56 | Metal Market Magazine | November-December 2018

Market spotlight: Iron ore

The North American iron ore market remains on the road of recovery this year, even though US integrated steelmakers continue to lose market share to electric arc furnace (EAF) producers. While iron ore production in the United States and Canada fell significantly in 2015 and 2016, Christopher A. Tuck, a commodity specialist with the U.S. Geological Survey’s (USGS) National Minerals Information Center, says it did begin to pick up last year and that preliminary 2018 data indicates that it is increasing significantly this year, possibly moving back to pre-2015 levels.

Tuck says that according to the USGS 2018 Mineral Commodity Summary, which was released in January, US iron ore production, which had peaked at 56.1 million tonnes in 2014, had fallen by 25.5% by the time it bottomed out at 41.8 million tonnes in 2016. It not only saw a 13.9% increase last year to 47.6 million tonnes but, according to the latest USGS Iron Ore Mineral Industry Survey, US production was up by 25.6% year-to-date through July by comparison with the first seven months of 2017.

“Most of the iron ore production in the US and Canada is located near the Great Lakes with expensive transportation costs to the seaborne market,” says Robert Hunter, a consultant with Midrex Technologies Inc. Only the iron ore that sits near deep water, such as that

produced at Rio Tinto’s Iron Ore Co of Canada and ArcelorMittal Mines Canada in Labrador, has access to the import/export markets. “Because of this, we believe that every blast furnace in the US and Canada is 100% supplied with North American iron ore,” Hunter adds.

Canadian oreTayfun Eldem, chief executive officer of Alderon Iron Ore, says that Canadian iron ore production has been relatively stable this year except for incremental volume coming on-stream in Canada, mainly due to the restart of the Bloom Lake Mine, which was formerly owned by Cleveland-Cliffs Inc, but is now owned by Champion Minerals. Bloom Lake is expected to produce about 5 million tonnes of iron ore by the end of this year.

Baffinland Iron Mines Corp, a Canadian mining company that is jointly owned by ArcelorMittal and Nunavut Iron Ore, has recently begun mining iron ore at its Mary River Mine on Baffin Island, Nunavut, Canada. However, a company spokesman says that it is not selling this ore in North America given the specialized furnace needed to melt the high-grade ore produced there.

“I don’t see any additional production capacity coming online in the United States or Canada in the next 12 to 24 months with the exception of the ongoing ramp up at Bloom Lake,”

Eldem says, even though there are a number of projects under development, including Alderon’s Kami iron ore project, which expects to produce about 8 million tonnes of fines per year, and the potential restart of another former Cleveland-Cliffs Canadian property – the Wabush Mine.

It is also possible that Mesabi Metallics’ Nashwauk iron ore project could be brought online sometime in the future, now that Switzerland’s Mercuria Energy has agreed to acquire a majority stake in the company.

Eldem says that about 30% of Canadian iron ore is consumed in North America – either staying in Canada or shipped to the US – with the balance exported to the Far East and Europe, while most US iron ore remains within the Great Lakes region. The US iron ore market is also centered around trading pellets as opposed to fines.

“In the near term I think we will see a brighter spotlight shining on Canadian iron ore production from the Labrador Trough due to the quality difference and the preference of China and other jurisdictions for higher grade material,” Eldem says.

Logistical constraintsIt is not straightforward to import iron ore into the US, or at least to the US integrated steel mills, which are all located inland mostly in the Great Lakes region, Charles Bradford, president and metals analyst for Bradford Research Inc, points out. This is both because of logistical and weather constraints.

Eric Singley, regional technical specialist economist for inland

North Americanmarket recoversThe North American iron ore market remains on the road of recovery this year, reports Myra Pinkham

‘If not bullish, we are more positive about the times to come’

An article published in

www.metalbulletin.comCopyright © Metal Bulletin Ltd. All rights reserved

November-December 2018 | Metal Market Magazine | 57

navigation with the U.S. Army Corps of Engineers (ACOE) explains that waterway shipments of US iron ore primarily originate in Duluth, Minnesota, or Marquette, Michigan, and ship from there via rail to the inland waterways. “The primary challenges are weather and navigating the Sault Ste. Mary Falls via the Soo Locks Complex,” he explains. A spokesman for the American Iron and Steel Institute (AISI) notes that reauthorization of the Water Resources Development Act (WRDA), which recently passed the US Senate, would authorize the ACOE to move forward with the budgeting, construction and eventual completion of a Soo Locks modernization project.

Singley adds that some vessels, because of their size, are restricted to using the 1,200 ft Poe lock. He says that 1,000 ft long “footers” – the largest ships that use the Great Lakes with about 30,000 TEU capacity – move a large majority of iron ore and coal. He says there are no known plans to build ships larger than 1,000 ft in length to meet the needs of the steel industry. “Weather could also be somewhat of a wildcard for carriers and shippers since the shipping season isn’t 365 days long due to the ice that accumulates on the water and impedes navigation,” he points out.

Because of this, John Kopfle, Midrex’s director of corporate development, says the lion’s share of the iron ore imports coming into the US go to Nucor Corp’s direct reduced iron (DRI) plant in Louisiana and Voestalpine’s hot briquetted iron (HBI) plant in Corpus Christi, Texas. Both plants use imported iron ore, which is accessible to them given their location on the Gulf of Mexico.

Ore imports downAccording to the USGS, US iron ore imports were down 10.2% year-to-date through July. The country of origin of those imports, however, has changed over the past few years, Miriam

Falk, a senior analyst for Fastmarkets, points out, noting that while Canada has historically been the No. 1 exporter of iron ore into the US, last year about 4 million tonnes came from Brazil while only 1 million tonnes came from Canada, with Sweden also increasing its iron ore shipments to the US. Falk at least partly attributes Brazil’s success to the high grade of its ore. Bradford says that makes it favorable for use for DRI and HBI in contrast with most US iron ore, which generally has too high a silica content.

Tuck attributes the decline of North American iron ore production during 2015 and 2016 to a combination of a decline in steel production and a

25% to 30% increase in steel imports over that timeframe. “But both factors have balanced out since then, and naturally iron ore production has followed that trend,” he explains.

Steel output upAISI reports that total US raw steel production – which not only includes steel output by integrated mills, who use far more iron ore, but also production by EAF steelmakers – fell 11.0% from 97.2 million net tons in 2014 to 86.5 million net tons in 2016, before increasing 4.0% to 90.0 million net tons in 2017. US raw steel production was up 4.9% year-to-date through October 20.

16,000

US production, shipments, and stocks of iron ore 1,2

(Exclusive of ore containing 5% or more of manganese)

0

Source: USGS/AISI1Data are rounded to no more than three significant digits. 2Excludes byproduct ores and iron metallics. 3Includes rail and vessel.

Jul 17Au

g 17

Sep 17

Oct 17

Nov 17

Dec 17

Jan 18

Feb 18

Mar 18

Apr 18

May 18

Jun 18Jul 18

2,000

4,000

6,000

8,000

10,000

12,000

14,000

Production Shipments3 Stocks (end of month)

6,000

US production of pig iron and raw steel, by type of furnance*(thousand metric tons)

1,000

Source: USGS/AISI*Data are rounded to no more than three significant digits.

Jul 17Au

g 17

Sep 17

Oct 17

Nov 17

Dec 17

Jan 18

Feb 18

Mar 18

Apr 18

May 18

Jun 18Jul 18

2,000

3,000

4,000

5,000

Pig iron production - Basic oxygen furnace

Raw steel prodcution - Blast furnace Raw steel prodcution - Electric furnace

November-December 2018 | Metal Market Magazine | 59

Market spotlight: Iron ore

“This overall growth, however, has been mostly due to expansions by the EAF steelmakers,” Falk says. According to the World Steel Association, EAF producers accounted for 67% of North America’s raw steel production last year, including 68% in the US, 47% in Canada and 76% in Mexico.

Kopfle says it is likely that North American blast furnace steel production will continue to decline in the long term. He maintains that even though U.S. Steel recently restarted two blast furnaces at its Granite City, Illinois, plant – a move that will add 2.8 million tons of steelmaking capacity to the market – that does not mean that the blast furnace decline that began in the mid-1970s is over. The rate of decline has just become slower over time and occasionally stabilizes or flatlines with the help of such moves. He says there are not many more blast furnaces that are likely to be restarted, given the cost to restart a furnace that has been down for a long time.

There has long been speculation about AK Steel restarting its Ashland, Kentucky, blast furnace, but while the company has not taken that possibility off the table, it has not moved forward either, voicing the need to take a long-term view of the market.

EAFs and DRI“While blast furnaces are still important in the US, there has been an emergence of EAF steelmaking capacity driven by cheap natural gas prices and the availability of scrap,” Eldem says. An AISI spokesman pointed out that both integrated and EAF steelmakers do use virgin iron units as inputs.

The percentage of alternative iron units, including DRI, HBI and pig iron, that EAF steelmakers use in their hot steel depends upon the type of steel they produce. Kopfle says that, on average worldwide, about 16% of the EAF charge is DRI. US producers of construction-grade steel long products usually

do not use any DRI, some EAF mills making flat-rolled steel products use about 50% alternative iron units and 50% scrap to achieve their customers’ high quality requirements.

While most of North America’s iron ore is consumed by blast furnaces, the percentage of iron ore that is used for DRI and HBI is growing, Kopfle says. He notes that Cleveland-Cliffs, which already has a lion’s share of the North American blast furnace iron pellet market (or at least the portion of the market that integrated mills are not supplying from internally owned assets) will be using 2.5 million tonnes per year of iron ore pellets at its still-under-construction HBI plant in Toledo, Ohio, once it comes online in 2020.

This allows Cleveland-Cliffs to take advantage of the recent and

planned growth in US EAF steelmaking capacity, which Lourenco Goncalves, its chairman, president and chief executive officer, says has been supported by the “still under appreciated tax reform implemented in the United States.” During the company’s third-quarter earnings conference call, Goncalves expressed confidence that its HBI plant will easily sell out. In preparation for its start-up, which he says could even occur slightly ahead of schedule, Cleveland-Cliffs plans to take 500,000 tonnes of DR-grade pellets out of the market next year that would have otherwise gone to its blast furnace customers.

Most of Voestalpine Texas’ 2 million tonnes per year output is exported to Austria and the 2.5 million tonne per year output at Nucor Louisiana is expected to mainly be used internally.

Given this supply picture and the growing EAF market, Kopfle says that he expects that up to two more DRI or HBI plants could be built in the United States. JSW Steel USA recently told Fastmarkets that it is considering building a DRI plant near its Mingo Junction, Ohio, facility, although those plans are still very preliminary.

There has also been speculation that Nucor could build a second DRI plant, although John Ferriola, its chairman, president and chief executive officer, during the company’s recent earnings conference call, said that Nucor is currently focused on spending $200 million to ensure that when its current DRI plant, which has been down from an unplanned outage since July, comes back online in late 2019 or early 2020, it will achieve sustained reliability, and that while Nucor continues to look at a second unit, at this time it has no plans to go ahead with one.

Overall, the recent recovery of the North American iron ore market is expected to continue. “If not bullish, we are more positive about the times to come,” Fastmarkets’ Falk declares.

MID

REX

The percentage of iron ore that is used for DRI and HBI production is growing