There are two main steelmaking routes utilized today, electric arc furnace (EAF) and basic oxygen furnace (BOF). Electric arc furnace steelmaking uses an electric current to melt iron units. These operations tend to be smaller in size than the BOF-based steelmakers, hence the name minimill. Over time, however, EAF steelmakers have increased capacity. Nevertheless, EAF-based units require their raw material inputs to be material that is already in the form of iron scrap iron and steel, or reduced iron in pig iron ore DRI/HBI. In general, a large percentage of ferrous scrap generated is used by EAF steelmaking (these facilities have the capability to have up to 100% of their input feed being scrap). In order to produce higher quality finished products, such as flat steels, EAFs will use a balance of scrap inputs and DRI/HBI or pig iron.
While it is common to associate the scrap and DRI markets just with EAF steel production, BOF steelmakers also require scrap for steel production although their requirements are less. BOF steelmakers use a combination of iron ore, coke, coal and scrap as their main feeds. On average, we believe scrap will account for anywhere up to 20% of BOF steelmakers input feed, but are typically under 10% - BOF steelmakers will usually require the highest grades of scrap in their input feed (many obsolete grades are not favoured) to limit impurities. Typically blast furnaces producing long products (sections/rebar etc.) can use lower quality scrap if need be as the technical specifications for the finished product are not as high as they are for flat products.
There are three main types of scrap consumed in the steelmaking process with varying degrees of impurities:
- Home/Revert scrap generated and recycled within a steel works.
- Prompt/Prime scrap generated from the cutting of steel in the manufacturing of finished steel products.
- Obsolete/Old scrap end of life products i.e. vehicles, appliances and construction material.
For many years, mills across the world have and continue to use recycled steel scrap in the steel production process, owing largely to its cost competitiveness in producing new steel via this method rather than mined iron ore and coking coal.
Steel scrap retains its inherent physical properties during the recycling process, and utilises lower energy and raw materials requirements in steelmaking compared to the refinement of iron ore and metallurgical/coking coal.
Global scrap demand from total world crude steel making stood at more than 500m tonnes in 2012, of which we believe China consumed more than 25% given the absolute volume of the countrys domestic crude steel production. Meanwhile, Turkey is the worlds largest scrap importer, purchasing 22m tonnes of material in 2012 from its main suppliers located in the USA, Russia, UK and Europe. The USA exported almost 20m tonnes in 2012 mainly shipping to steel makers in Turkey, South Korea, Taiwan and China.
Merchant pig iron, direct reduced iron (DRI) and hot briquetted iron (HBI) are commonly referred to as metallics and are also used in the aforementioned crude steel production processes as steelmaking raw materials.
Metallics are produced via the reduction of iron ore using either natural gas or metallurgical/coking coal and an energy source, depending on the process.
Integrated steel mills produce blast furnace iron (hot metal) that may be surplus to their internal requirements and is cast into ingots and sold as a merchant product. Merchant pig iron is iron cast into ingots, cooled and sold as ferrous feedstock.
HBI is a premium form of DRI that has been compacted to give it enhanced physical characteristics, which make it ideal for handling, shipping, and storing as a merchant product.
India is by far the worlds largest producer of DRI/HBI at more than 20m tonnes in 2012, given the countrys limited ability to collect steel scrap and its locality to the natural resources for DRI/HBI production, i.e. iron ore and coking coal. That said, Venezuela, Russia and Trinidad are the largest exporters of DRI/HBI, with each country exporting around 2m tonnes per year to buyers in North America, Europe and Asia.
Iron ore is mined and processed to increase the iron content of the tonnage shipped, the resulting form is either pellet, lump or fines. Fines are the most commonly traded form on the spot market while we tend to see lump and pellets sold by contracts, either quarterly monthly or annual. Annual contracts were once the norm, but miners, looking to gain more control, pushed for quarterly, and even monthly, contracts with wide success.
Major producers include BHP Billiton (Australia), Rio Tinto (Australia), and Vale (Brazil). Those three producers accounted for more than 35% of the iron ore trade in 2012.
The world production of iron ore reached 1.86bn tonnes in 2012, down slightly from 2011. Seaborne flows have increased over the past ten years given the demand growth from China and the inherently low iron content of domestic iron ore supplies. Iron ore is the largest dry bulk commodity in terms of seaborne flows, ahead of steam coal.
China is today by far the largest iron ore importer. Volumes have increased dramatically, rising 68% from 443.7m tonnes in 2008 to 745.4m tonnes in 2012. The growth in Chinese iron ore imports has been directly fuelled by a surge in raw materials demand from a growing steelmaking capacity. Steel demand growth is the consequence of the vast industrialisation programme the country has been going through since 2003. Between 2000 and 2012, world steel production increased 682m tonnes to reach 1,510m tonnes. During the period, Chinas steel production accounted for more than 80% of the worlds growth.
Coke and coking coal
Coking coal is mined to produce coke which is used to reduce iron ore in a blast furnace. There is no effective substitute for coking coal. The best coking coal is called hard coking coal (HCC); others are called soft, weak and semi-soft coking coal. Steel mills use a blend of coking coals to make their coke; about half of the blend has to be hard coking coal.
The biggest coking coal producers are based in Australia and North America (Canada and the USA). These include: BHP Billiton, Rio Tinto, GlencoreXstrata, Anglo Coal.
Proven reserves of coking coal are not as abundant as steam coal. It therefore commands a higher price per tonne. Coal is a heterogeneous product and the definition or specifications of the types of coal can vary significantly from country to country and affect the price paid by consumers.
Coke has three functions in the blast furnace: it supports the sinter while it melts; it is a reducing agent, taking the oxygen out of the iron oxides in the sinter; and it provides heat.
Coal (rather than coke) can also be injected in a pulverised form into the side of a blast furnace to provide heat and so reduce the amount of coke that is required. This is called pulverised coal injection (PCI) and the coal used is called PCI coal. One tonne of PCI coal replaces about 1.4Mt of coking coal. Steam coal is used for PCI because it has a lower price than coking coal, but PCI coal needs to be less than 7% (on an air-dried basis) and less than 10% total moisture and low in alkalis and phosphorous. PCI coals usually achieve a somewhat higher price than ordinary steam coal used in power stations, but the price is much lower than the price of hard coking coal. PCI coal is, technically, not coking coal, but is a metallurgical coal.