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Hard-to-find coking coal’s price rockets as global steel demand orbits
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By: Keith Campbell
Published on20th June 2008
Things, for steelmakers, go better with coke – the coke concernedbeing, of course, the product used in blast furnaces and electric arcfurnaces to produce iron and steel.
Coke is 90% carbon and islight, but strong – it has to be, to bear the weight to which it issubjected in a blast furnace – porous and, when heated, reactive. Atthe very start of the iron- and steelmaking process, coke fines – alsoknown as coke breeze – are employed in the sintering of the iron-ore,which converts the irregular lumps (iron-ore fines) of the ore intolarger pieces between 10 mm and 25 mm. This greatly increases theefficiency of the smelting process.
In blast furnaces, cokeplays more than one role – it is the fuel that provides the heatnecessary for the smelting process, and it is the source of the carbonmonoxide which reduces the oxygen out of the compounds which bind theiron to the ore, separating it, in liquid form (given the heat), topool at the base of the furnace, from which it can be tapped.
Theblast furnace is ‘charged’ with the sintered iron-ore, coke andlimestone – this last combines with the impurities (non-ironconstituents) of the ore and separates them as slag; this slag floatson top of the liquid iron and so can be skimmed off. In addition toproviding the heat and the reduction agent, the coke provides apermeable medium through which the reduction gas can pass.
Inelectric arc furnaces, coke is not needed to generate heat, but servesto reduce the molten chemical slag in the base of the furnace, createdby the electric arc process. Again, this separates the iron from theslag. The molten iron is then taken to another furnace – usually ablast oxygen furnace – and converted into liquid steel. Coke is notemployed in this process – the carbonising agency employed in theproduction of carbon steel is derived from petroleum.
The ironproduced in a blast furnace is known as pig iron, and, on average, itrequires 1,5 t of iron-ore and 0,45 t of coke to produce 1 t of pigiron. For completeness, it should be noted that coke is used in, and isequally essential to, the smelting of all metals, playing the sameroles in every case.
The main alternative to coke would becharcoal, but it requires the destruction of about 4 000 m2 of woodlandto make enough charcoal to produce one ton of iron, so this is a highlyenvironmentally destructive option, although it is still used in someparts of the world. “There are very few alternatives to coke, althoughSouth Africa is researching alternatives – with some limited success,”states Professor Rosemary Falcon, who holds the Saneri chair for cleancoal technologies at the University of the Witwatersrand.
Cokeis produced when coal of the right type is heated up slowly in closedovens in the absence of air. Unfortunately, very few coals are suitablefor the production of coke. They are special, high-quality hard coals,and are known as coking or metallurgical coals. In 2005, the cokingcoal trade represented only 29% of the global hard coal trade.
EricFinlayson, head of exploration for Rio Tinto, recently remarked that“coking coal is very hard to find – we are scouring the world to findit”. The biggest, highest-quality, most promising deposit they arecurrently working on – with a delineation drilling programme intendedto deliver an inferred mineral resource by the end of this year – is inMongolia, some 280 km from the nearest railway. It is, however, closeto the Chinese market.
SURGING STEEL
Meanwhile,steel production is booming. According to the International Iron andSteel Institute, total crude steel production (in the 66 countrieswhich report to it) for the first four months of this year was 5,6%higher than for the same period last year.For China alone, steelproduction jumped 9,1%. Global crude steel production increased by 7,5%in 2007 to reach 1 343,5- million tons – the highest level of crudesteel production in history. The year 2007 was also the fifth year in arow in which world crude steel production increased by more than 7%.Although there has been a decrease in the growth rate, demand is stillstrong. China, unsurprisingly, remains the driving force – its crudesteel production increased by 15,7% last year, and, if the Asian giantis excluded, world crude steel production would have increased by only3,3%.
Given the demand, given the scarcity of coking coal, it isnot surprising that the price of the latter is soaring. In April,mining giant BHP Billiton revealed that it expected that coking coalprices would rocket this year by 206% to 240% in comparison with pricesfor last year. BHP operates collieries in Australia in a joint venture(JV) with Mitsubishi of Japan. Also in April, South Korean steelmakerPosco agreed to a 205% increase in the price of the coking coal it buysfrom Australia, while Japan’s JFE Steel also accepteda more than 200%increase in the coking coal price – from $98/t, to $300/t. JFE is theworld’s third- largest steel producer and Posco is the fourth.
TheBHP-Mitsubishi JV is the world’s largest supplier to the seabornecoking coal trade, accounting for 28% of world trade, and isAustralia’s largest coal-miner. Australia is the world’s largestproducer of coking coal, with production of 83-million tons in 2006,followed by Canada (23-million tons), the US, with 19- million tons,and Poland, at one- million tons, while China, Russia and New Zealandcombined provided 8-million tons.
Little wonder that steelcompanies are striving to secure sources of this key input. Late lastmonth, steel magnate Lakshmi Mittal, CE of ArcelorMittal, bought nearly10% of Australia’s Macarthur Coal and expressed an interest in buyingthe entire company (although that might not be possible: China’s Citichas 17,6% of the miner).
Mittal had previously bought threecoking coal mines in Russia for $718-million. ArcelorMittal is theworld’s biggest steel producer. Meanwhile, late last year, Tata Steel,which ranks sixth in the world, bought a 35% share in a coking coalproject in Mozambique, for $88,3-million.
SouthAfrica ranks twenty-first in the world in terms of steel production,making 9,7-million tons in 2006 (up from 9,5-million tons in 2005).This amounts to 0,8% of global crude steel production, but 52% ofAfrican production. The basic iron and steel industry contributes some1,4% of South African gross domestic product and 7,9% of the totalvalue of sales by the national manufacturing sector. By far the biggestlocal producer is ArcelorMittal South Africa (originally Iscor), whichhas four steelmaking operations in South Africa – Vereeniging,Vanderbijlpark, Newcastle and Saldanha.
It reported liquid steelproduction of 7,06-million tons in 2006 – falling to 6,38-million tonslast year. Ranked number two is Highveld Steel & Vanadium, whosemajority share- holder is Russian steel group Evraz, and which produced863 142 t of crude steel in 2006. South Africa’s other steelmakers donot smelt iron-ore.
One of ArcelorMittal South Africa’s biggestimport costs is the import of coking coal – last year, the companyimported 64% of its coking coal requirements. The company produces cokein three coke batteries, as they are called, at Newcastle, Pretoria,and Vanderbijlpark. Of these, the one at Newcastle is new (having beencommissioned in November 2006), and it produced 426 000 t of coke lastyear, playing a major role in driving the company’s total production toa record 840 000 t.
The Pretoria coke battery was relined last year. The company sells coke to South African ferroalloy industries.
“SouthAfrica has very little high- quality coking coal,” points out Falcon.South Africa’s main coking coal producer is Exxaro. “We have one mineproducing hard coking coal and a second producing semisoft,” reportsExxaro senior research and development engineer Pierre Jordan.
Thehard coking coal is mined at Tshikondeni, and the semi-soft atGrootegeluk, both in Limpopo province. Tshikondeni has an annualproduction of more than 400 000 t, all for local consumption, whileGrootegeluk last year produced some two-million tons of semisoft cokingcoal (in addition to some 16-million tons of thermal coal).
OfGrootegeluk’s coking coal, 1,3-million tons went to ArcelorMittal SouthAfrica and 0,7-million tons was exported. There is also small-scaleproduction of hard coking coal in KwaZulu-Natal, but these are smalldeposits and suffer from small seams, which make mining more difficult.
“Semisoftcoking coal can’t produce good coke on its own, and must be used in ablend, unlike the hard coals,” explains Jordan. These blends seehigher-quality coking coals mixed with lower-quality ones. “Thepractice here, as in many other places, is to import the high-qualitycoals and blend them with low-quality local coals,” says Falcon.“Determining the optimum blend for each blast furnace is a veryscientific process and is not easy.
The coking coals are blendedfirst, and then turned into coke,” elucidates Jordan. “ArcelorMittalSouth Africa uses a blend of seven coals; other companies use blends offive coals, while Chinese steelmakers use blends of up to 27 coals. Itall depends on the availability of coals and the blend you desire.”
Toreduce their demand for coke, South African companies use certainanthracites in sintering plants and in ferrochrome production, blendedwith coke and (in the case of ferrochrome) char – a less maturebituminous coal – and raw coal.
“These South African anthracitesare very special, because they possess a horizontal alignment of theirmolecules, so they break down easily in the hot liquid slags inelectric arc furnaces, releasing free carbon,” points out Falcon. “Weare exploring in South Africa for more coking coal,” assures Jordan.“But most of the high-quality coking coal found in South Africa is invery narrow seams, making mining very difficult.”
Others arealso exploring for coking coal, in KwaZulu-Natal. For example,JSE-listed Miranda Mineral Holdings reports that its four explorationprojects – Uithoek, Burnside, Wasbank (these three are contiguous) andBoschhoek-Boschkloof – together contain 120-million tons of coal, muchof which is reportedly coking coal. (Another Miranda project,Sesikhona, should start coal production before the end of this year.)Although the seams are narrow, varying between 0,9 m and 1,5 m, thecompany is confident that the quality of the coal more than compensatesfor this.
Then there is Mozambique.
“There is a lot ofexploration for coking coal in Mozambique,” highlights Falcon.“Mozambique is the most promising area in the region for coking coal,”agrees Jordan, “but the issue is logistics – trans- port difficultiesdrive up the costs and can render exploitation uneconomic.”
Thebig coking coal project in Mozambique is, of course, Companhia Vale doRio Doce’s (Vale) Moatize project. Moatize is located in Tete province,some 1 700 km north of the capital city, Maputo. The project involvesan investment of $1,3-billion by Vale, and the project development planand the mining contract were both approved by the Mozambican governmentin June last year.
Moatize will be an openpit operation and willproduce an average of 8,5-million tons of metallurgical coal, plus2,5-million tons of thermal coal, each year. The mining contract isvalid for 25 years, but the mine is forecast to have a life of 35years. The mine is expected to be commissioned in the second half of2010. Moatize is linked to the port of Beira by a railway that has beenconcessioned to Indian State-owned railway com- panies, which arecurrently rehabilitating the line.
It is expected to be reopenednext year. However, South African industry is unlikely to benefit fromMoatize – it is expected that the metallurgical coal will be sent toBrazil, to feed that country’s large and growing steel industry. (TheBrazilian steel industry ranked ninth in the world in 2007, producing33,8-million tons, a 9,3% increase over 2006.)
An example ofother coking coal exploration activities in Mozambique is provided byAustralian Stock Exchange-listed company Riversdale Mining (which ownsthe Zululand anthracite colliery, in KwaZulu-Natal, and also hasanother anthracite project under development in the sameprovince).
Riversdaleholds 16 explor-ation tenements, totalling 203 460 ha, in the lowerZambezi coal basin, and seven exploration tenements covering 86 620 hain Tete province. Significantly, the latter are contiguous to bothRiversdale’s other tenements in the country, and Vale’s Moatize coalconcession area. It was in Riversdale’s Benga and Tete explorationtenements that Tata took a 35% share.
These cover 24 960 ha and,in terms of the deal, Tata will get a 40% share of the coking coalproduced and an option to secure more, on commercial terms. Theinferred resource for the area covered by this JV stands at 1,9-billiontons. The primary resource is hard coking coal, with thermal coal as asecondary product. Tata wishes to use the Mozambican coking coal tosupply its Corus subsidiary in the UK and Europe.
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