines
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- Ministry of Mines - Canada
- OPG Power Generation Pvt Ltd - India
- Truba Alam Manunggal Engineering.Tbk - Indonesia
- Sinarmas Energy and Mining - Indonesia
- Bukit Makmur.PT - Indonesia
- Global Green Power PLC Corporation, Philippines
- Binh Thuan Hamico - Vietnam
- Edison Trading Spa - Italy
- Uttam Galva Steels Limited - India
- Dong Bac Coal Mineral Investment Coporation - Vietnam
- Videocon Industries ltd - India
- New Zealand Coal & Carbon
- Mjunction Services Limited - India
- Thiess Contractors Indonesia
- Indonesian Coal Mining Association
- PNOC Exploration Corporation - Philippines
- Neyveli Lignite Corporation Ltd, - India
- Kobexindo Tractors - Indoneisa
- TNB Fuel Sdn Bhd - Malaysia
- Trasteel International SA, Italy
- Singapore Mercantile Exchange
- Ceylon Electricity Board - Sri Lanka
- The State Trading Corporation of India Ltd
- Bukit Asam (Persero) Tbk - Indonesia
- Renaissance Capital - South Africa
- Independent Power Producers Association of India
- Kepco SPC Power Corporation, Philippines
- Ministry of Finance - Indonesia
- India Bulls Power Limited - India
- Sakthi Sugars Limited - India
- Coalindo Energy - Indonesia
- Bhoruka Overseas - Indonesia
- Mercator Lines Limited - India
- Maheswari Brothers Coal Limited - India
- ASAPP Information Group - India
- Iligan Light & Power Inc, Philippines
- Savvy Resources Ltd - HongKong
- White Energy Company Limited
- Global Coal Blending Company Limited - Australia
- Sarangani Energy Corporation, Philippines
- Gujarat Electricity Regulatory Commission - India
- The University of Queensland
- Offshore Bulk Terminal Pte Ltd, Singapore
- Aboitiz Power Corporation - Philippines
- Latin American Coal - Colombia
- Asmin Koalindo Tuhup - Indonesia
- Timah Investasi Mineral - Indoneisa
- Vijayanagar Sugar Pvt Ltd - India
- Eastern Coal Council - USA
- Borneo Indobara - Indonesia
- Kaltim Prima Coal - Indonesia
- Makarim & Taira - Indonesia
- Carbofer General Trading SA - India
- Deloitte Consulting - India
- Coal and Oil Company - UAE
- Holcim Trading Pte Ltd - Singapore
- GMR Energy Limited - India
- Altura Mining Limited, Indonesia
- Georgia Ports Authority, United States
- Australian Coal Association
- Kalimantan Lumbung Energi - Indonesia
- Petron Corporation, Philippines
- Indogreen Group - Indonesia
- Eastern Energy - Thailand
- Energy Link Ltd, New Zealand
- Oldendorff Carriers - Singapore
- Baramulti Group, Indonesia
- Maharashtra Electricity Regulatory Commission - India
- Bahari Cakrawala Sebuku - Indonesia
- Commonwealth Bank - Australia
- Minerals Council of Australia
- Kartika Selabumi Mining - Indonesia
- Central Electricity Authority - India
- Semirara Mining Corp, Philippines
- VISA Power Limited - India
- IHS Mccloskey Coal Group - USA
- Orica Australia Pty. Ltd.
- Semirara Mining and Power Corporation, Philippines
- Kumho Petrochemical, South Korea
- Tata Chemicals Ltd - India
- San Jose City I Power Corp, Philippines
- Posco Energy - South Korea
- Bayan Resources Tbk. - Indonesia
- Attock Cement Pakistan Limited
- Bangladesh Power Developement Board
- Vedanta Resources Plc - India
- GN Power Mariveles Coal Plant, Philippines
- Jorong Barutama Greston.PT - Indonesia
- MS Steel International - UAE
- Alfred C Toepfer International GmbH - Germany
- The Treasury - Australian Government
- Mercuria Energy - Indonesia
- European Bulk Services B.V. - Netherlands
- Larsen & Toubro Limited - India
- Parry Sugars Refinery, India
- Bulk Trading Sa - Switzerland
- Sical Logistics Limited - India
- Australian Commodity Traders Exchange
- Romanian Commodities Exchange
- Power Finance Corporation Ltd., India
- Jindal Steel & Power Ltd - India
- CNBM International Corporation - China
- Standard Chartered Bank - UAE
- Leighton Contractors Pty Ltd - Australia
- Banpu Public Company Limited - Thailand
- Pendopo Energi Batubara - Indonesia
- ICICI Bank Limited - India
- Economic Council, Georgia
- London Commodity Brokers - England
- Karaikal Port Pvt Ltd - India
- Orica Mining Services - Indonesia
- Rio Tinto Coal - Australia
- Indian Oil Corporation Limited
- Essar Steel Hazira Ltd - India
- Sindya Power Generating Company Private Ltd
- Dalmia Cement Bharat India
- Riau Bara Harum - Indonesia
- Siam City Cement - Thailand
- Grasim Industreis Ltd - India
- Lanco Infratech Ltd - India
- Madhucon Powers Ltd - India
- Gujarat Sidhee Cement - India
- SMC Global Power, Philippines
- Kideco Jaya Agung - Indonesia
- Anglo American - United Kingdom
- IEA Clean Coal Centre - UK
- Jaiprakash Power Ventures ltd
- Bank of Tokyo Mitsubishi UFJ Ltd
- TeaM Sual Corporation - Philippines
- Kapuas Tunggal Persada - Indonesia
- Manunggal Multi Energi - Indonesia
- Coastal Gujarat Power Limited - India
- SN Aboitiz Power Inc, Philippines
- PetroVietnam Power Coal Import and Supply Company
- Agrawal Coal Company - India
- Cement Manufacturers Association - India
- Globalindo Alam Lestari - Indonesia
- Billiton Holdings Pty Ltd - Australia
- Goldman Sachs - Singapore
- Bharathi Cement Corporation - India
- CIMB Investment Bank - Malaysia
- Rashtriya Ispat Nigam Limited - India
- Ministry of Transport, Egypt
- Interocean Group of Companies - India
- Chettinad Cement Corporation Ltd - India
- Planning Commission, India
- Pipit Mutiara Jaya. PT, Indonesia
- Cigading International Bulk Terminal - Indonesia
- Bhushan Steel Limited - India
- Mintek Dendrill Indonesia
- LBH Netherlands Bv - Netherlands
- Siam City Cement PLC, Thailand
- Formosa Plastics Group - Taiwan
- South Luzon Thermal Energy Corporation
- Bukit Baiduri Energy - Indonesia
- Samtan Co., Ltd - South Korea
- Barasentosa Lestari - Indonesia
- Meenaskhi Energy Private Limited - India
- Marubeni Corporation - India
- Indika Energy - Indonesia
- Wilmar Investment Holdings
- Sree Jayajothi Cements Limited - India
- Intertek Mineral Services - Indonesia
- Filglen & Citicon Mining (HK) Ltd - Hong Kong
- Therma Luzon, Inc, Philippines
- International Coal Ventures Pvt Ltd - India
- Directorate Of Revenue Intelligence - India
- Vizag Seaport Private Limited - India
- Thai Mozambique Logistica
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