Has the ME's cost competitiveness in steel seen a ... · Has the ME's cost competitiveness in steel seen a structural ... **excl. overhead and capital costs, ... at the mill and instantly
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
• SteelConsult International is a consultancy specialized in the iron & steel industry and itsmarkets.
• From our offices in Amsterdam, The Netherlands, we work for clients around the world, incl. steelmills, distributors, processors, traders, consumers, banks, government institutions and suppliersto the steel industry.
• Our consultants have a background in the iron & steel sector, providing a firm base of experienceand an extensive contact network across the industry.
• Our first working language is English, but we can also work with you in French, German, Dutch,and Spanish. Read more about us on www.steelconsult.com!
Pushed by higher iron ore and energy prices, ME DRI production costshave doubled between 2000 and 2005. Cost prices are expected to comedown in 2010 and 2015, but remain at higher levels than in the past
54 57
130
105
83
3 4
7
6
6
0
20
40
60
80
100
120
140
160
180
200
1995 2000 2005 2010* 2015*
DRI pellets del Natural gas Electricity Labour Other
DRI operational cost price**, GCC (US$/tonne DRI)
Source: SBB, MB, local specialists, SteelConsult analysisNote: **excl. overhead and capital costs, incl. maintenanceAssumed 100% fed by pellets Capacity 500k tpy facility
54 57
130
105
83
4
10
8
8
5
0
20
40
60
80
100
120
140
160
180
200
1995 2000 2005 2010* 2015*
DRI pellets del Natural gas Electricity Labour Other
However, despite its raw material disadvantage, the GCC’s energybenefit makes it one of the world’s most competitive regions forproducing DRI. Costs are some US$80/t lower than in the USA.
110 115130
120130 130 130 125
1212
7 30
3755 64
83
44
4
10
7
1810
9
0
50
100
150
200
250
VenezuelaRussia GCC India China Japan Europe USA
DRI pellets del Natural gas Electricity Labour Other
DRI operational cost price by country/region, 2005 (US$/tonne DRI)
83% 84% 87%
72% 72%
60% 59%54%
9% 8% 5%
19% 21%
26% 29% 36%
3% 3% 3% 6%4%
9% 5% 4%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
VenezuelaRussia GCC India China Japan Europe USA
DRI pellets del Natural gas Electricity Labour Other
DRI operational cost price by country/region, 2005 (%)
Source: SBB, MB, local specialists, SteelConsult analysisNote: **excl. overhead and capital costs, incl. maintenanceAssumed 100% fed by pellets Capacity 500k tpy facility
The price of natural gasis the main costdifferentiator inproducing DRI
In EAF steelmaking, the ME cost advantage over India, China and thedeveloped parts of the world is even more pronounced than for DRI.However, Venezuela and Russia are even more cost competitive
146 151 164183 197
237 242 254
18 2019
4531
8045
40
0
50
100
150
200
250
300
350
400
450
VenezuelaRussia GCC India China Japan Europe USA
DRI Electricity Labour Other
EAF operational cost price by country/region, 2005 (US$/tonne steel)
63% 63% 65% 62%67%
61%66% 68%
8% 8%7% 15%
11% 20% 12% 11%
28% 28% 26% 22% 22%17% 18% 18%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Ve nezuelaRussia GCC India China Japan Europe USA
DRI Electric ity Labour Other
EAF operational cost price by country/region, 2005 (%)
Source: SBB, MB, local specialists, SteelConsult analysisNote: **excl. overhead and capital costs, incl. maintenanceAssumed 100% fed by pellets Capacity 500k tpy facility
Why does the ME account for such a high share of DRI expansions?An important difference with Venezuela and Russia, is that the MEregion is still a large net importer of steel
In addition, the price of oil does not only provide a comparative costadvantage to the ME region in producing energy intensive products,but also boosts local consumption of steel, esp. in construction
0
50
100
150
200
250
300
350
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05
Steel consumption ME Price of oil*
Source: EIA, EIU, IISINotes: *OPEC average (US$/barrel)
Finally, due to its relatively low volume of manufacturing activity, theME is not as scrap rich as some other parts of the world. The mostimportant source of scrap in the Middle-East is obsolete scrapScrap availability ME by source, m tonnes
The margins between the operational cost price of DRI in the ME andinternational metallics prices have vastly improved since 2002
0
50
100
150
200
250
300
350
J M S J M S J M S J M S J M S J M S J M S J M S J M S J M S
Sc rap, sales price Rotterdam, fob export*
Pig iron, sales price CIS, fob Black/Baltic Sea
DRI cost price** GCC
Price, US$/metric tonne
Source: SBB, MB, local specialists, SteelConsult analysisNotes: * 50% HMS#1, 50% HMS#2 **excl. overhead and capital costs, incl. maintenance
The margins between the operational cost priceof DRI in the ME and international metallicsprices have vastly improved since 2002
Metallics markets went through a period of prolonged weaknessbetween 1998 and 2001, as global markets were suffering fromlarge scale opportunistic supplies of pig iron from the CIS
World oil prices have made a step change up. The EIA expects worldoil prices to remain between US$45-60/barrel until 2030. Even in thelowest price scenario, the oil price is expected to remain above thelevel of the previous peak in 2000