TPT January 2012

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96 January 2012 ›
Global Marketplace
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
Perth. “The long-term steel outlook remains positive.” (Bloomberg
BusinessWeek, 24 October)
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.