TPT January 2012

G lobal M arketplace

Perth. “The long-term steel outlook remains positive.” ( Bloomberg BusinessWeek, 24 October)

Steel A plunge in spot iron ore prices moves British-Australian miner Rio Tinto to adjust the terms of its sales contracts in China Chinese manufacturing activity hit a five-month high on 24 October. The report in the HSBC purchasing managers index buoyed the Australian dollar to a six-week high: its strongest level against the US dollar since 12 September. Matthew Johnson, an interest rate specialist with the Swiss financial services company UBS, told Jason Cadden of the Sydney Morning Herald that the rally in the Australian dollar was also helped by news from the US. This was the report that President Barack Obama will tackle an American housing crisis by means of new rules to ease refinancing for homeowners with little or no equity in their property. Also on 24 October, however, Australian Associated Press took note of another aspect of the reciprocal Australia-China relationship. As Beijing tightened credit in September, the anti-inflation measure had the intended result of slowing economic growth after a galloping quarter. Steel mills cut back accordingly, and the spot price of iron ore plunged from a record level of about US$180 per metric ton to below US$150. Chinese steel makers locked into quarterly iron ore contracts thereupon began clamouring for lower prices on their supplies. In an apparent response to the pressure from China, Rio Tinto – Australia’s biggest iron ore miner – reconsidered its pricing mechanisms. Rio Tinto chief executive Tom Albanese announced that “current market weakness” was accelerating a move to shorter terms and prices closer to spot. The company would implement a “portfolio sales approach with a range of pricing periods linked to quoted spot indices,” Mr Albanese told an analysts’ briefing in Sydney. › In accommodating its Chinese customers, Rio Tinto can probably afford to take the long view. Chinese demand accounts for some 27 per cent of its sales, and China’s 9.1 per cent economic growth in the third quarter will help boost profit at Rio. The company in September said that it looks for steel demand to rise in China and India, and reiterated its long-term bullish outlook for aluminium, copper and iron ore. Rio Tinto Group expects its iron ore business “to grow substantially” over the next five years, with annual capacity rising to 333 million metric tons in 2015. There are plans to increase the workforce at the Pilbara mine in Western Australia by 50 per cent over that period, according to Sam Walsh, CEO of the London-based company’s iron ore unit. “Iron ore and coking coal are the two crucial ingredients for making steel, and steel is the crucial ingredient as emerging economies urbanise and industrialise,” Mr Walsh said at a business forum in

Of related interest . . . › The drop in spot prices has also affected Vale Do Rio Doce, the world’s biggest iron ore producer through its mines in Brazil. On 24 October, the metals market information provider Platts noted a report from Macquarie Commodities Research that Vale was selling iron ore in China on a basis of the average spot price for the quarter. Vale’s offer to Chinese steel makers – to price ore deliverable in the fourth quarter based on the average of Platts index values for October-December – had already been confirmed by Platts from a number of steel mill sources that had received the option. Vale said at a Macquarie Bank event in Shanghai on 21 October that the shift to China-based sales from FOB Brazil had reduced the risk of a backlog through the supply chain. According to analysts at the Sydney-based investment bank, the largest in Australia, this could have impacted mine output, as was seen in late 2008. Vale said that its quarterly contract prices (based on average spot prices in the trailing quarter, with a one-month lag) still apply to its European, Japanese and South Korean customers. Elsewhere in steel . . . › The Finnish company Outotec Oyj (formerly Outokumpu Technology) announced on 26 September that it had signed an agreement with Mintal Group Co Ltd, a large Chinese manufacturer of ferrochrome and stainless steel, to design, build and deliver a ferrochrome plant to Baotou, in Inner Mongolia. Outotec will furnish engineering, equipment and an operating license for its proprietary Steel Belt Sintering (SBS) technology for a plant with capacity of 700,000 metric tons per year of chromite pellets. The plant, scheduled for commissioning in 2013, will produce 300,000mtpy of ferrochrome. Closer to home, Espoo-based Outotec has been engaged by the Swedish iron ore mining company and pellet producer LKAB to supply a new pelletising plant for LKAB’s Malmberget project in northern Sweden. The plant, which will employ Lurgi travelling-grate technology, is designed for production of 2.5 million mtpy of iron pellets at start-up in 2016. LKAB is a repeat customer. The former Lurgi Metallurgie, acquired by Outotec forerunner Outokumpu Oyj in 2001, built a travelling-grate pelletising plant for LKAB at Malmberget in 1971. › On 28 October the final element of the ArcelorMittal Orbit, the abstract sculpture that stands some 35 storeys high alongside the main stadium for the 2012 London Olympics, was moved into place. The instant landmark is made of ruby red steel – 1,650 tons of it – and features a looping lattice of tubular steel, but otherwise resists description. Designed by the London-based artists Anish Kapoor and Cecil Balmond, the huge piece supposes a point in space that is “orbited” by a dancing line of steel.

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J anuary 2012

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