Tuesday, August 30, 2005

Ternium - a new steel giant is launched

The following article appeared today in www.33MetalProducing.com, about the launch of Ternium, a new 12 million tonne Latin American steel giant. For original article, see here.

Ternium, the new Latin American steelmaking conglomerate, has been launched by Techint Group following its recent completion of Hylsamex. The new company has an estimated annual production capacity off 12 million metric tons and an estimated capitalization of $5 billion.

Following the official launch of Ternium, Brazilian steelmaker Usiminas announced it will invest $100 million in cash to raise its stake in Ternium to 16%. Usiminas said its stake would stem from minority investments held in component companies before Ternium’s formation.

The move to create Ternium stemmed from Argentina-based Siderar S.A.’s $2.1 billion takeover of Hylsamex, centered in Monterrey, Mexico. Siderar acquired 57.5% of Hylsamex, then paid $896.9 million to Mexico’s Grupo Alfa for the additional 42.5%. Finally, Alfa reports it took a dividend of $61 million and further $107 million for its minority stake in Venezuelan steelmaker Siderúrgica del Orinoco CA (Sidor.)

In 1998, Alfa and Siderar were co-investors in the privatization of Sidor. Ternium operates as Sidor in Argentina and Venezuela, now.

Ternium does not include the Latin American assets of Techint's global tubemaking organization, Tenaris.


Saturday, August 27, 2005

Retreat Mining Comes Under Scrutiny [BlackDiamond]

Retreat Coal Mining Comes Under Scrutiny
August 26, 2005

CUMBERLAND, Ky. - Layers of rock overhead rumble like thunder. Dirt and pebbles rain down. A rock fall is imminent. So what is a miner to do? "You run for your life," said Tim Miller, who toiled in Kentucky's mines for more than two decades.

People who work in underground coal mines know what it's like to have to scurry like gophers through the darkness to get away from falling rocks. Miners say that's part of the job, especially when it comes to digging coal from the very pillars that keep layers of rock from collapsing in on them.

Though it may seem strange to people outside the coal industry, generations of miners have been cutting away those pillars to increase coal production in a practice known as retreat mining. It's legal and considered standard procedure. But it has claimed the lives of 17 coal miners in the past seven years.

In Kentucky alone, four miners have been crushed in rock falls during retreat mining in the last 14 months.

"You're definitely playing Russian roulette," said Miller, now an organizer for the United Mine Workers of America, which spells out in its contract that members can withdraw from any section of mine they believe is unsafe. "You remove those pillars, the roof is coming down. It's inevitable."

Kentucky Gov. Ernie Fletcher has commissioned a study to look for ways to make retreat mining safer, an initiative he announced soon after two miners were killed in a rock fall three miles inside a mine near Cumberland, Ky. on Aug. 3.

Investigators said the mine roof gave way without warning in the Stillhouse Mining operation, burying the miners under a layer of rocks 20 feet wide, 20 feet long and 11 feet high. The body of Brandon Wilder, 23, was found within a few hours, but it took searchers more than three days to recover the body of 39-year-old Russell Cole.

About half of Kentucky's underground coal mines do retreat mining, said Bill Caylor, president of the Kentucky Coal Association, which supports a study of the procedure.

However, Caylor said he believes retreat mining, also known as pillaring, or secondary mining, is important because it allows companies to get more coal that they otherwise would.

In underground coal mining, crews first do what's called advance mining, digging into the mountain to remove coal that now sells for $50 to $60 a ton. In that process, about 30 to 40 percent of the coal is removed by cutting a maze of 20-foot-wide tunnels through it, said J. Steven Gardner, a Kentucky mining engineer. Coal pillars 25 to 100 feet across are left in place. The result is a network of tunnels that look like the map of a city of crisscrossing streets with coal pillars as the blocks in between.

When companies have advanced as far as possible, they begin retreat mining, so named because the miners are working toward the outside of the mine. In retreat mining, the companies usually remove another 20 percent of the coal from the pillars, though that percentage can be much higher if geology permits.

Terry Hock, chief of the roof control division of the federal Mine Safety and Health Administration, said coal companies may partially remove the pillars by mining through the middle of them. In some cases, they remove the entire pillars, leaving the mine ceiling unsupported.

State and federal regulatory agencies review every company's plan for retreat mining to make sure it's safe and workable. "They're scrutinized heavily," said Paris Charles, head of Kentucky's Office of Mine Safety and Licensing.

Retreat mining is almost exclusively a southern Appalachian practice, with 83 percent of the nation's retreat mining operations in eastern Kentucky, southwestern Virginia and southern West Virginia. Those three states account for the most retreat mining simply because they also account for most of the nation's underground coal mining activity.

They also account for the most deaths - 14 of the 17 fatalities during the last seven years.

Mine Safety and Health Administration deputy administrator John Langton said most of the miners killed during retreat mining were either setting up either posts or jacks to help hold up the mine ceiling or were operating the toothy machines that chew the coal loose from inside the mountains.

For now, the UMW President Cecil Roberts said the union has yet to take a position against retreat mining but supports Kentucky studying a practice he compared to "going under your house and taking the support beams out."

Butch Oldham, a UMW safety specialist in Madisonville, said retreat mining is inherently dangerous and is becoming more so as coal companies open mines in areas passed by in decades past because they were considered unstable.

"It can be safer than what it is, but even at its best, the roof conditions are getting worse," he said. "Whether it can be done safe enough to never have anyone killed, I'm kind of doubtful of that."

Friday, August 26, 2005

Steel overcapacity will fuel consolidation, says report

CBC News today has the following steel industry report

TORONTO (CP) - The need to cut overcapacity in the steel sector is expected to fuel more mergers and acquisitions, a report by accounting firm PricewaterhouseCoopers suggests.

The report released Thursday said there were 117 deals in the steel sector in 2004 worth $31.4 billion and the trend is expected to continue. James Forbes, global metals advisory leader for PwC, said the steel sector must continue to consolidate for competitive reasons.

"Greater market concentration will give individual steelmakers many more opportunities, such as increased bargaining power with suppliers and customers, and increased operating flexibility," Forbes said in a release.

"It will ultimately ensure they are better able to survive, should iron ore prices keep soaring." Iron ore is a key ingredient in steelmaking.

In April, Mittal Steel Co. became the world's No. 1 steelmaker after acquiring U.S.-based International Steel Group in a $4.5-billion US deal. The company, which is 88 per cent owned by the Mittal family, has steel-making facilities in 14 countries and about 180,000 employees.

Meanwhile, Canada's major steelmakers have been bucking the consolidation trend. This month, Sault Ste. Marie-based Algoma Steel (TSX:AGA) concluded a search for a buyer with no results. CEO Denis Turcotte said the company's search for a suitor coincided with a downturn in steel prices, leaving Algoma without any offers at a sufficiently attractive price.

Earlier this year, Hamilton-based Stelco Inc. (TSX:STE.A) rebuffed numerous takeover offers from suitors including Russian steel giant OAO Severstal. It has decided to forge ahead with a restructuring plan that will see it emerge from bankruptcy protection as a stand-alone company.

Thursday's report also suggested some of the larger steel producers may decide to buy their own iron ore or coal mines to hedge against price volatility in raw materials.

In June, Dofasco Inc., which sits next to Stelco in Hamilton, said it was paying $306 million for the two-thirds of Quebec Cartier Mining Co. it didn't already own.

Montreal-based Quebec Cartier operates an open-pit iron mine in Quebec's North Shore region and already locked in contracts for all of the iron ore it will produce this year and next.

PwC suggested the global aluminum sector is at a different stage of its evolution than steel, having already consolidated to a much greater extent than steel.

Forbes said the top five aluminum producers have nearly 40 per cent of the total market, double the share enjoyed by the top five steelmakers.

"These two key sectors of the metals industry are at quite different stages in their market development cycles, but both are likely to experience further buoyant levels of M&A activity over the next few years," he said.

Wednesday, August 24, 2005

Can India be the next China [MEPS]?

India is currently the world’s 8th largest steel producing country – with nearly 33 million tonnes of crude steel output in 2004 – and is increasingly being talked of as the next China. With a 12 percent increase in supply in the first half of this year, Indian steel production is growing strongly. Now the government is working on plans for a massive expansion. But, unless Indian demand also rises quickly, excess capacity will develop and put pressure on world markets.

The Indian government’s new National Steel Policy has not yet been approved, but steel minister Ram Vilas Paswan recently revealed its broad outlines to parliament. The chief goal is to increase steel production to 110 million tonnes by the 2019/20 financial year. This would mean tripling the current rate.

Because the government no longer regulates the steel sector, as it did until the early 1990s, it does not actively plan or implement steelworks expansions – other than at the state-owned companies. It now sees its role as facilitating growth by removing impediments and bottlenecks, particularly on the supply side of the industry.

So the new policy will include a series of measures designed to improve the availability of raw materials such as iron ore and coal. It will also encourage the creation of infrastructure such as the roads, railways and ports that will be required to support the steel industry’s growth.

Iron ore supply is a sensitive issue in India. The country has large reserves of high-grade material, but some of the mining, processing and transport facilities are inadequate. The government is expected to take steps to restrict exports in order to ensure a sufficient supply to the expanding domestic industry.

India is currently the world’s third largest iron ore exporting nation – behind Australia and Brazil – and local traders have been largely responsible for the development of a substantial spot market to cater for Chinese demand. This business may be curbed if the ore is needed to keep domestic mills supplied.

Coal is a different matter. India has large reserves of coal, but the quality is such that it needs to be blended with imports of high-grade coking coal to produce adequate blast furnace feed material. From time to time, a shortage of coking coal has constrained Indian steel production; hence the government is encouraging steel companies to secure supplies by investing in coal mines abroad. Tata Steel recently bought a stake in an Australian mine.

Many Indian steel makers already have plans to raise their production in line with the government’s target. State-owned enterprises, Sail and Vizag, propose adding a total of about 14 million tonnes of annual capacity by 2010/12. Tata Steel is raising output at its existing works from 5 million tonnes per year to 7.5 million tonnes per year and is also contemplating a new works of 5 million tonnes annual capacity. Many other private sector steel companies are implementing plans for multi-million-tonne expansions.

The government says it also wants to attract more foreign investment in steel. The biggest foreign-backed project so far is Posco’s intention to build a new plant in eastern India to take advantage of local iron ore. This unit will have an initial capacity of 3 million tonnes per year, rising eventually to 12 million tonnes annually. Among the other companies looking at investing in India is Mittal Steel, the world’s largest producer, which is domestically owned.

The government acknowledges India’s low per capita steel consumption – less than 30kg compared with the world average of about 150kg – and says it wants to stimulate growth in demand to improve the quality of life, especially in rural areas. So the new steel policy will include measures to strengthen distribution channels, to develop new steels suited to rural needs, and promote the use of the material generally.

India’s per capita steel consumption has increased by close to 50 percent in the last ten years. But a lot more will have to be done if it is to grow in line with production – as this means rising threefold in the next 15 years. India has China for a model, but it remains to be seen whether such large-scale advances in demand are achievable.

It is relatively straightforward to install new steelmaking capacity, but not easy to develop new markets to consume it. The clear danger is that India will build up a large additional steel producing potential without having a comensurate domestic market. The country could then become a significantly bigger exporter, with potentially disruptive consequences for steel markets in other regions of the world.

Source: MEPS International Steel Review

Tuesday, August 23, 2005

Posco - all about India's biggest FDI project

The following article about POSCO's proposed new steel industry investment appeared on www.rediff.com today. For original article, see here: http://www.rediff.com/money/2005/aug/23posco.htm

On June 22, 2005 Posco, the world's fifth largest steel maker, entered into a pact with the Orissa government for an eventual investment of $12 billion -- or Rs 52,000 crore -- for setting up a steel plant in the state.

It is single largest foreign direct investment in India, but little is known about Posco in India. So what is it? Read on...

Posco is Pohang Steel Company, the world's fifth largest steel company based in South Korea. On April 1, 1968, under the leadership of Tae Joon Park and 39 employees, Posco began life with hardly any capital or expertise. The grit and determination of the employees saw Posco scale new heights. In 1973, the first production line manufacturing 1.03 million tonne of crude steel was completed and Pohang Works -- with a 9.1 million tonne production line for crude steel -- was established in 1983, after four expansions.

Biggest FDI project in India? Posco signed an MoU for setting up a steel plant at Paradip in Orissa with a total investment of $12 billion (Rs 52,000 crore). It is the biggest foreign direct investment in India. The project will be completed in two phases. Each phase will consist of two modules of 3 tonne per annum. The first module is expected to be completed by June 2010. Thereafter, 3 million tonne capacity will be added every two years and the plant will reach its full capacity of 12 million tonne by 2016.

Who heads Posco now? Ku Taek Lee is Posco's chairman and chief executive officer. He began at the entry-level position in Posco and has now risen to lead the company. Lee joined the company in 1969. The 58-year-old chairman believes in innovation. According to him, companies that do not innovate have no future.

From scratch to success... The implementation of plans, the efficient facilities and the increase in productivity of crude steel pushed Posco to the top of the world's steel industry in 1998. In 1994, it was listed on the New York Stock Exchange. In 1995, the company was listed on the London Stock Exchange, even as it sought to expand its global reach. The company revamped business in 1999, improving production and sales. It received the ISO 9002 certification in 1999. Posco was privatised in 2000. From 2004, Posco has been evaluated as a top global company with corporate transparency and a sound financial structure. The company aims to increase its production to 50 million tonne by 2010 from its current level of 30 million tonne.

How will Posco go about this huge task? Posco plans to set up a company registered in India in August. The Indian company will set up the integrated steel plant and apply for the mining leases. After conducting detailed investigations and economic feasibility analyses, it will acquire land, finalise a rehabilitation and resettlement programme, and sign a final memorandum of agreement later this year.

Who will benefit from Posco? The project, which would start with a 3 million tonne capacity initially, would fetch revenue for the government to the tune of Rs 700 crore to Rs 800 crore (Rs 7-8 billion) annually. It would provide direct employment to 13,000 people and ensure indirect employment for another 35,000.

Why has Orissa become a hot spot for steel companies? In the last one-year, about 40 proposals for setting up steel plants in Orissa have come up. Orissa assures long-term reserves of high quality iron ore, surplus and cheap electricity and easy access to major steel consuming markets and raw material sources. With 3,567 million tonne of iron ore reserves, 26.50 per cent of India's reserves are in Orissa. The state has substantial reserves of other minerals which go into steel making, like coal -- 51,571 million tonne (24.37 per cent of the national deposit), dolomite -- 434 million tonne (10 per cent) and limestone -- 1,032 million tonne (1.36 per cent). Five major national and international players are pumping in Rs 95,400 crore (Rs 954 billion) to build 32.5 million tonne capacities in the state. The Australian BHP-Billiton, has tied up with Korean steel major Posco to invest Rs 39,000 crore (Rs 390 billion) for a 10 million tonne capacity plant.

Why is there an opposition to the Posco project? The Left Parties and the Orissa Gana Parishad allege that the government was acting against the state's interest by allowing Posco to export iron ore. But overruling objections from several opposition parties, the Orissa government went ahead to sign the deal in Bhubaneswar. Over 200 protestors were taken into custody by the police outside the state secretariat as they raised slogans against the signing of the memorandum of understanding. The protestors belonged to four opposition outfits -- CPI, CPI(M), Janata Dal(S) and OGP -- who had announced their decision to agitate against the deal alleging that it would allow the Korean company to export iron ore from Orissa.

Who will the Posco project adversely affect? Around 4,000 tribal families would be displaced as a result of the Posco project. The United States-based International Watch has planned a $5 million (about Rs 22 crore) Tribal Rehabilitation Fund to ensure proper rehabilitation of the tribals who would be displaced as a result of the Posco project in Orissa. The $5 million is the first instalment for the fund, and more money will be added as part of the rehabilitation. The fund will be used to provide micro-economic seed money to tribal entrepreneurs for setting up small businesses in connection with the Posco plant. International Watch will open an office in Bhubaneswar by August 25, 2005.

Saturday, August 20, 2005

Iron ore mining site in Indonesia for sale [iron_ore]

Dear Sirs,

We are looking for an iron ore mining site buyer with specification
as follows:

Iron (Fe) Total 65.74%
Iron trioxide (Fe2O3) 94.00%
Aluminium trioxide (Al2O3) 1.10%
Calcium oxide (CaO) 0.16%
Magnesium oxide (MgO) 0.06%
Manganese dioxide (MnO2) 0.37%
Chrome trioxide (Cr2O3) 0.09%
Sodium oxide (Na2O) 0.02%
Potasium oxide (K2O) 0.02%
Titanium dioxide (TiO2) 0.04%
Silicone dioxide (SiO2) 2.37%
Phosporus (P) 0.32%
Sulfur (S) 0.021%

Deposit is 107.037.000 mt.
Wide is 10.000 hectares.
Distance to port is 180 km. with ex logging road.
Location is central Kalimantan, Indonesia.

Serious buyer, please feel free to contact us if you have any

Best regards,
PT. Transmill
Surabaya, Indonesia
Tel/fax +62 31 5350722
MSN messenger: transmill@hotmail.com

New PA Coke Plant In Jeopardy [BlackDiamond]

Market, environmental appeal raise questions for coke plant

EBENSBURG, PA - Plans for a high-tech coal-to-coke plant near Ebensburg are on the fence because of an environmental appeal and a fluctuating international market.

But state officials remain confident that the massive project, expected to create 750 jobs, is still a "go."

The state's highest-ranking environmental official expressed concerns during a Tribune-Democrat interview Thursday that a drop in coke prices is causing project backers to re-evaluate their plans.

Kathleen McGinty, secretary of the state Department of Environmental Protection, said Gov. Ed Rendell is personally involved in trying to ensure the coke plant does come to Cambria County. "The governor has been very strongly encouraging and calling the president of Mittal Steel to try to secure from him a commitment," she said.

However, state officials have been informed of Mittal's "intention to review all of the proposed investments that were under way under ISG's ownership," McGinty said.

Industry insiders say softening coke prices are not the main factor because that market typically fluctuates.

Instead, they say, the recent environmental challenge to DEP's permit for the coke plant is chilling Mittal Steel's plans for the facility, to be operated by a division of Sunoco. If the challenge cannot be resolved, or if the cost is too high, Mittal most likely will build the coke plant in Poland, insiders predict.

Economic-development officials in the region are holding their breath and hoping the project is not in jeopardy. "Mittal is looking at the site plan, the cost of coke, where they can sell it to. And then when they get glitches in the permitting process, time and money become the huge issues," said Ron Repak, executive director of the Johnstown Redevelopment Authority. "Mittal is saying now that we don't have a permit, we have to go through this whole long, costly process again," he said.

"But the governor has stepped forth and made substantial offers of assistance to the project. He's written to Mittal, and maybe even made calls," Repak said, echoing McGinty's assessment.
"He wants this project in Cambria County," he said.

When plans for the coke plant were announced early this year, there were three players:

- Amfire Coal Mining Co. in Latrobe, which will mine coal in Cresson Township.
- SunCoke Co., a division of Sunoco, which will build and operate a new 280-oven coke plant at Mine 33 south of Ebensburg.
- International Steel Group of Cleveland, which purchased Bethlehem Steel Corp.'s reserves, and was in the process of merging with Mittal Steel, an international conglomerate with operations in 14 countries on four continents.

Since then, two things have happened. PennFutures, a well-financed environmental activist group based in Harrisburg, has filed a legal challenge to the DEP permit, asking for stricter emissions controls and other modifications. And the merger of ISG and Mittal has been consummated, and Mittal is reviewing and evaluating its new assets and commitments.

Mittal and SunCoke officials declined to comment on the status of the project, or the appeal, saying they cannot discuss any matters under litigation.

Those close to the negotiations say Mittal might be holding back on a commitment to Rendell as an attempt to drive up the state's subsidy for the project, and to take a strong stance in the face of PennFuture's legal challenge.

Coke prices are the least important factor, because the plant would be a long-term financial commitment on the part of Mittal, SunCoke and Amfire, they said.

Until the appeal is settled, Mittal is not going to make a decision and, with the appeal pending, the plant cannot be built, company officials have said.

"This gives Mittal time to investigate their options and see what they want to do," said an industry expert who spoke on condition of anonymity because of the pending litigation.
"They are a worldwide steel company, with lots of options."

In addition to getting more time, some say Mittal could use the delay as a tactic in receiving financial incentives above the $3 million first committed by the Rendell administration to ISG.
Also, the recently passed federal energy bill will give a tax break to facilities such as the coke plant, they say.

If it is built, the massive facility would be capable of producing in excess of 1.5 million tons of coke per year, which would be sold to Mattel.

Steam generated as a byproduct would be converted to electricity at a 125-megawatt power plant, also to be built near Mine 33. Construction would take two years, SunCoke officials have said.

Monday, August 15, 2005

Iron ore and coking coal prices to fall globally [steel_n_ores]

Iron ore, coking coal prices to fall globally

15 Aug 2005, Monday

Consultancy firm Goldman Sachs JBWere (GSJ) has recently forecast
that iron ore and coking coal sold under term contracts will go on a
downward spiral, adding that a downturn in the global steel market
and increasing supplies will see prices decline from peak levels
reached this year. Global iron ore and coking coal prices are
expected to fall 10 per cent and 12 per cent, respectively.

According to GSJ, a 10 per cent decline in prices of iron ore fines
sold under contract over the Japanese 2006-07 was likely. The report
also said GSJ now expected the benchmark price for coking coal to be
$110 per tonne, 12 per cent below the current benchmark. The previous
forecast was for no change.

It also forecast that seaborne iron ore trade in 2005 will be at 641 mt, based on a rise in Chinese imports by 23 per cent to 255 mt and a
fall in trade with the rest of the world by 1.5 per cent to 386 mt.
It also estimated that Australia and Brazil would supply at least an
additional 15 mt each this year, leaving a shortfall of about 10 mt
that needs to come from other suppliers to balance the market.
Goldman Sachs said Indian exports to China rose by almost 40 per cent
during the first four months of this year but the recent lack of
activity in the spot market and decline in Indian spot prices suggest
a slowdown in Indian shipments as the year progresses. "Our base case
assumption is that the seaborne market will be closely balanced this
year but will tend towards modest oversupply in 2006 as capacity
expansions in Australia and Brazil reach fruition," it said. Goldman Sachs' analysis of iron ore capacity expansions implies a net
addition to export supply of just over 50 mt a year between 2005 and
2007 which slightly exceeds its demand growth forecasts.

The firm said the same demand issues apply to the coking coal market
but it believes the seaborne market for hard coking coal will remain
exceptionally tight for at least the next two years. Its revised
price forecasts imply an annual average price of $108/ t for the
three year period 2005-06 to 2007-08, which is 80 per cent above its
long term price assumption of $60 and more than double the 10 year
average price before this year's massive price rise.

Thursday, August 11, 2005

Steel sourcing from Ukraine


Please be advised that I am based in Ukraine and have the possibility
to source various steel products for export. I am ready to discuss with
potential partners or clients who are willing to purchase steel from
the Ukraine and are able to raise letters of credit and other financial

Kindly contact me for further discussions and probable agreement.

Yours faithfully

E-mail: divine@skif.com.ua

Wednesday, August 10, 2005

Mittal Steel Press Release

News Release: Mittal Steel Company NV reports second quarter and half year results 2005

For more Information go to:

Saturday, August 06, 2005

Met coal contract negotiations strained [BlackDiamond]

Buyers steel for metallurgical coal negotiations
By Zachary Howard, NEW YORK, Aug 4 (Reuters)

Talks between coal companies and steel producers could become strained this year if sides stayed far apart on views about prices of a key product used in steelmaking, analysts said on Thursday.

Some buyers are already negotiating with sellers of the substance -- metallurgical coal, or met coal -- with the hope of striking a deal ahead of the customary "mating season" closer to the fourth quarter.

Met coal, or coking coal, is used to fire blast furnaces at steel plants.

Jim Thompson, editor of the Coal & Energy Price Report, said tensions may rise in this year's discussion, after met coal and steel prices exploded higher last year amid phenomenal demand from international steel companies.

"It's early stages yet, but I think it's likely to be difficult and lengthy negotiations," he said. "Suppliers are reluctant to give up those gains that they've made, and steel prices, while they've slumped a little bit, still are high historically."

Enthusiasm this year for humble met coal is due to the current boom in steelmaking, which was fueled in part by red-hot industrial expansion in China and India.

Players are especially keen to see what kind of a tack Mittal Steel will take in discussions. The company became the No. 1 global steel maker following its $4.5 billion purchase of International Steel Group. "It sounds like, from the way suppliers are complaining, that Mittal will take a pretty tough stance," said Thompson. "People are wary of them because they are a big market power and are somewhat of an unknown at this point."

In a met coal deal announced on Tuesday, Canada's Elk Valley Coal finalized 10-year sales pacts with producers Nippon Steel Corp. and POSCO of South Korea. The agreement calls for a total of 4.85 million metric tons per year of met coal for 2005, rising to 6.25 million tonnes per year for the 2007 coal year onward. Terms were not disclosed.

Analysts said customers this year hope to secure deals for "low-vol" met coal, the rarest and priciest type, at $70 to $80 per ton, while sellers are seeking at least $80 to 90 per ton.

Last year, sides reportedly shook hands at about the $80 per short ton level domestically and at the mid-$90's per ton mark internationally. Market sources said U.S. coal producer Peabody Energy Corp. has made a two-year supply deal with a domestic steel company at levels near last year's low-$70's per ton level. Ian Synnott, an analyst at Natexis Bleichroeder Inc., said the Elk Valley and Peabody news was encouraging in that some steel companies wanted to sign long-term deals right now. "You may see met coal data looking a little stronger than people expected this year," he said. "The steel industry had to work through some excess supply, but you haven't really seen a collapse in prices there." Alpha Natural Resources Inc. said Thursday the market for poorer-quality met coal may weaken and prices slip in the short-term, but demand and prices for higher-quality met coal should remain firm due to supply constraints. Longer-term, prospects are more promising, it said, with 10 million to 15 million tons of new or rebuilt coke oven capacity seen coming on stream in 2006 to consume met coal.

A few kinks have developed in the coal supply chain this year, and experts said that output and transportation problems are likely to remain commonplace in the industry. For example Australia, the biggest met coal producer, has plenty of product, but its terminal space at many locations remains inadequate to handle shipping volumes. In the United States, Consol Energy Inc.'s Buchanan mine halted production at its Virginia pit for four months due to a fire before operations reopened in June. A Walter Industries Inc. U.S. coal mine is expected to stay shut for this year due to operational problems, losing around a half-million tons of met coal output, analysts said.

Coal Producer Massey Energy Co. said last week that rail service delays and disruptions and less underground mining have been to blame for reducing some coal shipments. Massey expects to ship 10 million to 11 million tons of met coal this year.

Friday, August 05, 2005

Steel Restructuring and State Aid - or when $1 billion doesn't matter any more

The European Commission warned the Polish and Czech steel sector authorities this week that their biggest steelmakers might be forced to repay past government subsidies if the steel companies did not become viable by December 2006. The amounts of money involved in this restructuring were huge: according to recent EU Accession Agreements (the 'Accession Protocols'), total State Aid involved in the restructuring of the Polish steel sector amounted to PLN 3.4 billion (~US $1.03 billion at present exchange rates). In the Czech Republic, this Aid was CZK 14.1 billion (roughly US $582 million at current exchange rates). To read more about this week's warnings from Europe's Commissioners, see here.

Accession Agreements signed just before the Poles and the Czechs joined the European Union on 1st May 2004 stipulated both the requirement for their leading steelmakers to achieve viability by end-2006, and other conditions centred on modernisation and capacity closure. In Slovakia, which breached similar EU agreements concerning steel sector restructuring (ignoring steel production caps that were in place for 2002 and 2003), the new owner US Steel was forced to pay over US $70 million in fines in 2004. As a result of that 2004 ruling, there seems to be little doubt as to whether the European Commission will enforce future fines.

The magnitude of Polish and Czech State Aid support of course completely overshadows the 2004 fines imposed in Slovakia. In aggregate this Aid amounts to approx US $1.6 billion which is some 20 times larger than the repayments imposed on US Steel. With ownership of the Polish and Czech steel industries now largely in the hands of Mittal Steel, if there are any question marks over the future viability of these businesses, then I know what I'd be worried about as a shareholder ...

But maybe when you get that big, or when you sit in Government, the odd $1 billion here or there just doesn't matter any more?


Where are steel prices headed ?

I am highly confused about the steel price trend. Some day a news comes
that prices increase due to reduction in inventories & lower production
and other day news comes that due to new capacity build up the prices
are expected to go down over the next 12 month. Can any one help me out to decide on the trend over the next 12 months?

Thanks and Regards,

Sachin Garg
Research Analyst,
Irevna Research Services Pvt. Ltd. Chennai.
Ph.: 9380007985