Thursday, September 28, 2006

Iron ore price increases in 2007

Industry reports are starting to circulate about iron prices increasing yet again in 2007. According to a Reuters report, a key pressure for this will be China's continuing strong economic growth, which according to Vallourec will lift prices of both ferrous scrap and iron ore as key steelmaking raw materials.

The pace of Chinese growth is also exerting upward price pressure on other commodities, including other metals (e.g. Nickel) oil and gas. Vallourec however expects these changes to largely benefit the firm. Vallourec sells a large proportion of its products to the oil and gas industries, and is also planning on construction of a new threading plant for tubing and casing in the eastern Chinese city of Changzhou.

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Wednesday, September 27, 2006

2006 sheet steel prices have peaked

Purchasing Magazine reports that 2006 flat rolled steel prices may have peaked in North America, and are on their way down. Downward price corrections are to be expected according to Global Steel Consultants' Mike Mytton, because of a general weakening in US manufacturing. Global Steel Consultants also consider that steel prices are now on a decline, because of the growing oversupply situation in China.

'Few people would ever have thought that hot rolled prices would even get as high as they did this summer, when prices hit the $630/ton range' says Mytton. The decline to ~$600/ton today thus comes as no surprise.

Friday, September 22, 2006

POSCO steelmaking acquisition?

We reported in our blog on 13th August that POSCO may be contemplating an acquisition in the shipbuilding sector. Although this idea is apparently not yet dismissed, industry press comments now also centre on POSCO making a steelmaking acquisition.

'In line with the M&A trend in the global steel industry, we are thinking of embarking on overseas M&As' Posco Chief Executive Lee Ku-taek was quoted as saying, according to Edge Daily.

'We're looking at a steel maker in Asia including China. We are closely studying a specific target and timing' say the industry reports.

Expansion and company growth thus seem firmly on the agenda of the South Korean steelmaker.

Wednesday, September 20, 2006

Spot Prices Weigh on Coal Producers [BlackDiamond]

Spot Prices Weigh on Coal Producers
Tuesday September 19
By James Amend, AP Business Writer

NEW YORK (AP) -- Spot coal prices have plummeted over the last 12 months and shares of most coal producers have gone along for the ride, but overall pricing in the industry is surprisingly robust.

Until this summer, spot coal prices, or the price a customer might pay in a one-time transaction for immediate delivery, were riding high. According to the latest figures available from the government's Energy Information Administration, a ton of Central Appalachian coal on the spot market finished last week at $49.90. That's more 12.5 percent off the $57 coal brought a year ago and 20 percent off the $62.25 it went for in January 2005.

Fred Freme, a researcher at the administration, noted that 2005 was a bit of an anomaly.

"It was a challenging year for the coal industry," he said.

Two train derailments out of the expansive Powder River Basin in Wyoming in May of 2005 curtailed scheduled deliveries of western coal and drove up demand on the spot market, particularly from big utilities, for eastern varieties. In fact, some lawsuits by utilities arguing that some producers diverted a portion of their supplies from contract to spot to fatten profits are still being heard.

Demand for spot market coal from emerging nations, especially China, also rose in 2005 and hurricane activity slowed production of coal's chief rival, natural gas. In addition, coke plant consumption of coal was higher last year and so were exports of metallurgic coal for use by overseas steel manufacturers.

"It all combined to create a sort of mass hysteria and demand may or may not have been as high as people thought," Freme said.

Now inventories at utilities are definitely swollen and coal producers are paying the price. According to the latest figures available from the Department of Energy, June inventories at utilities stood at a reasonably comfortable 46 days supply. That compares to 30 days supply a year ago.

Overall, according to David M. Khani, an analyst at Friedman, Billings, Ramsey & Co., the market is oversupplied by about 20 million tons.

Meanwhile, shares of coal producers like Peabody Energy Corp. and Arch Coal Inc. are hovering near 52-week lows. Since hitting 52-week highs on May 11, shares of Peabody Energy and Arch Coal have each shed about 50 percent. And companies like Massey Energy, Alpha Natural Resources and Consol Energy are trimming production with hopes removing some 2.2 million tons from the market in the coming months.

Spot coal prices, however, account for only 6 percent to 8 percent of the industry's sales. The remainder of annual sales, or about 80 percent, are on contracts that are negotiated on mostly an annual basis. A look at delivery prices, which combines spot prices and contract prices, reveals that the price paid for a ton of coal is on the rise.

In the first four months of 2004, the average delivery price stood at $26.72, according to government figures. Over the same period in 2005 it rose to $30.25 and in the first five months of 2006 it reached $34.35. The price increases figure in factors like rising production costs, new safety requirements and fuel surcharges levied by the railroads that transport the coal.

But Ann Kohler, an analyst at Caris & Co., said delivery prices aren't an accurate pricing gauge. That's because contracts are negotiated year-to-year and as those based on cheaper coal rates expire, contracts with newer, more expensive rates are signed. And the starting point for negotiations between coal producers and their customers is typically the present spot rate.

Kohler also warned that trimming production by a couple million tons in the coming months probably won't spur greater demand since the industry produces more than 1.1 billion tons annually.

"What coal stocks need in the near term is a cold winter and economic strength," she said.

Saturday, September 16, 2006

Russian steel firms seek foreign acquisitions

Press reports are circulating about Russian steel firms seeking further steel sector acquisitions abroad. The reports [e.g. Asia News] suggest that it is Evraz Holdings and Novolipetsk Steel [NLMK] that are especially keen on expansion in this way, and that the geography of greatest interest is the USA.

Foreign acquisitions have of course been an important element in the expansion plans of a number of ex-Soviet steel companies lately - particularly those under the control of some of the Russian steel oligarchs. Recent examples include Severstal, which bought bankrupt US steelmaker Rouge Industries for $254m in 2004 and then also acquired Italian steel producer Lucchini for Euro 430m; Evraz Holdings, which recently took over Italy's Palini e Bertoli and the Czech Republic's Vitkovice Steel; Novolipetsk which acquired Dansteel in Denmark; and the Donbass Industrial Union in the Ukraine which in late 2003 won control over Hungary's Dunaferr.

Vertical integration has also been a common aspect touching on CIS steel sector ownership changes in recent years. In Kazakhstan, upstream integration included Mittal Steel's mid-1990s purchase of the Lisakovsky Mining and Beneficiation Plant and of Atasusky GOK, both of which now supply Mittals Termitau plant. In the Ukraine, as part of Mittal Steel's end-2005 successful bid in the repeated sale of Kryvorozhstal, Mittal acquired majority ownership of the Novokrivorozhsky GOK and Artem iron ore mines. In Russia, Alisher Usmanov and partners (including Urals Steel) through Metalloinvest, took control of the Mikhailovsk iron ore mine in the late 1990s, followed later by ownership of Lebedinsky GOK, the largest Russian iron ore mine.

So in total, there is actually an awful lot that has already been happening at corporate level in the CIS steel sector. Whether as buyers or as targets, firms in Russia and the Ukraine are appearing 'on the M&A map' more and more, so we should not really be too surprised at the more recent revelations. Watch this space ...

Sunday, September 10, 2006

Steel message board membership exceeds 1000 level

The Yahoo! steelonthenet steel message board offer members the ability to post company notices and announcements to all members. Launched in December 2004, the forum has grown steadily - and this week, membership broke through the 1000 level.

Members may, at no cost, post commercial enquiries for a much wider audience to see. Notices typically relate to buy or sell offers, to industry events (e.g. exhibitions, conferences) and to general steel industry enquiries.

To join the group for free, or simply to see the messages from this international group - on any steel related subject - visit

Kind regards.

Dr Andrzej M Kotas
Group Moderator

Thursday, September 07, 2006

Comment: Steel industry facing skilled workers shortage

The steel sector in Islamabad is going through a phase of stern shortage of skilled pool of manpower. 'It will take a long time to meet the demands of the local industry' Engineering Development Board (EDB) CEO Imtiaz Rastgar said in a meeting with the founding members of the Pakistan Iron and Steel Institute (PIASI). Imtiaz also added that the board would support the development of the steel industry in the country and its linkages with world supply chain.

The PIAS is being established in coordination with public private partnership and each founding member contributed Rs. 1 million. The government also announced a grant.

Federal Minister for Industries, Production and Special Initiatives Jehangir Khan Tareen urged the industry at a workshop in Aug 2005 to develop a world class steel research and development institute. The 10 founding members of the institute are Ilyas Aziz Malik, Director FSL Group of companies, M. Ishaq Paracha, Managing Director, Al Hamza Ship Breaking Company, Mirza Muhammad Yusuf Baig, Chairman, IFC Group of companies, Mian Muhammad Javed Shafi, Chairman, Al-Shafi Steel, Shaban Khalid, Director Ittehad Steel, Muhammad Ismail Ibrahim, Director, Star Cotton Corp., Mian Muhammad Aslam Fareed, MD, Pak Steel, Re-rolling Mills, M.M. Abdullah, Director, Magna Steel, Javed Iqbal Mughal, Chairman, Mughal Steel and Abbas Ali, Director, Amreli Steel.


Seeing the shortage of labor in the steel industry, EDB has decided to take some measures regarding improvement in country's steel industry and a grant for the same has also been announced. The development of steel research and development institute is also being considered with Ilyas Aziz Malik, Director FSL Group of companies, M. Ishaq Paracha, Managing Director among the list 10 founding members.

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