PCI update May 2012 Ross Stainlay

PCI Coal (2012 presentation)

1

Ross Stainlay – M [email protected]

How market conditions affect PCIcoal selection and usage

Agenda

• Set the Scene (and terminology !)

• Technology and Replacement Ratio

• Trade and Consumption

• Pricing and VIU

• Concluding Remarks

2

3Source: ANZ

Iron Ore Consumption Intensity –Future Production Levels to Rise

Blast Furnace Dominates

Liquid steel – by origin

Blastfurnace68% Global(China 90%)

Other – 32%

• The blast furnaceremains the primarysource of liquid steel

• “Other” is EAF,induction furnace,COREX and others

• [>95 % of virgin ironunits derived from BF]

4

Coking / PCI coal cost can amount to ~ half theoperating costs for a modern BF

BF Hot Metal Production (Mtpa)

0

200

400

600

800

1,000

1,200

1,400

1,60020

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

2021

AsiaOceaniaAfricaS AmericaN AmericaCISOther EuropeEU-28

5

Forecast

Source – compilation

Main European Met Coal Importing CountriesJul 2005-Dec 2011

(Blast Furnace – Hot Metal Mt pm)

0

1

2

3

4

5

6

7

Aug-

05

Dec-

05

Apr-

06

Aug-

06

Dec-

06

Apr-

07

Aug-

07

Dec-

07

Apr-

08

Aug-

08

Dec-

08

Apr-

09

Aug-

09

Dec-

09

Apr-

10

Aug-

10

Dec-

10

Apr-

11

Aug-

11

Dec-

11

Mill

ions

Total EU (8 countries) Source - WSA

UK, France Germany, Turkey,Sweden/Finland, Belgium,Netherlands, Spain

6

Main South American Met Coal ImportingCountries Jul2005-Dec 2011(Blast Furnace – Hot Metal Mt pm)

0

0.5

1

1.5

2

2.5

3

3.5

4A

ug-0

5

Dec

-05

Apr

-06

Aug

-06

Dec

-06

Apr

-07

Aug

-07

Dec

-07

Apr

-08

Aug

-08

Dec

-08

Apr

-09

Aug

-09

Dec

-09

Apr

-10

Aug

-10

Dec

-10

Apr

-11

Aug

-11

Dec

-11

Mill

ions

Brazil

Argentina

7

Source - WSA

Main Asian Met Coal Importing CountriesJul 2005-Dec 2011(Blast Furnace – Hot Metal Mt pm)

0

2

4

6

8

10

12

14

16Au

g-05

Dec-

05Ap

r-06

Aug-

06De

c-06

Apr-

07Au

g-07

Dec-

07Ap

r-08

Aug-

08De

c-08

Apr-

09Au

g-09

Dec-

09Ap

r-10

Aug-

10De

c-10

Apr-

11Au

g-11

Dec-

11

Mill

ions

Taiwan

SouthKorea

India

Japan

8Source - WSA

Agenda

• Set the Scene

• Technology and Replacement Ratio

• Trade and Consumption

• Pricing and VIU

• Concluding Remarks

9

THE BLAST FURNACEThe blast furnace is designed to reduce ironoxide to liquid iron, whilst maintaining hotmetal quality and temperature.

All this at the minimum possible cost.Coke performs the following roles in the BF:Chemical

- ReductantFeO + C Fe + COFe2O3 + CO 2FeO + CO2

- Carbon dissolved in hot metal (5%approx)

Thermal- 2C + O2 2CO

Physical or Structural- Support burden- Gas and liquid permeability

10

Advantages of PCI

• PCI into the blast furnaces offers the followingadvantages for blast furnace operation:

– Coal is less expensive than coke, resulting in lower fuel costs.– Coal injection in conjunction with other parameters may

improve productivity.– A wide range of coal types can be injected.– Coal injection rates are higher than oil or natural gas, thus lower

coke rates are achieved.– Coal supplies are more stable due to extensive reserves.– Coal injection systems are less costly than new coke plants.– Coal grinding and injection systems are non-polluting, and may

offer a CO2 reduction opportunity

11

PCI Rates and Records

94

40

50

60

70

80

90

100

1995 1996 1997 1998 1999 2000

kg/thm across all BFs

Source: CRU International12

PCI records over time

– Dunkirk 143 kg/thm (1984)– Thyssen 200 kg/thm (1992)– Kobe 224 kg/thm (1998)– Baosteel 260 kg/thm (1998?)

– NKK 266 kg/thm (1998)

– Current sustainable bestpractice appears to be around200 kg/t PCI along with 285kg/t coke. With oneimportant exception ….

250

270

290

310

330

350

370

390

410

430

450

50 100 150 200 250

Coke

rate

(kg/

thm

)

PCI rate (kg/t hm) Courtesy: CoalTech

Typical relation – Coke Rate & PCIrate

13

TM

CO gas & tar

Breeze

Dry coke at BF

1 tonne dry, useful cokerequires ~ 1.5 tonne ofcoking coal – as shipped(24% VM coking coal - 10 % TM)

14

Coking Coal and Coke

1 tonne of coking coal – asshipped.

BF Input & Output – Typical JSM

COKE:370 kg/t

11-12 % ash60-65 CSR

PCI (1 to 3 coals) :130 kg/t9 % ash0.85 RR3% O21100 deg Blast T

ORE / SINTER / FLUXES1580 kg/t

70 % sinter

1 tonne hot metal+ Slag : 300kg/t

COKE BATTERIES- 125 ovens- 1.5 Mt coke pa- CMC – ½ CDQ

BF : 5150 cu m – 15.0 m dia - 4.1 Mtpa hm (11000 +tpd) - productivity 2.4

Other: TRT – bell less top– HM P 0.12 % -

Coking coal -(8-12 coals)- 520 kg

15

Fine CoalStorage

Fuel Gas

InjectionVessels

Pulverizer

M

MM

M

M

Distributor

Nitrogen

Raw Coal

Stove Off Gas

Blast Furnace

Air

General Flowsheet – PCI System

Courtesy of BMH16

PCI Distribution System

17

Coal Mills

18

Courtesy: BMH

19

Replacement ratio & milling

Low Volcoals

High Volcoals

100% *

140%

* Relative mill throughput30

50

70

90

110

0.6

0.7

0.8

0.9

1

72 76 80 84 88 92

HG

I

Carbon %dafCourtesy: CoalTech

Lance and Tuyere Assembly

20Courtesy: CoalTech

PCI Coal Entering the BF

A single injection lance is most common, optionsinclude double lance, oxygen annulus, pre-heating of coal

21Source: Kuttner

Pulverized Coal Injection into BlastFurnaces

Coke

PCICoal

Coke Ovens Blast Furnace Coal Grinding andInjection System

Courtesy of BMH 22

PCI Plant – Brazil

Injection capacitiesat 200 kg coal/thmüBF 2. 37 t/hüBF 3. 79 t/h

Mill Capacity:ü2 x 60 t/h

23

Components - % as received basis(high vol coal)

High volatile v. low volatile coal

Fixed Carbon

Volatile Matter

Ash

Inherent Moisture

Free Moisture

Lo vol PCI coalHigh vol PCI / SSCC

FC

FC

FC

FC

FC

VM

VM

VM

VM

A

A

A

A

IM

IM

FM FC

FC

FC

FC

FC

VM

VM

VM

VM

VM

A

A

A

A

IM

FM

IM

AR

AD

DRY

DAF

“COKE”

26

General coal types

0

10

20

30

40

50

60

72 76 80 84 88 92

Vola

tile

Mat

ter%

daf

Carbon %dafCourtesy: CoalTech

ThermalFuel Ratio ~ 2

Coking

Thermal

?

Coke Replacement Ratio Formulae

27Courtesy: CoalTech

Properties of selected PCI coals

28

TM % ar 9.0 8.0 9.0 9.0 9.0 8.0 8.0 10 11.0 10.0 10.5IM % ad 2.0 1.5 1.2 1.5 1.1 1.0 1.5 1 2.0 1.5 3.5Ash % ad 10 10.5 9.0 7.5 8.5 8.5 10.0 9.5 9 8.5 6VM % ad 9.5 12.2 12.5 12.7 13.0 14.0 14.5 19.5 19.5 15.0 35.4

VM % daf 10.8 13.9 13.9 14.0 14.4 15.5 16.4 21.8 21.9 16.7 41.0

FC % ad 78.5 75.8 77.8 78.3 77.4 76.5 74.0 70.0 69.5 79.2 53.4TS % ad 0.65 0.7 0.50 0.50 0.45 0.5 0.65 0.5 0.51 0.6 0.35Phos % ad 0.070 0.090 0.080 0.070 0.080 0.050 0.050 0.03 0.085 0.080 0.002CV (kcal/kg) % ad 7450 7500 7750 7910 7775 7765 7550 7500 7620 7650 7375

CV (kcal/kg) % daf 8466 8523 8630 8692 8601 8580 8531 8400 8562 8500 8150

HGI 68 78 80 77 84 65 85 85 90 85 50Carbon % daf 91.7 90.9 90.5 91.0 90.7 91.1 89.5 88.0 89.1 88 82.7

AUS 4 AUS HVCAN 1 AUS 6AUS 5 AUS 7AUS 1 AUS 2FUTURE

1AUS 8Property Basis AUS 3

Low Vol PCI Coal High Vol PCI Coal

Low VM Coal High VM Coal

Hot Blast:Equal orSlightly Higher

Hot Blast:Equal orSlightly Lower

O2 Rate:Equal orLower

O2 Rate:Equal orHigher

Permeability:Equal orSlightly Lower

Permeability:Equal orSlightly Higher

Gas Reduction:Lower

Gas Reduction:Higher

RAFT: Higher RAFT: Lower

CombustionEfficiency: Lower

CombustionEfficiency: Higher

Fuel Ratio: LowerCoke Ratio: Lower

Fuel Ratio: HigherCoke Ratio: Higher

Top Gas Vol.: LowerCalorific Value: Lower

Top Gas Vol.: HigherCalorific Value: Higher

Dust : Equal orSlightly Higher

Dust : Equal orSlightly Lower

Impact of PCI Coal Type on BFOperation

29

The PCI advantage (4 Mtpa HM)

High Vol PCI

Coking Coal* 543 kg/tHM @ $U193/t

Yields 388 kg/tHM Coke

* 70:30 HCC : SSCC

PCI 150 kg/tHMRR 0.75 & $US135/t

Coal Cost = US$125 /tHM

= US$ 501 million pa

Savings US$ 24 million pa

Notes: All coal prices fob basis – coke blend of HCC & SSCC coalsExcludes value of by-products, coke oven gas and coke breezeBasis HCC $205, SSCC $147 /t fob. Values rounded. Fuel rate 500 kg/t

Coking Coal * 700 kg/tHM @ $US188/t

Yields 500 kg/tHM Coke

* 80:20 HCC : SSCC

Coal Cost = US$131 /tHM

= US$525 million pa

No PCI

30

Coking Coal* 511 kg/tHM @ $US193/t

Yields 365 kg/tHM Coke

* 70:30 HCC : SSCC

PCI 150 kg/tHMRR 0.90 & $US153/t

Coal Cost = US$ 122 /tHM

= US$ 487 million pa

Savings US$ 38 million pa

Low Vol PCI

Agenda

• Set the Scene

• Technology and Replacement Ratio

• Trade and Consumption

• Pricing and VIU

• Concluding Remarks

31

QLD LV PCI coal exports

0

5

10

15

20

25

30

Mt

Production Year

Middlemount

Vermont

Isaac Plains

Baralaba

Carborough

Poitrel

Millennium

Capricorn

Curragh

Yarrabee

Foxleigh

Coppa/Moor

SWC

JellinbahSource M Resources

PCI Coal Demand Predictions

33

0

20

40

60

80

100

120

140

Mt

PCI

Growth in demand arises from :- New blast furnaces coming on line- Installation of PCI to existing furnaces- Increased rates of injection

LV PCI – Seaborne Traded

0

5

10

15

20

25

30

35

40

45

5020

05

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

2020

Mtp

a

ROWAustralia

405 *Mt

* = all otherMet coal

Source M Resources

ROW countries include:

Canada, Russia /CIS, China

215* Mt

Forecast

34

Agenda

• Set the Scene

• Technology and Replacement Ratio

• Trade and Consumption

• Pricing and VIU

• Concluding Remarks

35

0.5

0.6

0.7

0.8

0.9

1

A B C D E F G H I J K L M N O P Q R S T U V W X Y Z AABB CC

RR(k

g/tc

oke

repl

aced

)

Coal brand

Model outcomes – ReplacementRatios – F-TeCon data

36

0

20

40

60

80

100

120

140

160

180

0.5

0.55

0.6

0.65

0.7

0.75

0.8

0.85

0.9

0.95

A C E G I K M O Q S U W Y AA CC

Calc

ulat

edpr

ice

base

don

VIU

-$/t

fob

RR(k

g/tc

oke

repl

aced

)

Coal brand

Assumed: LV PCI ~$153 /t RR 0.90

Model outcomes – ReplacementRatios – F-TeCon data

37

Coal and Coke Pricing 2012 Q2

$100

$150

$200

$250

$300

$350

Hard Coking Coal

LV PCI – hi ashLV PCI

Thermal coal

Coke

38

Coal Pricing 2012 Q2

$100

$120

$140

$160

$180

$200

$220

Hard Coking Coal

LV PCI – hi ash

LV PCI

Thermal coal

39

Ratio - LV PCI price to HCC price(%)

50 55 60 65 70 75 80 85 9019

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

1020

1120

1220

1320

1420

15

2021

40Source – CRU Feb 12

f

-$25

-$20

-$15

-$10

-$5

$0

$5

$10

$15

$100

$110

$120

$130

$140

$150

$160

$170

$180

Low Vol PCI – standard

Low Vol PCI – high ash

Delta

Platts PCI spot price – last 6 months –all US$/t FOB

41

Yield ash relation from coalwashability data – examples

- 10 20 30 40 50 60 70 80 90

100

- 5 10 15 20

Yiel

d-M

ass

%(c

umul

ativ

e)

Ash % (cumulative)

Coking coal - blendof up to 15 coals

470 kg/thm

350 kg/thm

Coke Ovens

PCI coal

(1 to 3 coals)

150 kg/thm

Coal Mill

Blast Air

By Products

Coke

150 kg/thm

SLAG CONTRIBUTION:Sinter + breezeSay 1500 kg @ 16%“minerals” = 225 kg

Coke 350 kg @12% ash(minerals) = 42 kg

PCI 150 kga) 8.5% ash > 13Kgb) 12 % ash > 18 kg

BUT b) Need to increaserate to compensate say155 kg/t > 18.6 kgSinter

CokePCI

A 1% abs incr. in PCI ash = 0.3 % increase in combined [coke + PCI] ash = +3-5 kgcoke = $1-1.50 costs + … heat loss – productivity impacts etc

Coal in the Blast Furnace

Slagcontrib’n

Prices - historical and ONEforecast

44

Recent price forecastsSource: Macquarie Bank & UBS Apr/ May 2012

50

100

150

200

250

300

2010 2011 2012 2013 2014 2015 2016 2017

USD

/tfo

b

m_HCCm_LV PCIm_SSCCm_Thermalu_HCCu_LVPCIu_SSCCu_Thermal

f Low VM PCI - $125 - $175in near term?

Agenda

• Set the Scene

• Technology and Replacement Ratio

• Trade and Consumption

• Pricing and VIU

• Concluding Remarks

46

The Future

• Demand for traded PCI coal is a function of:– BF hot metal production (coastal plants)

– PCI rate (kg/t)

– Number of BF fitted with injection

– Also depends on price competitiveness relative to alternative fuels(thermal coal, oil and gas)

• Immediate outlook is for continuing strong demand withmeasured production increases from existing mines along withnew capacity

• When BFHM production is reduced – buyers have more options.Locking in a ratio of PCI coal to HCC is simplistic

47

THANK YOU

48

TRADINGCoking coalPCIThermal

TRADINGCoking coalPCIThermal

CONSULTING

Coal qualityUtilisation andblendingValue-in-useSpecificationdevelopmentResourceevaluation

CONSULTING

Coal qualityUtilisation andblendingValue-in-useSpecificationdevelopmentResourceevaluation

Brisbane - Australiawww.mresources.com.au

Acknowledgments: CRU, MacquarieBank