Structure of the report

Steelmaking raw materials: market and policy developments DSTI/SU/SC(2012)1 72 nd Steel Committee Meeting Paris 31 May-1 June 2012 Structure of the report A. Market issues 1. Importance of raw materials for steel 2. Production and resources of key raw materials 3. Trade in raw materials 4. Price and market developments 5. How companies are addressing the challenge B. Government policies 1. Mineral policy trends 2. Examples of raw material policies 3. Export restrictions 1

Raw materials availability challenge Strong increases in demand for raw materials driven by steelmaking capacity increase from 1,079 mmt in 2000 to 1,963 mmt in 2011 (+82%) Iron ore demand went up from 954 mmt to 1,805 mmt (+89%) between 2000 and 2010 Coking coal demand rose from 475 mmt to 880 mmt (+85%) between 2000 and 2010. More limited increase in ferrous scrap demand, from 367 mmt to 560 mmt (52%) from 2000-2010, as capacity expansion centered in the iron ore/coking coal intensive BF/BOF production process. Raw materials availability challenge Supply side response lagged: The surge in demand was unexpected 5-10 years to bring a mine into operation, but mining investments are now increasing rapidly Significant imbalances in markets As competition for raw materials increased, so did the number of policy measures to restrict the export of raw materials in some resource-rich economies. Significant increases in raw material prices and concerns about supply availability 2

Steelmaking raw material prices 900 800 700 600 Scrap(USA) Iron ore(contract) Coking coal(contract) Steelmaking Raw Material Prices Quarterly Indices, 2004=100 500 400 300 200 100 0 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1 2010Q1 2011Q1 2012Q1 Supply availability issues are important for steel Huge requirements of raw materials by the steel industry (more than 3,000 mmt/year) One tonne of steel produced in a BOF requires: 1.6 tonnes of iron ore, 0.6 tonnes of coking coal and 0.21 tonnes of steel scrap A tonne of steel produced via EAF requires: 0.85 tonnes of steel scrap, and some combination of liquid hot metal and steel scrap supplements amounting to approximately 0.31 tonnes High share of intermediate inputs in the steel industry s gross output 80% High trade dependency amongst steel-producing countries for raw materials => The steel industry dependent on wellfunctioning and open markets for raw materials 3

Reactions of steel industry stakeholders to the challenges Miners are now investing heavily Capital expenditures in mining near record highs New supplies of iron ore will emerge in Oceania, Latin America and Africa Coal projects in North America and Australia Steelmakers are reacting by: Investing upstream into raw materials; Increased efficiency in raw materials use and substitution; Establishing stronger relationships with suppliers. Policy makers: Many economies, who used to rely on low-cost resources from abroad, are adopting new strategies focused on raising their own sources of supply, securing access from abroad, and an increased focus on recycling Some resource-rich economies also focusing on maintaining their own stocks of raw materials and greater access from abroad, as well as measures to restrict exports in some instances. Export restrictions on steel raw materials Recent developments related to export restrictions over the past several months: Iron ore: In India, tax on exports of lump and fines were raised to 30% in Dec.2011. Coke: China s export quota on coke, was lowered to 4.24 mmt for the first half of 2012 from 4.6 mmt allowed for the first half of 2011. Scrap: planned export arrangements which may effectively lead to reduced exports from St. Petersburg and far east Russia. 4

Price and market developments 550 500 450 400 350 300 250 200 150 Iron Ore(Fe63.5%) IN CIF China $/MT Prime Coking Coal CH CIF U$/MT Aust Scrap / HMS 1/2 80:20 / Turkey import CFR Turkish port $/t 100 Sources: Datastream, SBB Share of global mining 70 60 50 40 30 20 10 0 1850 1870 1890 1910 1930 1950 1970 1990 2010 2030 Europe USA China USSR/CIS Australia/Canada 6 resource rich developing countries Source: RMG 5

Iron ore Iron ore production and reserves* by country, 2010 Million metric tonnes Rank Economy Production 1 Australia 432.8 2 Brazil 375.0 3 China 315.4 4 India 212.0 5 Russia 101.0 Rest of the world 390.9 Total world 1,827.1 Rank Economy Reserves* 1 Australia 17,000 2 Brazil 16,000 3 Russia 14,000 4 China 7,200 5 India 4,500 Rest of the world 21,300 Total world 80,000 Note: * Reserves in terms of iron content. Sources: UNCTAD and USGS. Coking coal Coking coal production and reserves*, 2010 Million metric tonnes Rank Economy Production 1 China 454.8 2 Australia 152.1 3 Russia 71.1 4 United States 68.6 5 India 35.4 Rest of the world 109.1 Total world 891.1 Rank Economy Reserves 1 United States 108,501 2 China 62,200 3 Russia 49,088 4 India 56,100 5 Australia 37,100 Rest of the world 91.773 Total world 404,762 * Proved reserves of anthracite and bituminous coal. Coking coals are premium-grade bituminous coals Sources: IEA (2011) and BP Statistical Review of World Energy. 6

Ferrous scrap Steel scrap generation, 2010 Million metric tonnes Rank Economy Generation Generation 2010/09, 2010 2009 2010 % change 1 China 65.2 92.9 42.5 1 EU 27 90.0 92.9 3.2 3 United States 62.0 75.1 21.1 4 Japan 38.9 43.9 12.9 5 Korea 18.1 20.5 13.3 n.a. Russia 23.3 n.a. n.a. Rest of the world 77.6 n.a. n.a. World total 375.1 n.a. n.a. Source: Japanese Ferrous Raw Materials Association. Iron ore Iron ore exports and imports, 2010 Million metric tonnes Rank Economy Exports 1 Australia 402.9 2 Brazil 310.9 3 India 95.9 4 South Africa 48.0 5 Ukraine 32.6 Rest of world 180.3 World total 1070.7 Rank Economy Imports 1 China 618.6 2 Europe 134.4 3 Japan 134.3 4 Korea 56.3 5 Chinese Taipei 18.9 Rest of world 90.4 World total 1052.9 Source: UNCTAD. 7

Coking coal Coking coal exports and imports, 2010 Million metric tonnes Rank Economy Exports 1 Australia 154.5 2 US 50.9 3 Canada 27.5 4 Russia 13.7 5 Mongolia 10.9 Rest of the world 13.4 World total 270.9 Rank Economy Imports 1 Japan 57.7 2 China 48.4 3 India 30.4 4 Korea 27.7 5 Brazil 12.5 Rest of the world 79.5 World total 256.2 Source: IEA. Ferrous scrap Ferrous scrap exports and imports including intra-eu trade, 2010 Million metric tonnes Rank Economy Exports 1 United States 20.6 2 Germany 9.2 3 United Kingdom 7.5 4 Japan 6.5 5 Russia 2.4 Rest of the world 55.9 World total 102.1 Rank Economy Imports 1 Turkey 19.2 2 Korea 8.1 3 China 5.9 4 Spain 5.7 5 Germany 5.6 Rest of the world 73.2 World total 117.7 Source: World Steel Association 8

Trade in raw materials: interdependency China is the world s largest producer of iron ore and a significant exporter of coke, but still depends on imports of iron ore from Australia, Brazil and India, coking coal from Australia, and ferrous scrap from the United States. Brazil and India are large exporters of iron ore, but lack sufficient domestic coking coal resources. The European Union and Japan are global scrap exporters, but rely on imports of iron ore and coking coal from Australia, Brazil and the United States. The United States and Canada, for example, both import and export significant volumes of iron ore. Production/resources of steel RM Mining activity increasingly difficult, due to: Distance between mines and demand Location in more extreme climates Non-existent or weak infrastructure Deposits often in regions that are politically unstable Deposits being found at deeper levels More complex chemical and mineralogical composition of the mined ores is getting Longer process for permits Bottlenecks (lack of trained staff, suppliers lead time) 9

Production/resources of steel RM Raw materials are not scarce in the physical sense. Reserves of most steelmaking raw materials are sufficient to ensure tens of years of supply at current production rates. Should raw materials become in short supply, higher prices would encourage the increase of reserves. But, their extraction is not always desirable, e.g. for environmental reasons. But market factors and restrictive policies can cause significant supply disturbances for steelmakers in the short term. Miners answers to the RM challenge Iron ore new supply forecasts by company Million tonnes per annum Source: Presentation by Dr. Neil Bristow, OECD Workshop on Steelmaking Raw Materials, December 2011, based on data from Macquarie Research, company announcements, H&W Worldwide Consulting. 10

Miners answers to the RM challenge Mining capital expenditure, USD billion Source: Raw Materials Group (2012). Miners answers to the RM challenge Mining capital expenditure by region, 2010 Source: Raw Materials Group (2012). 11

Miners answers to the RM challenge Ten largest iron ore projects # Name Country Status (current mine/ deposit status) Type Controlled by (short) Mine capacity (Mt/yr) Ore resources (Mt) Ore reserves (Mt) 1 Vale Northern System (Carajas) Iron Ore Mines Brazil Operating, exp/constr OP Vale 130.0 7260.000 7260.000 2 Simandou Iron Ore Deposit Guinea Prefeasibility OP Rio Tinto plc 70.0 2254.000 3 Chichester Range Iron Ore Mines Australia Operating, exp/feasib OP FMG 55.0 2839.000 1540.000 4 Gusevogorskoye Vanadium/Iron Ore Mine Russia Operating, exp/plans OP Evraz Group 50.0 3000.000 2704.724 5 Valentines Iron Ore Deposit Uruguay Prefeasibility OP Zamin 50.0 603.000 6 Yandi Iron Ore Mine Australia Operating, exp/feasib OP BHP Billiton Gr 45.0 5038.000 940.000 7 Area C Iron Ore Mine Australia Operating, exp/feasib OP BHP Billiton Gr 42.0 5516.000 760.000 8 Mbalam Iron Ore Deposit Cameroon Feasibility OP Sundance Res 35.0 521.700 9 Prioskolskoye Iron Ore Deposit Russia Conceptual OP MMK OJSC, Ural 35.0 2100.000 2145.000 10 Belinga Iron Ore Deposit Gabon Conceptual State of Gabon 30.0 1000.000 Notes: OP denotes open pit mine, exp/feasib denotes expansion feasibility, and exp/plans denote expansion plans. Source: Raw Materials Group (2012). Miners answers to the RM challenge # Name Country Status (current mine/ deposit status) Ten largest coal projects Type Controlled by (short) Resources Reserves (Mt) (Mt) Cap Mt/yr Expected annual ROM (Mt) 1 Bogatyr Coal Mine Kazakhstan Operating, exp/plans OP Rusal, Samruk Holding for Management of State Assets JSC 4500.00 2525.00 60.0 38.0 2 Carmichael Coal Deposit Australia Prefeasibility OP,UG Adani 7800.00 60.0 3 China First Coal Deposit Australia Conceptual OP,UG Clive Palmer 3684.00 1105.00 40.0 4 School Creek Coal Mine USA Conceptual OP Peabody 725.00 725.00 36.0 5 Cerrejon Coal Mine Colombia Operating, exp/feasib OP Anglo American, BHP Billiton Gr, Glencore 1835.60 723.10 32.0 6 Alpha (Hancock) Coal Deposit Australia Feasibility OP Hancock Prospect 3600.00 30.0 7 East Kutai Coal Deposit Indonesia Feasibility OP Churchill Mining 2730.00 961.00 30.0 8 Kevin's Corner (Hancock) Coal Deposit Australia Feasibility OP,UG Hancock Prospect 4300.00 30.0 9 Gevra Coal Mine India Operating, exp/feasib OP Coal India 2400.00 1400.00 25.0 25.0 10 Mount Arthur Coal Mine Australia Operating, exp/constr OP,UG BHP Billiton Gr 23.0 Notes: OP denotes open pit mine, UG denotes underground mine, exp/feasib denotes expansion feasibility, and exp/plans denote expansion plans. Source: Raw Materials Group (2012). 12

The Africa Mining Vision Africa s overall share of global mining production remains relatively small. Africa holds some of the largest untapped reserves of global minerals. The African Mining Vision for mineral resource development was adopted at the first African Union Conference for African ministers responsible for mineral resource development in October 2008. The main aim of the vision is to utilise the continent s mineral resources to meet the Millennium Development Goals and achieve rapid and wide ranging economic and social development The Africa Mining Vision s Action Plan Cluster Focus Goal 1 Mining revenues and mineral rents management To create a sustainable and well-governed mining sector that effectively garners and deploys resource rents. 2 Geological and mining information systems To develop a comprehensive knowledge of Africa s mineral endowment. 3 Building human and institutional capacities To create a mining sector that is knowledge driven and is the engine of an internationally competitive African industrial economy. 4 Artisanal and small scale mining To create a mining sector that harnesses the potential of artisanal and small scale mining to advance integrated and sustainable rural socio-economic development. 5 Mineral sector governance To create a sustainable and well-governed mining sector that is inclusive and appreciated by all stakeholders including surrounding communities. 6 Research and development To create a knowledge driven mining sector that is a key component of a diversified, vibrant and globally competitive industrialising African economy. 7 Environmental and social issues To create a mining sector that is environmentally friendly, socially responsible and appreciated by all stakeholders and surrounding communities. 8 Linkages and diversification To create a mining sector that catalyses and contributes to broad-based growth and development through upstream, downstream, side-stream and infrastructure linkages. 9 Mobilising mining and infrastructure investment To increase the level of investment flows into mining and infrastructure projects to support broad socio-economic development. The 2 nd annual African Union Conference of Ministers Responsible for Mineral Resources Development in December 2011 13

Impacts of export restrictions Export restrictions distort prices for traded raw materials leading to higher international and lower domestic prices of the taxed commodity. Negative net outcome for the industry even in countries that apply the restrictions. As a number of countries impose export restrictions simultaneously across a variety of raw materials As most steel-producing economies are dependent on imports of at least some of these raw materials Steelmakers answers to RM challenge Source: Presentation by Dr. Neil Bristow, OECD Workshop on Steelmaking Raw Materials, December 2011, based on data from Macquarie Research, and H&W Worldwide Consulting. 14