' 000 Metric Tons

0
200000
400000
600000
800000
1000000
1200000
1400000
1600000

1980

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

Year
1996

1997

1998

1999
World Crude Steel Production ('000 Metric Tons)

2000

2001

2002

2003

2004

2005

2006

2007
Upto July-2010

2008

2009

2010
Quick Facts:
1 ton of steel uses :
1.2 tons of Iron ore.
0.60 tons of coking coal.
90% of Hot Metal and 10% Scrap.
70% of steel produced globally uses coal.
It is very easy thing today to have steel in our daily lives. The advertisement of SAIL says “there is a little bit of steel in
everybody’s life”, which is very true and it is completely difficult to imagine our lives without steel now.
A through analysis of what goes into producing crude steel is a very important factor, as the raw materials that go into
manufacturing steel today are facing major bottlenecks with regards to supply as well as prices.
The 3 main raw materials that go into manufacturing steel are:
1. Iron Ore
2. Coking Coal / Metallurgical Coal
3. Power
 $ / Ton

0
20
40
60
80
100
120
140
160
180

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

Year
1998
Iron Ore Prices $ / Ton

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010
 1.2 tons of iron ore = 1 ton of crude steel. The iron ore supply was pretty much balanced, but after the world production
turned their direction towards China and their cheap labor availability all the major exports were being diverted to China.
Australia being the major exporter of iron ore has not been able to cope up with their port expansion plans. This led to the
ships being lined up at ports to carry the iron ore shipments to the destinations. To have high grade steel it is recommended
that the Fe content in the ore should be at least 60%. Australia and Brazil have the required Fe content to the satisfaction but
it was the shipping distance and the time that is hindering the supplies. China even though had been importing their iron ore
requirements from India for a long time, but the Fe content in the Indian Iron ore varies between 55%- 65% and most of it is
less than 60%. If the Fe content in the ore is less than 50% then the production cost increases automatically. India's 50%
export of iron to China is of low grade and surprisingly India stands at No.2 position as far as export of iron ore to China is
concerned after Australia.
To protect the Indian steel industry too the government has increased the export duty on iron ore from 10% to 15%. It is
these constraints that are increasing the cost of manufacturing steel. The expansion plans of all the major steel producers in
India is forcing the government to limit the exports of iron ore to avoid the situation of the local industry facing iron ore
shortages with the country being the major producer itself. Big giants like Arcelor Mittal setting up steel plants and Tata
Steel after the takeover of Corus has put itself in the 7th position in the top steel producing companies in the world.
With the steel prices low some months back, forced China to cut down their steel production as the high raw material cost
and low steel prices did not allow them to make any profits. It was the high priced iron ore that they had purchased and
stocked did the damage.
With Current prices
ruling at $145, and Some are also the reasons why the world iron ore prices have been rising now: (extracted from news articles)
the constraints in •April 23rd, Iran banned the export of 66% or above iron ore concentrate.
place the prices of
iron ore over •April 29th, India announced hike in export duty on iron ore lumps from 10% to 15%.
coming 3-4 months •Indian ministry of railways hiked the transportation fees on export-oriented iron ore.
should take the
prices to around •May 3rd, Australia announced intentions to impose 40% super tax on miners profit applicable since July, 2012. this brings
$190-$200. the total tax burden up to 57%.
•Major miners are planning to change the benchmark pricing system to accommodate the price shifts on a short period
basis.
•The mines are not been able to cope up with the supply to fulfill the insatiable demand.
 Fuel Share For Electricity Top Coking Coal Top Coking Coal
Generation Importers 2009 Exporters 2009
1973 2008 Country MT Country MT
Coal 38.30% 41% Japan 52 Australia 125
Oil 24.70% 5.50% China 35 USA 34
Gas 12.10% 21.30% India 23 Indonesia 30
Hydro 21% 15.90% South Korea 21 Canada 21
Nuclear 3.30% 13.50% Germany 6 Russia 11
Other 0.60% 2.80% United Kingdom 5 Poland 2
France 4
Chinese Taipei 3
Almost 70% of steel produced globally uses coal.
66% of world steel is made through Basic Oxygen furnace / blast furnace process and further 31% is produced in
Electric arc furnace. Interestingly Blast furnace uses coking coal and Electric arc furnace use electricity generated by
Coking coal power plants which mostly use coal for power generation.
prices were
1.4 tons coal is used to produce 1 ton of coking coal.
around $130 in
2009 and 0.6 tons of coking coal is used to produce 1 ton of crude steel.
currently 2010
As can be seen from the table above that the share of coal in electricity generation has not declined over last 30 years
contract prices
which is an indicator that the world has only substituted its oil use to natural gas. Had the world reduced their coal
have been
usage for electricity generation it would have made some difference. In short if the steel industry uses coal or power it
booked at $200
ultimately results in using the coal itself. Coal out here is whipped from both the sides.
, in another 3-4
months the The coking coal markets flared up after China that was exporting 10 Million tons of coking coal has become an
prices could be importer.
reaching
With Australia being the largest exporter and with plans of exporting 140 million tons in 2010, the port expansions are
around $270-
playing the biggest hurdle.
$290.
 India and China will be the main drivers of consumption of steel for structure and infrastructure development in the
With the
coming years.
supply
constraints With the major shift of rural population to the urban areas the need for providing basic transportation facilities and
and the rising housing will keep the demand on the higher side. The infrastructure development has been very slow in India as
prices of iron compared to China. This delay invariably is affecting the input cost of all the projects that are taking place currently
ore and met or that are planned for future.
coke the
The construction industry uses the maximum steel and with the current trend in the urbanization in the developing
prices of steel
countries the next five years will keep the steel prices high.
should be
reaching The weekly chart above clearly indicates that the prices have been consolidating and bottoming out all through
levels of Rs. 2009 at around the prices of Rs. 17600. After November ’09 the prices made a higher bottom at Rs. 20100. currently
30000 in the prices are around Rs. 25000 and in the coming months the prices are expected to rise above Rs. 30000 levels.
coming
It will be the raw material shortages and price rise that will be the biggest contributor to the price rise of steel as
months.
compared to the steel consumption.