Ene 15

China’s small factories fear ‘rail Armageddon’ with orders to ditch trucks

Thousands of small factories in China, making everything from steel to chemicals, are scrambling for access to the country’s clogged rail network as Beijing curbs the use of diesel trucks in an effort to tackle air pollution.

FILE PHOTO: A tricycle travels past a crossroad on a hazy day in Hefei, Anhui province

The Ministry of Environmental Protection (MEP) last month gave tens of thousands of companies in 28 cities until Nov 1 to halve their use of diesel trucks over the winter months, when pollution is at its worst.

The ministry, in a policy document, also set more stringent, permanent targets for more than 20 power and steel companies, including Zhengzhou Xinli Power, Xingtai Iron & Steel and Hebei Risun Coke, directing them to send at least half their shipments by rail.

Trucking is a cheaper and preferred mode of transport for heavy industry in China, especially for inland companies moving goods over relatively short distances and those far from railways. Some provinces have taken even tougher stances on trucks.

In Hebei and central Henan, some steel producers must deliver as much as 90 percent of their products via rail on a permanent basis, up from around 50 to 60 percent currently.

The moves are the latest in Beijing’s years-long battle to tackle the pollution that blankets the north as houses turn up the heat between November and March, drawing on the nation’s power plants, which are mainly fueled with coal.

China is also forcing steel mills and other factories to shut up to 50 percent of capacity across the north to try and prevent toxic air during the winter.

The truck restrictions follow bans earlier this year on transporting coal by diesel trucks in major port cities. A shift to using more of the country’s 120,000 km of railroads, one of the world’s largest networks, is also a cornerstone of Beijing’s Belt and Road initiative, which aims to revive old trade routes linking Chinese companies with overseas markets.

The scale of the change underway is immense. Highways accounted for 77 percent of more than 43 billion tonnes of freight transported last year, compared with 8 percent for rail.

“It’s another indication of how seriously they’re taking the environmental impact, although it’s a blunt way of doing it and some trips won’t make sense by rail,” said Jonathan Beard, head of transportation and logistics in Asia for Arcadis, a design and consultancy company.

The Ministry of Rail declined to comment. The MEP and the state planner that oversees rail freight prices did not respond to requests for comment from Reuters.

RAILWAY ARMAGEDDON

Companies were already preparing for a grim winter, having been ordered to slash output as part of measures to clean up the air in Chinese cities.

Now, many are struggling to get space on the rail network by the Nov. 1 deadline. Major state-owned companies like Sinopec and Aluminium Corp of China have long-term access to the railroad, leaving little room for smaller companies. Many of the factories are also hundreds of miles away from any station.

There are also concerns that bottlenecks could create chaos, cutting off supplies of critical raw materials and hurting the ability of companies to get products to market, executives interviewed by Reuters said.

Rail is also more expensive and takes longer for some routes. An executive from Xingtai Iron & Steel estimated that using rail will add as much as 40 yuan per ton, or 10 percent, to his costs. The executive and others interviewed by Reuters requested anonymity as they were not authorized to speak to the media.

“We might resort to reducing production in the winter if we cannot get enough supplies and have difficulties sending our products due to the railway Armageddon,” said a manager with Yanzhou Coal Mining Co’s coke plant in Shandong province, which produces two million tonnes per year.

In Shandong, the nation’s eastern industrial and agricultural heartland, the rail bureau proposed hiking freight rates by 1 cent per ton per kilometer at an internal meeting with key clients two weeks ago, according to the Yanzhou Coal manager. That is equivalent to an almost 10 percent increase to move products to Jiangsu, about 100 miles to the south.

It is not clear whether the plan has been submitted to the state planner for approval. The state planner sets freight prices. “Some of our clients are only 40 miles away from us,” said a sales manager with Xingtai Iron & Steel’s steel wire subsidiary. “Trucking is more flexible than rail and cheaper,” the manager said.

“For our clients in Zhejiang and Jiangsu, about 500 miles away, rail takes almost a week but trucking takes one or two days.”

UNDER ORDERS

Rail traffic has increased this year due to increased shipments of coal. Rail is the most popular mode of transport for coal, which accounted for a third of traffic last year.

China’s rail network is mainly run by China Railway Corp. State-owned companies such as China National Coal Group and coal miner China Shenhua Energy also own some specific routes, giving them lower transportation costs. Many are bewildered by the enormity of the undertaking ahead.

A manager with Longyu Chemical Co. in central Henan province said he had no access to rail. ”I honestly have no idea how we are going to deal with it this winter,“ he said. The trucking freight rate is also rising because of the crackdown on diesel trucks.”

Ene 08

Zircon 101: where will new demand come from?

Zircon is important – and some would argue irreplaceable – in markets such as ceramics, which accounts for around 50% of demand. But, as Cameron Perks, IM Correspondent, discovers, there are new sources of interest within that same industry – and demand projections vary wildly.

Zircon (zirconium silicate – ZrSiO4) is an important source of zirconia (zirconium oxide – ZrO2) and zirconium (Zr). Due to its density of 4.68, economic quantities of zircon are primarily contained within heavy mineral sands (HMS), a type of sedimentary deposit. Additional small quantities are also currently derived from baddeleyite mining…

More information, download .PDF

Ene 02

Raw Material Innovations – a Key Success Factor in a Fast Changing Refractories World

The recent global economic difficulties have resulted in overcapacities in many industries and the refractory industry isn’t an exception. In an uncertain environment driven by the slowing Chinese economy and the low crude oil price many industries have slowed down their investments.

Dic 26

Graphite electrode shortage could start to bite for steel mills: sources

A shortage of graphite electrodes for usage in electric arc and ladle furnaces will continue to affect steel mills, sources told S&P Global Platts.

In recent years electrode makers have reduced capacity, with some shuttered for good as their mill customers bought competitively priced semi-finished products and re-rolled rather than melting scrap.

One supplier, who did not want to be identified, said around 200,000 mt/year of electrode capacity had exited the market as a result. At the same time China has cut graphite electrode capacity of late, by up to around 50%, according to numerous producers, amid government-mandated closures to curb emissions.

The supplier said Chinese annual electrode exports would likely fall from around 200,000 mt in recent years to 100,000 mt. This means the country is producing much fewer ladle furnace electrodes.

In previous years China had been so cheap other suppliers had bowed out of the market; companies would have to charge around double or triple for a ladle furnace compared to an electrode for EAF consumption to generate the same EBITDA, another supplier who did not want to be identified said, so they may reserve some volume, but prices will rise dramatically.

Chinese electrode capacity is also increasing at the moment, aided by exceptionally cheap scrap supply after Beijing oversaw the closure of all illegal induction furnaces by the end of June. Also, during the “bad years” electrode producers ran down their stocks to generate cash as they could not get credit lines, sellers agreed. This means there is no stock on the ground and demand from mills — particularly EAFs — has increased sharply, taking electrode suppliers by surprise.

Producers cannot increase electrode production capacity, however, as there is a shortage of needle coke, a primary raw material — this is being exacerbated by cokemakers selling into other markets, such as the lithium-ion sector, after the downturn in demand from electrode producers.

Given these factors, electrode prices are rocketing. Long-term agreements for next year are likely to rise 100% or more, with “transactional” buyers paying more than those on longer-contracts, sellers said. “Everyone wants to be a long-term customer now,” one seller said.

Another producer said mills were “screaming” for electrodes, but they had to get in line. There was a real threat of “rolling outages,” he said, as mills ran out of electrodes and had to await new deliveries.

Mills were using scrapped or questionable electrodes to stay in operation, he said. It takes six-10 weeks to make an electrode, he said, while it takes six-eight hours to use one.

Electric arc furnaces will typically operate nine graphite electrodes at any one time, and they comprise 1-2% of the cost of steelmaking, according to electrode sellers. A recent spot deal in China had been done at $11,000/mt for a 24 inch electrode, he said, while another supplier said spot prices were $10,000/mt — far higher than the contract prices being paid by mills, with Chinese material now trading at a premium to electrodes from elsewhere as people scrambled for tons.

A large Chinese producer was putting out weekly prices that were being followed by others, sources said. “We haven’t even started our booking process for next year, and some competitors are already sold out through the first half,” one said. Sellers were torn on electrode pricing dynamics going forward.

While half-yearly and quarterly deals are seen, with deliveries monthly or quarterly depending on customer, the majority of contracts are annual. Some suppliers said they would not look to short-term profitability above longer-term deals, but others said they “hated” annual fixed priced agreements, which meant they were taking the majority of risk on behalf of mills.

This, alongside some coke suppliers looking to move to quarterly pricing from annual, could lead to an attempted shift to shorter-term electrode pricing, one said.

Dic 18

Rio’s revised iron ore guidance pushes price to three-month high

Prices for iron ore skyrocketed Tuesday as Rio Tinto (ASX,LON:RIO), the world’s second largest exporter, warned Tuesday that shipments from Australia were expected at about 330 million tonnes in 2017. That’s down from its April forecast of 330 million-to-340 million tonnes.

Ore with 62% content in Qingdao added $2.03 a tonne overnight, to close at $68.84 a tonne Tuesday, the highest level since mid-April according to the Metal Bulletin.

From the recent low of $53.36 a tonne hit on June 13, the benchmark price has now added more than 27% — an impressive return in a little over a month.

The surge also follows the release of strong Chinese Q2 GDP figures on Monday, including the news that crude steel output from the world’s largest producer climbed to the highest level on record in June.

Additionally, China’s imports of the steelmaking raw material this year are on course to exceed 1 billion tonnes, breaking last year’s record.

From the recent low of $53.36 a tonne hit on June 13, iron ore prices have now surged more than 27%.
The fresh rally has not made main forecasters change their negative outlook for the iron ore prices. Morgan Stanley recently cut its estimated third quarter price and the investment bank now sees iron ore averaging $50 a tonne over the period, climbing to $55 in the final three months.

For the year as a whole Morgan Stanley expects the commodity to average $63 compared to a year-to-date average of $74. It also said it expected iron ore to continue to soften averaging $58 next year and $54 in 2019.

The latest forecast from the Morgan Stanley is more optimistic than predictions in a research note Citigroup released last month. The bank lowered its price outlook by a fifth saying iron ore will average $48 a tonne in Q4 2017, down from $60 in its previous prediction.

Both analysis blame growing global supply – particularly from Vale’s S11D mine and Roy Hill in Australia hitting full production – for the weak outlook. According to Citigroup, 2017 will see a surplus of 118m tonnes following a more than 60m tonnes glut last year. Morgan Stanley predicts nearly 40m tonnes of oversupply this year, growing steadily to top 120m tonnes in 2019 and 185m excess tonnes in 2021.

 

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