Race on to har­vest bit play­ers

SPE­CIALTY MET­ALS The big iron ore pro­duc­ers are ex­pand­ing rapidly, and so are spe­cialty sup­pli­ers, writes Robin Bromby

The Weekend Australian - Review - - Steel Special Report -

IF there is to be an end to surg­ing steel de­mand in the com­ing years, no one has told the big iron ore play­ers. Rio Tinto, BHP Bil­li­ton and Brazil’s CVRD are all en­gaged in am­bi­tious ex­pan­sion plans, and hordes of new and as­pir­ing pro­duc­ers are spring­ing up.

Aus­tralian com­pa­nies are open­ing new iron ore prov­inces at home in the Mid­west re­gion of West­ern Aus­tralia and in South Aus­tralia, and de­vel­op­ing am­bi­tious projects abroad — in­clud­ing large mine plans in Mau­ri­ta­nia and Cameroon. In Cameroon, Perth- based Sun­dance Re­sources has started a 20,000m drilling pro­gram at the Mbalam de­posit. In the Pil­bara, Fortes­cue Met­als Group — not yet a pro­ducer — has lifted its am­bi­tions from 45 mil­lion tonnes a year to 200 mil­lion tonnes.

Pre­dic­tions of price falls in iron ore con­tinue to be dashed each suc­ces­sive year. Gold­man Sachs is very bullish on prices: it sees the iron ore mar­ket stay­ing tight through 2009, es­pe­cially for steel mak­ers buy­ing on the spot mar­ket.

Smaller Chi­nese steel mills which paid about $ US65 a tonne last year for iron ore fines from Brazil and In­dia are now pay­ing over $ US100. Gold­man Sachs be­lieves prices will rise for an­other two years, and any down­turn is not likely un­til fis­cal 2011.

The big ques­tion is the ex­tent to which China will in­flu­ence sup­ply and prices. It mines 520 mil­lion tonnes a year, but much of it very low grade.

As part of its drive to im­prove the en­vi­ron­ment and re­duce en­ergy use, China may well close some of th­ese lower grade op­er­a­tions. That coun­try apart, Brazil and Aus­tralia dom­i­nate the iron ore in­dus­try and are the largest play­ers in the seaborne iron ore busi­ness.

Spe­cialty steel met­als are get­ting no less at­ten­tion. Aus­tralia, which has no op­er­at­ing vana­dium mines, is now likely to see three opened up over the next few years in West­ern Aus­tralia, along with vana­dium pro­duc­tion as a by- prod­uct of new ura­nium op­er­a­tions.

As with other such spe­cialty met­als, vana­dium’s de­mand is closely linked to that of steel. The dan­ger with any of th­ese met­als is that, be­cause quan­ti­ties are small rel­a­tive to iron ore, too many play­ers will try and de­velop mines, lead­ing to sur­pluses.

Aus­tralia does not at reg­is­ter on the world vana­dium league. Its one mine closed in 2004, but three com­pa­nies are in the race to get pro­duc­tion of this metal, which is pri­mar­ily used as an al­loy­ing agent for iron and steel. Pre­cious Met­als Aus­tralia is re­viv­ing the Windimurra mine, Aurox Re­sources is run­ning sec­ond with its Balla Balla de­posit and Reed Re­sources has the high grade Barrambie project.

Tung­sten, molyb­de­num and chromium are all be­com­ing in­creas­ingly familiar terms to Aus­tralian min­ing in­vestors.

There is no sub­sti­tute for man­ganese and chromium. Ninety per cent of man­ganese pro­duced goes into steel, where it both pre­vents ox­i­da­tion and also works as an al­loy. World re­serves are dom­i­nated by South Africa and Ukraine, with Aus­tralia in fourth place af­ter In­dia.

Chromium’s largest end- use is in stain­less steel, and is im­por­tant to strate­gic su­per al­loys. There are po­ten­tial sub­sti­tutes for tung­sten in strength­en­ing steel draw­ing on molyb­de­num and ti­ta­nium, but th­ese can in­volve greater cost and losses in terms of qual­ity of the steel.

De­mand for tung­sten is likely to in­crease, as will prices, now that China has de­cided to limit ex­ports to con­serve its re­sources. The im­pact of such a move will have is ap­par­ent from the 2006 mine pro­duc­tion fig­ures: of the 73,300 tonnes mined, 62,000 tonnes came from China. The next big­gest pro­ducer, Rus­sia, re­cov­ered 4500 tonnes of tung­sten

In ev­ery part of the global steel in­dus­try, the story is the same: ev­ery­one is work­ing on the ba­sis that the steel boom will con­tinue. Jin­dal Stain­less of In­dia, for ex­am­ple, is plan­ning to ex­pand its stain­less steel pro­duc­tion ca­pac­ity three­fold, and its ex­ist­ing chromium mine in Orissa will be un­able to meet Jin­dal’s de­mand. The com­pany is scour­ing the world for new mine projects.

Chrome is the feed­stock for fer­rochrome, which goes into stain­less steel. In­dia’s steel min­istry has rec­om­mended a com­plete ban on chrome ore ex­ports from 2009.

Ac­cord­ing to the US Ge­o­log­i­cal Sur­vey, 95 per cent of the world’s known chromium re­serves are in ei­ther Kaza­khstan or south­ern Africa; when it comes to pro­duc­tion, South Africa, Kazahk­stan, Turkey, In­dia and Pak­istan ac­count for 80 per cent of world out­put.

Aus­tralia is a very small player in the chrome ore busi­ness. Con­sol­i­dated Min­er­als ac­counts for 2.5 per cent of world sup­ply of 18 mil­lion tonnes a year with its ca­pac­ity to pro­duce 250,000 tonnes a year. The Coobina de­posit in the Pil­bara was first iden­ti­fied in 1925, but min­ing did not be­gin un­til 1992.

Con­sMin is an in­ter­est­ing story in that the for­mer man­age­ment team set out to get in­volved with as many steel in­puts as they could. First the com­pany be­gan min­ing man­ganese at Woodie Woodie and then the chrome, fol­low­ing up by ac­quir­ing iron ore ( the Mindy Mindy de­posit which re­mains un­de­vel­oped while the bat­tle goes on for ac­cess to BHP’s nearby rail­way) and nickel.

There is an­other Aus­tralian player in the chrome busi­ness. The listed Chrome Corp is hop­ing to re- open the Ruighoek mine north­west of Pre­to­ria in South Africa, closed in 1993 when chrome prices were low.

The Perth- based com­pany has hopes that there could at least 28 mil­lion tonnes of chrome ore — and there are two other seams that have not been eval­u­ated.

And then there’s molyb­de­num, an­other metal in which Aus­tralia is at present a non­pro­ducer but is about to be­come a sig­nif­i­cant player with sev­eral mine projects in var­i­ous stages of de­vel­op­ment. The main use for this metal is in steel mak­ing.

Ac­cord­ing to the Bri­tish- based met­als an­a­lyst Roskill Ltd, about 28 per cent of molyb­de­num goes into stain­less steel, 15 per cent into al­loy steel, with other steel uses ac­count­ing for a fur­ther 28 per cent. A grow­ing use for molyb­de­num is in cat­alytic ap­pli­ca­tions.

In 1990, the world con­sumed about 100,000 tonnes a year of molyb­de­num; by 2005, the fig­ure was 181,000 tonnes. Chi­nese con­sump­tion dou­bled be­tween 2001 and 2005. The US, Ja­pan, Ger­many and China to­gether con­sume about 50 per cent of all molyb­de­num pro­duced.

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