When the boat comes in???, page-270

The next Qtr should be good.
US miner Cliffs sees global iron ore pellet shortage, HBI demand

Cleveland — US iron ore miner Cleveland-Cliffs expects a shortage in iron ore pellets to persist as China's push to improve air quality and a rebound in carbon credit prices in Europe sustains demand, setting the stage for high premiums and earnings.

As China increasingly seeks to reduce the environmental impacts of producing steel and processing and mining coal and iron ore, demand for pellets will increase, Cliffs CEO Lourenco Goncalves said in an interview Friday in Cleveland. The Brumadinho disaster at Vale's mining complex late January has since triggered production halts at Brazilian mines producing pellet feed and wider inspections at sites.
"What we are seeing in the world right now is the biggest pellet shortage that you could not have imagined what would happen," he said.
"We prepared for the future, but the future became the present because of Vale."
The aftermath from Vale's disaster has injected further supply side volatility after Samarco's 30.5 million mt/year pellet operation suffered a fatal dam burst in November 2015 and a preliminary restart expected as early as late 2019 was pushed back.
As China has to focus more on environmental compliance, steel mills will reduce iron ore sintering and try and use more ferrous scrap, Goncalves said.
"I do believe way before China becomes a powerhouse in EAFs, they will become a powerhouse in consuming pellets," he said.
With high pellet premiums and additional profits expected from Cliffs' diversification into hot briquetted iron (HBI) supply next year, the company is targeting hitting and exceeding $1 billion EBITDA as it sells HBI, up from over $800 million in adjusted EBITDA forecast for 2019.
The Vale incident has accelerated tightening pellet supplies to meet racing demand for pellets for both environmental and steel quality reasons, amplifying a longer-term trend as new DRI plants compete for pellets with blast furnaces, Goncalves said.
While lower steel production in Europe and weaker steel prices may lead blast furnaces to lower pellet consumption -- with pellets currently at high prices and with less certainty on availability from Brazil - the benefits of pellets at a time of high coke and carbon costs and expansions in DRI demand support the market.
Vale was said to have increased forward availability of iron ore for Q3 2019 contract shipments, according to a customer in Europe.
However, persistent uncertainty around permitting status to restart mines and progress works may limit planning around loading programs from the south of Brazil.
The seaborne pellet market is better in balance after steel prices fell below levels incentivizing higher steel production as seen last year, while China is producing more steel so far this year.
Longer-term shifts in steelmaking remain conducive for pellets and metallics to help replace lower quality iron ores and ferrous scrap to meet industry targets on steel quality.
Direct charge pellets help cut coke and sintering emissions, while the industry increasingly looks to use more natural gas and experiment with hydrogen for iron reduction.
DRI plants are acutely dependent on pellets, unlike blast furnaces, which may have more optionality with sinter and lump ores.
The DRI sector had been underserved, with new plants in Algeria and Cliffs' own plan in Toledo, Ohio, coming online to join recent additions in Egypt, the US and Russia.
Cliffs is shortly starting to produce DR-grade iron ore pellets in volumes to prepare for its new HBI plant operations in early 2020, Goncalves said.
"We are a year away from starting to supply HBI to the market. In July we will start producing 3.5 million lt/year of DR-grade pellets out of Northshore," he said.
"So for us to produce we had to stop blast furnace [pellet] production and then move to DR. And now we have optionality. That's one thing that is great to have in this business."
Demand from US mini-mills for metallics such as HBI and Russian and Brazilian pig iron, and global deficits in supplies of lower impurity grade pellets for direct reduction iron plants led Cliffs to invest in the sector.
Cliffs can stay focused entirely on the North American markets, and tap a new segment of electric arc furnace (EAF) customers, while current iron ore prices and pellet premiums keep the window open for exports out of the Great Lakes, he said.
"I have two options, supply HBI, or export HBI and pellets," Goncalves said.
Even in the unlikely event that mills in the US start to shut down or reduce production, Cliffs is fully prepared.
"The last mills that will shut down in the US will be the electric arc furnaces. They have the balance sheet and the ability to withstand a lot more than the integrated mills in terms of their financial strength," Goncalves said.
Demand in North America for BF pellets is strong, with no cancellations to volumes planned for 20 million lt in 2019, and a rebound in steel prices may be expected after a decline stretching since last year, he said.
Cliffs is not exporting pellets, but if any supply was available, current pellet pricing would support exports, he said.
Cliffs' Q1 2019 revenue was $93.81/lt, down from $105.03/lt in Q1 2018, and the company expected higher full-year revenue of $111-$116/lt, based on April 23 pricing data.
The Platts Atlantic export pellet premium was assessed at $67.50/dmt for May, while IODEX 62% Fe prices surpassed $100/dmt CFR China last month.
"If a blast furnace starts reducing orders, I can immediately start selling DR-grade pellets--right away, with no interruption," Goncalves said. "And, if the clients in the US reduce their take, it would almost be a positive at this point with the IODEX where it is and the pellet premiums where they are."
At Nashwauk, in Minnesota, since buying 50% of the land where Essar of India planned an iron ore and DRI facility, Cliffs has been waiting to progress development.
Cliffs has positioned itself to capitalize on further growth in the sector, which may be determined after the situation in Brazil, and US steel trade, settle down. In the meantime, Cliffs Friday raised its dividend .
"Growth is my next step, but I'm not in a hurry for growth, I'm in a hurry to be more and more and more profitable," Goncalves stressed.