Thursday, October 15, 2009

Low Inventories Fuel Steel, Coke Demand

With the global steel industry rebounding after a disastrous nine months, depleted inventories need to be replenished, which should bode well in 2010 for steelmakers and coal, coke and iron ore suppliers, industry experts said Wednesday.

Predictions by the World Steel Association indicate that the steel industry will have a healthy 2010, U.S. Steel Corp. CEO John Surma said at the Met Coke World Summit at the Pittsburgh Hilton Hotel, Downtown. The trade association anticipates global steel demand will grow next year by about 9 percent to the level of 2008.

Inventories at steel industry service centers are at historic low levels, Surma said. The industry's operating rate at the beginning of the month was just below 60 percent of capacity, down from 77 percent at the same time in 2008. The current production rate is not sufficient to meet the growing demand for steel, Surma said.

Demand for coke and coal has been robust in Asia, particularly in China and India, Surma said. The U.S. Steel chief, who just returned from an industry conference in China this week, said he sees no indication that China's "extraordinary increase in steel consumption" will slow in the near future.

"The economic environment suggests that 2010 will be a better year," as more steelmaking capacity is put into production, said Becky E. Hites, managing partner for World Steel Dynamics, an Englewood Cliffs, N.J., consulting firm.

The production of coke, made by burning metallurgical coal and used as a fuel in steel mill blast furnaces, should increase to between 25 million and 28 million tons in 2010, from the projected 15 million tons this year, said Ronnie Cecil, senior consultant on steelmaking costs and raw materials for CRU, a London-based consulting firm that has an office in Pittsburgh.

Higher demand could bring an increase in coke prices to between $200 and $250 a ton next year, Cecil said. But the market and price for metallurgical coal will be affected by what China does with a 40 percent duty it placed on its exports, Cecil said. That has boosted the price of Chinese coking coal to more than $350 a ton, thus limiting its demand on the international market, Cecil said.

"We think met coal is certainly the 'choke point' of the steel industry around the world," rather than iron ore or other raw materials, said Joseph Carrabba, CEO of Cliffs Natural Resources Inc., a Cleveland-based owner and operator of iron ore and metallurgical coal mines. Steel-producing countries such as India, China and Brazil are short on metallurgical coal, Carrabba noted.

While predicting that 2010 will be a year of recovery, no one should get "too euphoric" because "the economies we are dealing with are fragile," Carrabba said. He is "cautiously optimistic," waiting to see if the economic rebound will falter when the "stimulus bubble" bursts.

The improvement in the global outlook for metallurgical coal is good news for PBS Coals Inc. in Somerset County, which produces between 1.4 million tons and 2 million tons of metallurgical coal annually. It is projecting a better year in 2010 and expects to hire more workers in the next few years, said Hanke Parke, business development director for PBS of Friedens.

The company, which operates 12 mines in Somerset County with 600 employees, sells its coal around the world, Parke said.

Source: Pittsburgh Tribune

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