Replies to post #3018 on The Rising Influence of Rising Affluence

[DewDiligence]

This is good for CLF and other makers of coking coal, a necessary
ingredient to chemically reduce iron ore into elemental iron for
steelmaking.

http://www.advfn.com/nyse/StockNews.asp?stocknews=MT&article=48240786&headline=brazil-steelmakers-face-increasingly-difficult-coal-supply

›Brazil Steelmakers Face 'Increasingly Difficult' Coal Supply

By Diana Kinch
06/28/2011 20:16:39

RIO DE JANEIRO -(Dow Jones)- Some new steel mills planned in Brazil won't emerge due to coal supply difficulties, industry consultants said Tuesday. Companies including Vale SA (VALE), ArcelorMittal (MT), Techint and Wuhan Iron and Steel Co. plan to add a total of 19.2 million metric tons of extra steelmaking capacity in Brazil by 2016, but some projects probably won't move ahead due to increasingly scarce metallurgical--or coking--coal, a basic raw material, Luiz Sarcinelli, director of Sage Consultoria, said at a coal conference in Rio de Janeiro.

"The situation's getting increasingly difficult. Coking coal demand is growing most in countries that are deficient in this raw material: China, India and Brazil, where steelmaking is growing most," Sarcinelli said.

Coking coal demand in Brazil is set to double in four to five years, with the new projects adding an extra 23.6 million tons of demand, said Otacilio Pecanha of Negotiare Consultoria. At the same time, coking coal prices will continue rising on China-led demand, which has already prompted a sixfold increase over the last decade to about $330 a ton recently, Pecanha said.

Prospects for some new Brazil steel projects look "doubtful" in this scenario, he said. Projects related to miner Vale and the Acu port being developed by billionaire Eike Batista's EBX group may still receive the "push" needed to move forward, he said.‹

[DewDiligence]

CLF—I’m halfway through the 4-hour Investor Day webcast (#msg-64700730) and it’s already evident that this is one of the best presentations I’ve heard from any company.

Although CLF is considered an iron-ore company, I’m impressed by the compelling case CLF’s executives are making for the company’s coking-coal and ferrochrome businesses.

High-quality coking coal is in short supply and you can’t make steel without it (except by recycling scrap), which is why the price per ton has exploded (#msg-64738025). CLF’s executives absolutely reject the bearish viewpoint espoused in #msg-58066494 and expect the price of high-quality coking coal to remain high for many years. Thanks to some recent dealmaking, including the 2010 acquisition of INR Energy (#msg-52067706), CLF has a lot of the high-quality stuff steelmakers want. (Unfortunately, CLF’s 2011 coal volume will be down year-over-year due to tornado damage in Alabama and a CO leak in WV, both of which were previously disclosed.)

Ferrochrome is a necessary component of stainless steel, and there is currently no supply source in North America. CLF hopes to be producing ferrochrome for North American steelmakers—as well as chromite ore for Asian customers—in about 4-5 years based on the development timeline for the Ontario mines CLF acquired in 2009 and 2010 (#msg-43909449, #msg-50547871). I didn’t like these deals when they were announced, but I do now.