TECK COAL IN THE CHINESE STEEL MAKING INDUSTRY: WHERE SHOULD WE FIT?

by

Richard TremblayB. Sc Engineering, Queen’s University, 1989

.

PROJECT SUBMITTED IN PARTIAL FULFILLMENT OFTHE REQUIREMENTS FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In the Teck MBA Program of the Faculty

ofBusiness Administration

© Richard Tremblay 2011

SIMON FRASER UNIVERSITY

Term (Spring) 2011

All rights reserved. However, in accordance with the Copyright Act of Canada, this work may be reproduced, without authorization, under the conditions for Fair Dealing.

Therefore, limited reproduction of this work for the purposes of private study, research, criticism, review and news reporting is likely to be in accordance with the law,

particularly if cited appropriately.

Approval

Name: Richard Tremblay

Degree: Executive Master of Business Administration

Title of Project: Teck Coal in the Chinese Steel Making Industry: Where Should We Fit?

Supervisory Committee:

____________________________________________

Dr. Lindsay MeredithSenior SupervisorProfessor

____________________________________________

Dr. Ian McCarthySecond ReaderProfessor and Canada Research Chair in Technology and Operations Management

Date Approved: ____________________________________________

ii

Abstract

This paper will discuss China’s emergence on the seaborne metallurgical coal market as a

major importer of hard coking coal. It will discuss how Teck Coal as the second largest supplier

in the seaborne market should participate in this rapidly growing market.

China’s growth has fuelled demand for commodities around the world and as such, it is

important for any commodity supplier to have an understanding and presence in this market.

Teck Coal only began selling noticeable volumes of coal to China in 2009 and continues to learn

how the market behaves and who the key players are in this market. Teck Coal’s strengths and

weaknesses are discussed and are in turn used to identify potential opportunities for the company

to explore.

Dedication

This paper is dedicated to my wife Sue and kids (Jessica, Hadyn and Brenah) who

supported and allowed me the time necessary to go back to school and complete the MBA

courses over the last six-years. Thanks for your support.

iii

Acknowledgements

I would like to thank Real Foley, Kevin Man, Sarah Liu, Corey Caville, Tayfun Zehir,

and Xiuyan Zhang for all their assistance and guidance pulling this paper together. I would also

like to thank Robert Bell for taking on the task of being my internal Teck project sponsor and

Lindsay Meredith for being my SFU advisor.

iv

Table of Contents

Approval...........................................................................................................................................iiAbstract............................................................................................................................................ iiiDedication........................................................................................................................................ ivAcknowledgements...........................................................................................................................vTable of Contents.............................................................................................................................viList of Figures................................................................................................................................viiiList of Tables................................................................................................................................... ixGlossary............................................................................................................................................x

Introduction.....................................................................................................................................11.1 China........................................................................................................................................11.2 Metallurgical Coal Market.......................................................................................................5

1.2.1 Chinese Coal Producers..............................................................................................61.2.2 Seaborne Metallurgical Coal Producers.....................................................................8

2: Chinese Steel Industry..............................................................................................................152.1 Blast Furnace Technology.....................................................................................................15

3: Teck Coal Market Analysis.....................................................................................................193.1 Strengths................................................................................................................................203.2 Weaknesses............................................................................................................................203.3 Opportunities.........................................................................................................................213.4 Threats...................................................................................................................................223.5 Teck Coal Expansion Plans...................................................................................................24

4: The Five Forces Discussion......................................................................................................264.1 Threat of Entry.......................................................................................................................264.2 Threat of Substitution............................................................................................................274.3 Bargaining Power of Suppliers..............................................................................................284.4 Bargaining Power of Buyers..................................................................................................284.5 Rivalry Among Current Competitors....................................................................................28

5: Other Market Factors..............................................................................................................305.1 Market Complimentary..........................................................................................................305.2 Complimentary Products.......................................................................................................305.3 Cannibalization......................................................................................................................305.4 Indirect Substitution...............................................................................................................31

v

6: Opportunity Analysis...............................................................................................................326.1 Increase Market Share...........................................................................................................326.2 Develop Coals in the Top Tier Valuation..............................................................................336.3 Maintain Market Share..........................................................................................................346.4 Develop More Markets for Complimentary Products (Semisoft, PCI and Thermal)............34

7: Conclusion.................................................................................................................................36Appendix – Alternate Steel Production Methods...........................................................................37

Reference List................................................................................................................................39Works Cited....................................................................................................................................39Interviews........................................................................................................................................39Websites Reviewed.........................................................................................................................39

vi

List of Figures

Figure 1: Apparent vs. Actual Steel Consumption...........................................................................2

Figure 2: Chinese City Population vs. Steel Consumption...............................................................3

Figure 3 : Chinese Coking Coal Consumption.................................................................................4

Figure 4: China Provinces.................................................................................................................8

Figure 5: BHP Billiton Structure......................................................................................................9

Figure 6: BHP Bowen Basin Mine Location..................................................................................10

Figure 7: Teck Coal Operations Locations.....................................................................................11

Figure 8: Rio Tinto Coal Operations Reserves and Resources.......................................................12

Figure 9: Anglo American Operations Location............................................................................13

Figure 10: Teck Coal Sales by Region...........................................................................................19

Figure 11: Hard Coking Coal Deposits...........................................................................................23

Figure 12: Teck Coal Expansion Plans...........................................................................................25

List of Tables

Table 1: Top 10 Export Met Coal Producers....................................................................................5

Table 2: Chinese Metallurgical Coal Imports by Country...............................................................6

Table 3: Teck Coal Products and Qualities.....................................................................................11

Table 4: Seaborne Metallurgical Coal Product and Quailities........................................................14

Table 5: Blast Furnace Quality Requirements by Size...................................................................16

Table 6: Teck Coal Sales by Product into China............................................................................20

Table 7: Mongolian Raw Coal Production.....................................................................................26

vii

Glossary

Rank

CSR

CRI

Ash

VM

Fluidity

Coke

PCI Coal

SSCC

Thermal Coal

Measurement of the geological age of a coal. Typically low rank coals are used

as a heat generating fuel while higher rank coals are older and have undergone

more coalification so lower volatile matter. (Reflection of Vitrinite)

Stands for Coke Strength Reactivity which is a measure of the quality of the

coke produced from the coal.

Stands for coke reactivity index which is a measure of how reactive the coke is

with CO2.

Non-organic material that is embedded in the coal. Mineral matter typically

oxides.

Stands for Volatile Matter. The organic material within the coal that when

heated burns off into gas leaving behind coke.

A Physical measurement of a coal’s viscous properties when heated to the plastic

state.

The product that remains in the coke oven once the coal is heated and the

volatile matter is burnt off. Essentially pure carbon and ash.

Stands for Pulverised Coal Injection coal. Coal that is blown into the bottom of

the blast furnace through tuyeres as a heat source.

Stands for semi-soft coking coal. Metallurgical coal that has a lower CSR.

Typically used more as a filler in the coke blends.

Coal that has no coking properties. It is used as a heat source for power

generation.

.

viii

ix

Introduction

1.1 China

The move of the Chinese population from rural areas into urban areas has been the

growth impetus that has created a greatly increased demand for good quality hard coking

coal. The Chinese government has managed the infrastructure growth through a

methodical five-year planning process in which they highlight the infrastructure

investment plan for the next five years. The recent, twelfth such plan, envisions over

85,000 km of new highways and over 40,000 km of high-speed rail networks linking the

most of the major cities in China. This type of investment in infrastructure is very steel

intensive. Railways require rail and rail bridges while highway construction will

necessitate significant bridge construction and median and shoulder guardrails. The

highway construction will as well increase personal mobility of the Chinese population

and therefore increase automobile demand/ownership. Statistics compiled by the

University of Sheffield and CEIC in 2002 indicate there are thirty six cars for every one

thousand people in China compared to four hundred and eighty one for every one

thousand people in the U.S. and four hundred and sixty four for every thousand in

Europe. China is and will be a significant sales region for automobile manufactures like

Audi, GMC, and Mazda all of whom have plants in China. All this infrastructure

investment and increased demand in the automobile market has translated into significant

growth in steel production within China. Figure #1 shows the crude steel production by

year and associated growth occurring in the sector to fuel the urbanization plans.

1

Figure 1: Apparent vs. Actual Steel Consumption

An interesting point of note is that, as the differential between the production of steel and

apparent consumption shrinks China could very easily become a net importer of steel

again, which could have impacts on the world steel markets. This increased steel

production has in turn created a significant increase in hard coking coal requirements.

Figure #2 shows the current steel consumption by city. It is clear from the graph that the

future steel consumption growth by city will increase by more than 25 % over the next

ten years. Another important point to note from this figure is the fact that the inland

cities are yet to experience the growth and modernization that the coastal cities have

experienced.

0

100

200

300

400

500

600

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

ProductionApparent consumption

Mt

Net exporter

Net importer

China accounts for 46% of the world’s steel apparent consumption in 2009

China turned from a steel importer to an exporter since 2006

2

Figure 2: Chinese City Population vs. Steel Consumption

China in 2004 was actually an exporter of metallurgical coal and steel making coke.

However, in recent times and with the increased internal consumption China has become

a net importer of metallurgical coal and Figure #3 from Teck Coal’s Beijing Office shows

how imports have increased over time and are expected to increase in the future.

2009-2020

2009 405kg per capita

Source: CRU, Teck Beijing

2020 forecast => 565kg per capita

3

0

100

200

300

400

500

600

700

2005 2010 2015

Imported coking coal

Domestic coking coal

Mt

Figure 3 : Chinese Coking Coal Consumption

China does have its own metallurgical coalmines but they cannot meet the demand from

the steel mills. Combine this with the fact that many of the steel mills have moved to

larger blast furnaces that require a high-grade hard coking coal to operate efficiently.

The Chinese steel mills need high CSR, high coke yield and low sulphur hard coking

coals. These high quality hard coking coals are in limited supply within China, which is

why the more progressive Chinese steel mills have turned to the seaborne metallurgical

coal market to meet their ever-expanding needs. Teck Coal has the high quality hard

coking coal that the Chinese steel mills require. This paper will examine the

4

fundamentals behind the Chinese demand for high quality hard coking coal and

recommend how Teck Coal should participate in this market.

1.2 Metallurgical Coal Market

The top ten metallurgical coal exporters account for 55 % of the total market. The

remaining 45 % of the market is comprised of over 111 different producers. Table #1 shows the

percentage market share by producer.

Table 1: Top 10 Export Met Coal Producers

Top 10 Export Met Coal Producers - Equity Basis 2010       Top 10 Export Metallurgical Coal Producers 2010 Kt % Share Cum%BHP Billiton Limited 29 12% 12%Mitsubishi Corporation 23 9% 21%Teck Resources Limited 21 9% 30%Anglo American plc 14 6% 35%Xstrata plc 11 4% 40%Evraz Group S.A. 10 4% 44%Rio Tinto Group 7 3% 47%Mechel OAO 7 3% 50%Wesfarmers Limited 7 3% 52%Peabody Energy Corporation 6 2% 55%Source: AME; Company Reports

Of these top ten producers, eight export on the seaborne market while the remaining two

either sell to the domestic market or export by land to neighbouring countries. In terms of the

Chinese imports Table #2 shows the imports by country and associated corresponding producers.

5

Table 2: Chinese Metallurgical Coal Imports by Country

1.2.1 Chinese Coal Producers

China itself has a large metallurgical coal industry. In 2010, there were over 1,000 mines

in China. The Chinese government has been actively forcing consolidation and closure of the

small unsafe operations that have plagued with serious safety issues. The top five producers in

China are as follows:

6

1.2.1.1 Shanxi Coking Coal Group (SCCG): Located in Shanxi province and owned by the

provincial government they operate 106 mines with a capacity of 87 million tonnes of

clean coal. Seventy five percent of their production is hard coking coal with the

remainder being Thermal and PCI coal. Plans for 2011 are to expand production by 40

% mostly on the thermal side. Their production is sold within China to large steel mills

and power plants. They produce a high quality hard coking coal that is rated by steel

mills as a Tier 1 coal that is irreplaceable in their blend. They face significant

production challenges as their mines go deeper and the low sulphur seams are depleted.

1.2.1.2 Kailuan Mining Group: Located in Heibei Province they operate fifteen mines and

seven wash plants with clean coal production capacity of eighteen million tonnes of

clean coal. In 2009, they produced ten million tonnes of clean coal of which 60 % was

hard coking coal. They produce semisoft coking coal (SSCC) and thermal coal as well

which is sold domestically in China..

1.2.1.3 Pingdingshan Mining Group: Located in Henan Province they operate thirty-three

mines and eight wash plants with a production capacity of ten million tonnes. In 2009

they produced eight million tonnes of clean coal of which 50 % was hard coking coal.

The remaining 50 % was semisoft and thermal coal.

1.2.1.4 Longmei Mining Group: Located in Heilongjiang Province they operate 42 mines

with a washed clean coal capacity of thirty-two million tonnes. In 2009 they produced

sixteen million tonnes of which just under five million tonnes was hard coking coal.

The remaining 11 million tonnes was a combination of semisoft and thermal coal.

7

1.2.1.5 Huaibei Mining Group: Located in Anhui Province they operate seventeen coalmines

and eight wash plants with a capacity of twenty million tonnes. In 2009 they produced

eight million tonnes of clean coal of which 60 % was hard coking coal. They also

produce semisoft and thermal coal.

Figure 4: China Provinces

1.2.2 Seaborne Metallurgical Coal Producers

Five companies that represent over 85 % of the market dominate the seaborne high quality hard

coking coal. These companies are BHP Billiton, Teck, Anglo American, Rio Tinto, and Xstrata.

A brief description of each company’s hard coking coal business is as follows:

Xinjiang

Tibet

Qinghai

Sichuan

Yunnan

Inner Mongolia

Henan

Shanxi

GuangxiGuandong

Fujian

Zhejiang

Jiangsu

Shandong

Hebei

Beijing

Laioning

Jilin

Heilongjiang (HLJ)

GuizhouHunan

Hubei

Jiangxi

Anhui

ShaanxiGansu

Ningxia

8

1.2.2.1 BHP Billiton: The organizational structure of the BHP Billiton Metallurgical Coal is

as shown in figure #3

Figure 5: BHP Billiton Org Structure

They have ten hard coking coal and semisoft coking coal producing operations. In addition they

operate two PCI producing operations most of which are located in the Bowen Basin in Australia.

See figure #2. Their key flagship operations are Peak Downs and Saraji. Most customers

categorize these coals as top tier coals that are irreplaceable in their coke oven blends. They are

differentiated by their rank of 1.4 %for Peak Downs (PD) and 1.5 % for Saraji (SJ) that are

noticeably higher than most other HCC’s on the market today. During the author’s visit to China

customers visited commented how they value the Saraji and Peak Downs coal above all others.

Teck Coal currently has no comparable coals in its product inventory but is actively working with

customers to highlight other benefits that can be obtained from its coals and how Teck Coal

9

products can be utilized in their coke oven blends like a top tier coal. BHP’s other HCC

operations are Goonyella, Riverside, Illawarra, Gregory, and Norwich Park. They also have two

semi soft coal producing operations Poitrel and Blackwater. The two PCI coal-producing

operations are South Walker Creek and Poitrel.

Figure 6: BHP Bowen Basin Mine Location

10

1.2.2.2 Teck: Teck is the #2 Seaborne Metallurgical coal supplier in the world. Teck

has six operations all of which are located in Canada. Five of which are in the

Elk Valley, British Columbia and one is located in Alberta. See Figure #7.

Teck produces essentially three main products categorized by volatile matter.

Table 3 shows the various products and associated qualities. The clean coal is

railed West 1,100 Km to the coast for loading onto vessels through three deep-

sea ports. The mines have combined reserves of over 600 million metric tonnes

of clean coal and an additional 1.4 billion tonnes of resources.

Figure 7: Teck Coal Operations Locations

Table 3: Teck Coal Products and Qualities

Product Moisture Ash VM RankElkview 9.00% 9.50% 21 % - 22 % 1.28 – 1.33

PACIFICOCEAN

Calgary

EdmontonCNR

PrinceGeorge

CNR

CNR

CPR

Quintette

U.S.A.

British Columbia Alberta

CN

R

CardinalRiver

WestshoreNeptune

Elk Valley

Ridley CNR

Sask

PrinceRupert`

Sparwood

Elkford

CP

R

FordingRiver

Coal Mountain

Elkview

LineCreek

Greenhills

3

43

CPRVancouver

Distance to ports:1150 km

11

Standard 9.00% 9.50% 22 % - 24 % 1.17 - 1.27Premium 9.00% 8.80% 24 % - 26 % 1.08 - 1.17

Eagle 9.00% 8.60% 26 % - 28 % 1.03 - 1.10

1.2.2.3 Rio Tinto: Rio Tinto has two operations Hail Creek and Kestrel located in the

Bowen Basin in Australia that produce hard coking coal. They have another

hand full of operations that produce semi soft coking coals but no hard coking

coal.

Figure 8: Rio Tinto Coal Operations Reserves and Resources

12

1.2.2.4 Anglo American: Anglo produces metallurgical coking coal from a number of

different operations around the world. Their main production of hard coking

coal comes from the Moranbah North, German Creek (Capcoal) and Dawson

Operations all located in the Bowen Basin in Australia. They have another two

operations in Australia (Drayton and Foxleigh) that produce semi soft and PCI

type coals. See Figure #4 for location of Anglo American metallurgical coal

operations.

Figure 9: Anglo American Operations Location

1.2.2.5 Xstrata: Xstrata’s metallurgical coal operations are located in the Queensland

province in Australia. Their main production comes from the Oaky Creek Operation

(~11 million tonnes) while the Colinsville Coal and Newlands Coal Operations also

produce minor amounts of metallurgical coal.

Table #4 represents the qualities of the various hard coking coal products that are supplied into

the Seaborne metallurgical market.

13

Table 4: Seaborne Metallurgical Coal Product and Quailities

Producer MineMet coal brand

TM (%) ar

Ash (%)

VM (%)

S (%)

P (%)

CSN

Refl (%)

Fluidity ddpm

Rio Tinto Hail Creek Hail Creek 10 8.5 20.5 0.35 0.07 8 1.32 400

Rio Tinto Hail CreekHail Creek Higher Ash 10 10 20.5 0.35 0.08 7.5 1.3 200

Rio Tinto Kestrel Kestrel 8 6.5 34 0.65 0.03 8.5 0.94 10,000Anglo Dawson Dawson C 10.5 8 26 0.45 0.04 8 1.04 900Anglo Dawson Dawson D 10.5 8.5 24.3 0.55 0.04 7.5 1.15 400

Anglo Dawson Dawson HV 10.5 8.5 29.2 0.450.00

9 8 0.95 3,200

Anglo DawsonDawson Soft Coking 11 8.5 29 0.48 0.04 5.5 0.9 75

Anglo Dawson Moura C 10.5 7.8 26 0.5 0.02 7.5 1.04 850

Anglo Dawson Moura Soft 10.5 8.8 28 0.550.02

6 4 0.8 50

AngloGerman Creek German Creek 11 9 19.8 0.6 0.06 7.5 1.52 200

AngloMoranbah North

Hard Coking Coal 10 8.5 25.6 0.52 0.04 8.5 1.11 2,200

Xstrata CollinsvilleCollinsville Coking 8 9 26 0.7 0.03 7 1.11 2,000

Xstrata NewlandsCollinsville Hard 8 9 26 0.7 0.03 7 1.11 2,000

XstrataOaky Creek Oaky Creek 10 9 26 0.7 0.06 9 1.15 6,000

Note: % S is the amount of sulphur in the coal, % P is the amount of phosphorous in the coal.

Reflectance is equivalent to rank and inversely proportional to VM. CSN is the free swelling

index (FSI) of the coal.

14

2: Chinese Steel Industry

As the Chinese steel industry has continued to grow and produce more year over year the

Chinese government has taken steps to force consolidation of the industry. The top ten steel

companies now account for over 60 % of the steel produced in China. With a more consolidated

industry, better economies of scale are achieved and in turn, productivities will improve. This

consolidation also provides the government the added benefit of making it easier to regulate the

industry to become more efficient. Larger companies are also better able to adopt and implement

new technologies and ensure efficient processes are in place. The steel industry is a very energy

intensive industry so as power, supply becomes tighter and tighter the government has at times

limited industrial power usage for inefficient consumers. Therefore having an energy efficient

process is critical to avoid being limited by reduced power allocation.

2.1 Blast Furnace Technology

The Chinese steel mills have also taken a very progressive approach to embracing new

technology. Specifically in the last few years, the trend has been to build larger and larger blast

furnaces culminating in the 5800 cubic meter unit at the Sha Steel works in Zhang Jia Gang.

With the move to larger and larger blast furnaces, the need for higher quality hard coking coal is

an imperative. There are four main functions that the coke needs to be able to fulfil in the blast

furnace. They are:

Provide heat for the chemical reaction.

Support the burden of the layers of iron ore and coke.

Provide and maintain gas distribution so the iron ore can be chemically reduced

in the upper shaft and especially in the cohesive zone and liquid zones.

React with carbon dioxide but remain strong enough at elevated temperatures to

provide the vertical permeability for liquid hot metal in the hearth of the

furnace.

Contribute carbon to bond with the iron to form crude steel

15

The larger the blast furnace diameter gets the more critical the coke’s ability needs to

be to fulfil the above four items. Higher coke strength after reactivity (CSR) and coke

stability are critical quality parameters to ensure. Table #2 shows how the larger blast

furnaces require higher coke qualities and in turn higher hard coking coal qualities.

Table 5: Blast Furnace Quality Requirements by Size

500m3 1000m3

2000m3 3000m3

4000m3

5000m3

Ash (%) ≤13.5 ≤13.0 ≤13.0 ≤12.5 ≤12.0 ≤12.0

S (%) ≤0.8 ≤0.7 ≤0.7 ≤0.65 ≤0.6 ≤0.6

M40 (%) ≥76 ≥78 ≥82 ≥84 ≥85 ≥86

M10 (%) ≤8.5 ≤8.0 ≤7.5 ≤7.0 ≤6.5 ≤6.0

Size (mm)

25~40 25~70

25~475 25~75 25~75

30~75

CRI (%) ≤30 ≤28 ≤26 ≤25 ≤25 ≤25

CSR (%) ≥55 ≥58 ≥60 ≥63 ≥65 ≥66

The M40 and M10 values are European equivalent of the ASTM Stability (Coke Cold

Strength) and Hardness (Resistance to Abrasion) respectively.of the final coke product.

Having the right size distribution and strength of coke for the blast furnace is critical to

ensure efficient operation. High quality hard coking coals are the only coals that can

produce a coke strong enough to support the larger interlaid beds of iron ore and coke in

these larger blast furnaces. Factors of the coke that can affect the coke reactivity to

carbon dioxide are:

Composition of the Ash: Higher alkaline content (sodium and potassium) can

lead to increased reaction rates with carbon dioxide.

Coke Porosity: The higher porosity coke has more exposed surface areas and as

such has a higher reactivity. Typically, low rank high volatile (HV) matter

coals have a higher porosity then higher rank HV and MV coals.

Coke Structure: The ratio of inerts and macerals in the coal determines the wall

thickness of the coke. Typically, the thinner walled cokes have higher porosity.

16

A recent survey of large blast furnace operators conducted in Japan, Brazil and the USA

identified the following as the ideal Coke Quality requirements.

Size: Typical 30mm x 90mm, with no more than 5% > 90mm and no more than

5% < 30mm, and a min of 55% > 50mm (this last one is to assure a mean size

>50mm). USA operators prefer 55-60 mm average size.

Coke Reactivity (CRI) and Coke Strength after Reduction (CSR) :  A

minimum CSR of 62 but prefer greater then 65 (or 65-69).  Too high a CSR

(>70) can be problematic as it leads to low reactivity coke which accumulates

above the hearth of the furnace (“deadman”) and does not provide useful

reduction  The CRI is max 25, but most operators really prefer 20-23 (again less

than 17-18 can be a problem (see above)

Physical Strength – ASTM Stability greater then 62, but really prefer greater

than 65.  Micum 40 > 84 (Hardness >68)

Chemistry / All Other:   Most other items are a matter of economics and/or site

specific.

o Ash <12% (USA Operators prefer Coke Ash <8.5%)

o Sulfur  < 0.8%

o Phos (in coke) < 0.035% (USA Operators prefer 0.018% Phos in Coke)

o Alkalie (%Na2O + %K2O in coke ash) < 3.5%

o ASG (Apparent Specific Gravity : >0.90%

o Porosity : 50 – 54%

o Bulk Density : 28 – 32 pcf

o VM <1.00% 

(*) (Results of surveys conducted in Japan, Brazil, and the USA. Participants included, CSN,

NSC, Usiminas, several US Steel makers including, US Steel, AMS, AK Steel, Algoma, Dofasco,

Inland, Stelco, WCI, Weirton)

17

The smaller mills (400 cubic meters in size) are small enough that they do not need the

high CSR coals. Most blast furnace operators agree that the coke should not react at the

lower temperatures that exist in the upper portion of the blast furnace to avoid carbon

loss.

18

3: Teck Coal Market Analysis

Being the number two seaborne metallurgical coal supplier in the world Teck Coal

currently sells coal to most major steel mills around the world. Figure 10 shows the sales

distribution for Teck Coal for the last five years. Teck Coal only began selling larger volumes of

coal to China in 2009 and maintained roughly the same volume in 2010.

2006 2007 2008 2009 20100%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

48%53%52%50%44%

15%15%

1%1%1%

21%20%

28%32%35%

9%8%

11%10%11%

7%4%8%8%8%

Sales Allocation (Met)

South AmericaNorth AmericaEuropeChinaAsia ex. China

Figure 10: Teck Coal Sales by Region

This reallocated volume for the most part came from the European market, as this region

was hardest hit by the world economic downturn at the end of 2008. Europe has also has been

the slowest steel making region to recover. Teck Coal’s marketing philosophy has always been

to form strategic relationships with large stable steel producers. This philosophy has carried over

into the Chinese market and the objective has been to sell coal to the larger steel manufacturing

companies in China. The 2010 Teck Coal sales breakdown is shown in Table #6.

19

Table 6: Teck Coal Sales by Product into China for 2010

mt %CHEVBL 73,416 3.0%EKVLCH-ABLD 827,314

33.5%

EKVSTDBL 230,872 9.4%

FCGPREM 964,05939.1%

FRPREM 297,83312.1%

STDBL 74,529 3.0%

TOTAL2,468,0

23100%

3.1 Strengths

Teck provides the opportunity for diversification from the Australian suppliers.

The recent floods experienced in Australia the last few years and subsequent

supply disruption has highlighted to all major steel mills the need to have a

diversified supplier base for hard coking coal. This point is probably the

greatest item that Teck can offer to the Chinese steel mills.

Teck is able to offer a full suite of products. (Hard coking coal, Semisoft, PCI

and Thermal)

Teck ships out of large ports and can load cape size vessels (120,000 mt) that

provide cost advantages for shipping.

Operations are located in politically stable jurisdictions. (Canada)

Teck can provide technical support to steel mills from the Beijing Office and

Technical Expertise to assist steel mill operators in optimizing use of Teck Coal

products in their respective blends.

3.2 Weaknesses

Teck has higher shipping costs compared to competitors due to its distance from

China. Typical shipping time from Australia to China is 14 days while shipping

20

from Canada to China takes 16.5 days. This fact makes logistical planning more

complicated and small shipments less attractive due to higher freight costs.

Therefore, the best way to offset this is by shipping with only large vessels that

provide better economies of scale. As well, sales contracts are written such that

Teck Coal provides shipping or the contract is written such that it is cost neutral

for the customer.

Teck currently possess only one coal that is almost valued as a tier one level coal.

The Elkview product with its high rank is able to achieve the same valuation as

the Saraji and Peak Downs coals from BHP. These coals are able to demand

roughly a $4.00 per tonne premium over other hard coking coals because of this

valuation and carrying capacity performance in the respective blends. Teck

Coal’s other products (Premium and Standard) are sold at a discount to these top

tier coals. The Elkview product does have a limited supply and as such, if

another coal could be raised to a level that would generate a similar valuation it

would provide a larger product base for customers to choose from and be a more

realistic alternative to the BHP coals.

Labour disruptions. There has recently been labour action taken at two of Teck

Coal’s Operations. For Teck to be able to market itself as a stable alternative to

the Australian suppliers unforeseen labour disruptions and in turn missed sales

commitments cannot occur. If Teck’s reputation is viewed as unstable in the

market then customers will look elsewhere for a stable supply alternative to

Australia.

3.3 Opportunities

Introduce coal to new customers and develop a larger customer base in China

that is familiar with Teck Coal’s products. There are so many small mills in

China that the untapped potential is enormous. The challenge to access these

steel mills is their ability to purchase large quantities of raw materials and tie up

large amounts of cash in inventory. For Teck being able to group sales lots into

one shipment or provide a favourable contract are some of the ways to access this

portion of the market. As previously mentioned aligning with reputable trading

companies is another way to move product into these small mills.

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Work with steel mills and create another coal that is viewed and valued by them

as irreplaceable in their blends. This first starts with understanding the individual

steel mill coke oven blends and then being able to rework and develop a new

blend utilising a Teck Coal product like Premium and generate better overall

value for the steel mill. To accomplish this would require working together with

the steel mill operators to develop a joint test program to optimize their existing

base blends using Teck Coal products. A substantial investment of personnel

time and adequate resources would be required to make this a success. The

biggest challenge would be to identify steel mills that would be open to

participating/undertaking this process.

Increase understanding and capabilities of Teck’s products. Remove the

comparison of products as similar to a “Fat” coal. Currently the mid-vol coal

that Teck Coal produces is valued lower by Chinese steel mills as the VM

content and Rank are comparable to Chinese “Fat” coal. However the Chinese

“Fat” coal produces a coke of much lower quality compared to the mid vol

product that Teck Coal produces. This significant difference is not understood

and is therefore not valued in the market place.

3.4 Threats

The Seaborne market goes into an oversupply position due to new mines coming

online and suppliers beginning to dump coal into the Chinese market. There are

a number of new Greenfield operations scheduled to come on line over the next

five years. The issue with most of the new projects is that there is no existing

infrastructure in place so in addition to the new mine construction there also

needs to be a complete new transportation supply chain (railroad and port) built.

Current estimates indicate that these new operations combined with Brownfield

expansions will add over 80 million tonnes into the seaborne market by 2018.

The location of these new Greenfield projects is shown in Figure #11.

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Figure 11: Hard Coking Coal Deposits

The Chinese economic growth slows down dramatically and demand for hard

coking coal falls significantly. The Chinese government monitors economic

conditions closely and has shown it is prepared to put measures in place to slow

down the rate of economic growth and prevent overheating of the Chinese

economy. Examples of this in the past have been export taxes, bank reserves,

and real estate ownership limitations just to name a few. If an economic crisis

were to occur in China, annual growth would plummet and the market would

swing into an oversupply situation, especially for metallurgical coal that is

directly connected to the growth and urbanisation of China. The growth of

demand in India or any other developing country could not consume the excess

coal available in the market and as such any supplier expansion projects could no

longer be viable. In addition, the China coalmines would probably begin

exporting and make the oversupply position even worse.

Bowen Basin

Western Canada Appal

achia

Moatize (Mozambique)

Tavan Tolgoi (Mongolia)

Maruwai (Indonesia)

Elga (Russia)

Shanxi (China)

Bowen Basin

Source: McCloskey

2007 137mt

2008 134mt

2009 134mt

AUSTRALIAMet Coal Exports

OperatingDeposits

LEGEND

2007 29mt

2008 39mt

2009 34mt

USAMet Coal Exports

2007 27mt

2008 27mt

2009 22mt

CANADAMet Coal Exports

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Teck Coal’s top brand coals perform poorly for new customers in the coke ovens

and blast furnaces. As the steel industry is a very close-knit group, poor

performance of Teck’s coal at a mill could damage the reputation of the coal in

the market. Once a products reputation is damaged, it becomes extremely

difficult to develop new clients as well as maintain pricing. The Western

Canadian Coals are noticeably different in terms of how to utilise them in the

coke blends and the corresponding coke in the blast furnace. Steel mills need to

be aware of these differences and learn how to use the coals properly in their

blends to get the maximum performance and value out of the coals. This is why

Teck Coal has set up an office in Beijing, China, which has a technical manager

in that office to provide support and guidance to the Chinese steel mills.

The most likely factor from the points above that Teck Coal will be faced with is the

increasing supply and access into the market. Mongolia is extremely well positioned to supply

the Chinese market so as investment continues to ramp up more and more coal will be available

for the Chinese steel mills to choose from. For Teck being able to differentiate its products based

on quality will be a critical point for maintaining its presence in the market. On the other hand

Teck Coal is least likely to face dealing with reputational damage in the market. The support and

experience of the current marketing team is quite high and as such are able to clearly

communicate with customers and prevent engaging in practices and or agreements that could

damage Teck’s reputation in the market.

3.5 Teck Coal Expansion Plans

Teck Coal has publicly stated it intends to increase production to over 30 million tonnes

by 2014. This increased production will be achieved through expansion at the existing operations

as well as re-starting the Quintette Operation, which is located in North East British Columbia.

Figure #12 shows production levels by operation over the next five years. The Quintette

operation will produce 3.5 million tonnes of a medium quality hard coking coal that will not

compete at the top of the market but will definitely fulfil market needs for metallurgical coal. To

achieve this expansion at existing operations a significant investment into the mobile fleet and

process plant infrastructure is required. As production, levels increase the railing and port

logistics will become more and more of a bottleneck. Teck has been actively working on the port

and rail connections by entering into long-term agreements with the railroads and developing

expansion plans for the Neptune Port facility of which Teck is part owner. Teck Coal has also

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begun using the Ridley Terminal in Northern British Columbia for shipments from the Cheviot

Operation. Ridley Terminals would also be the main shipping port for the Quintette Operation

production.

Figure 12: Teck Coal Expansion Plans

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4: The Five Forces Discussion

The five forces as described by Porter (1980) have become the standard for evaluating

market and the competitive forces that are at play in market. The seaborne metallurgical market

analysis is as follows:

4.1 Threat of Entry

The large metallurgical coal deposits in the world are well known and depicted in Figure

#5 above. Of the undeveloped deposits, the Moatize property in Mozambique is the closest to

coming into production. Vale, who is the largest iron ore supplier in the world is the owner of the

Moatize property. To date Vale has not been a competitor in the Seaborne metallurgical coal

market but with Moatize coming on line all that would change. Being able to leverage iron ore

with coal during contract negotiations with customers would give Vale an incredibly strong

position in the market. Moatize is scheduled to start up in 2010 and place over 1 million tonnes

into the market. It then ramps up to 11 million tonnes by 2014. Given its location on the East

side of Africa, it is ideally situated to supply the steel mills in India. Although not directly

influencing Teck Coal markets any Australian coal displaced out of the Indian market would

become a direct competitor against Teck Coal’s products.

With regard to China, China’s neighbour Mongolia has perhaps the best ability to supply

the Chinese demand for metallurgical coal. Table #7 shows the current and forecasted resource

development that is currently ongoing in Mongolia.

Table 7: Mongolian Raw Coal Production

2010 2011Est 2012Est 2013Est 2014Est 2015Est

HCC 8 11 14 17 19 22

WCC 5 9 12 16 22 28

Thermal 7 10 12 14 16 18

Total coal 20 29 37 47 56 67

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WCC refers to weak coking coal or semi soft coking coal (SSCC).

The Tavan Tolgoi deposit is the largest project planned to supply the Chinese market.

However, the ownership of the property is still yet to be stabilised with Vale, Xstrata and

Peabody Resources vying for majority shareholder of the property. There is still substantial

infrastructure investment required before the property can be brought into production. As well

there are regulatory challenges from a government perspective, poor availability of skilled labour,

and still to be resolved quality issues. Even in China, there is limited transportation infrastructure

in place to bring the coal to the large costal steel mills. Therefore, the Seaborne market is

actually better able to supply the steel mills then the Mongolian deposit.

Consolidation has also been a factor that needs to be monitored. The recent takeover of

Western Canadian Coal by Walter Resource has created the fourth largest metallurgical coal

supplier behind Anglo American and ahead of Xstrata. This new company is of a size that it will

benefit from economies of scale and be able to compete in all regions of the Seaborne market. A

second takeover of note is the purchase by Alpha Resources of Massey Energy, which created the

sixth largest metallurgical supplier. With the market forecast to remain in an undersupply

position the consolidation of smaller mines into larger market players will most likely continue

and potentially even increase.

4.2 Threat of Substitution

To date there have been no new processes developed to produce steel. Technological

advances have been made that would reduce the amount of coking coal required. However even

in these new processes high quality hard coking coal is still the basis and carbon source for the

steel. The Electric Arc furnace (EAF) is probably the highest potential substitution steel

manufacturing process. But this process is very energy intensive and relies on a continuous

supply scrap material. High power requirements are not a favourable input requirement for a

process in China as the current power generation and distribution systems are barely growing fast

enough to meet current demand. As well China is in such a growth phase scrap steel material

trade is not a developed market in China.

There are a number of other processes like direct reduction, Midrex, Fastmat, Corex,

HLSmelt, etc. (See Appendix A) that have been developed to replace the blast furnace but all

require some form of hard coking coal and all are still less efficient then the blast furnace.

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4.3 Bargaining Power of Suppliers

As there is currently a scarcity of hard coking coal in the world, suppliers have significant

bargaining power. To the point that recently suppliers adopted quarterly pricing which provides a

more reflective pricing model for prevailing conditions in the market. Quarterly pricing allows

full value to be achieved as market supply tightens but also causes prices to decline as supply

increases. However, in near terms supply is forecast to remain tight and as such favour suppliers.

Historically contract pricing had been determined for a year and was not altered through the

whole year no matter what economic events occur in the world or the seaborne markets. Recently

there have been attempts by BHP to move to monthly pricing. To date there has been little

acceptance of this model and unless BHP offers customers more discounts this model will most

likely not be adopted. In addition, no other suppliers have tried to adopt this monthly pricing

model.

4.4 Bargaining Power of Buyers

The current high demand for hard coking coal in China presents very little opportunity

for buyers to exert any power in the market. The higher quality coals are able to demand

maximum price in the market. Lower rank high volatile coals are also readily available in China

so pricing is reflective of the increased supply. The only real bargaining opportunities exist in the

lower quality semisoft coals where there is more supply and competition.

4.5 Rivalry Among Current Competitors

Probably the single biggest item experienced among current competitors is price

competition. Historically the common strategy employed by competitors was to offer price

discounts to guarantee sales volumes. Recently as the market has tightened price competition has

no longer been a common strategy. Instead, competitors have tried to differentiate their product

from others based on qualities. BHP has led the way with push towards bench marking or

indexing qualities of the various coal brands and therefore value of the coal. As the supplier of

the “highest quality coals” it is not surprising that they are trying to do this but all other market

players will not be interested as it would diminish the value of their products. Customers

however might be interested as it would be a method of ensuring they are paying appropriate

value for coals. From a Teck Coal perspective there would be great concern that our coals would

be undervalued compared to Australian and U.S. coals as the typical coal qualities are different

but the coke qualities and behaviour in the blast furnace are comparable. The only way Teck Coal

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could offset this problem if it were ever to come into place would be to flood the market with test

work to show and educate as many people as possible on the performance of the coal.

Fortunately, to date they have been unsuccessful with having the market adopt this type of

benchmarking.

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5: Other Market Factors

Teck Coal must consider a number of other factors to ensure they can effectively

operate/sell in the Chinese market. A demand estimation model ( Teck Coal, 2011) highlights a

number of key factors that should be considered. These factors are:

5.1 Market Complimentary

A number of manufactured goods uses steel, so tracking of those goods can be a good

leading indicator of steel demand. In China automobile sales, construction rebar prices, appliance

sales are just a few of the manufactured goods that need to be tracked and monitored to gauge

potential changes in steel demand.

5.2 Complimentary Products

Iron ore is the key complimentary raw material along with coal required to produce steel

with a blast furnace. Therefore monitoring the iron ore market and ensuring there are no forecast

supply disruptions or changes in purchasing volumes can be a good indicator of reduced or

increasing steel mill production. This information is important to ensure proper demand is being

estimated and proper valuation for the coal.

5.3 Cannibalization

There is limited potential for Teck Coal to cause cannibalization of its products. As they

work to introduce other products into the market and work with the steel mill operators to

demonstrate the value of the Teck products it is imperative that a sales book plan is in place to

ensure that too much interest in one product is not generated. That is why developing a second

product in the Tier one irreplaceable category provides greater market flexibility.

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5.4 Indirect Substitution

To date there are limited successful substitutes for steel which have mostly been in

specialized applications. However as steel prices increase it can drive substitution in the finished

product sector. For example as steel prices, rise plastics for automobile manufactures become

economic. Therefore monitoring of raw material substitutions in the manufacturing of finished

products is an important area to keep abreast of for gauging demand for steel. As China is really

an emerging market there are less likely to be lots of substitution on the finished product side as

that typically requires a mature market understanding.

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6: Opportunity Analysis

China’s growth has become the single largest factor fuelling the demand for commodities

around the world. In terms of the Seaborne metallurgical market, it has only recently become a

net importer. For Teck Coal, China presents potential opportunities and from the SWOT and

Five Forces analysis in Section 3 and 4 these opportunities will be discussed.

6.1 Increase Market Share

Teck Coal can proceed and increase market share by pushing tonnage during discussion

with customers. There are a number of risks associated with doing this in that they need to ensure

customers are valuing the coal and the business relationship, which is not always the case in

China. There also then needs to be decisions made about which existing customers will be cut off

from Teck Coal. In doing this, the value of the new customers in China needs to be significantly

better than the existing customer who was cut off. The Chinese market is still developing from

an import perspective. Customers tend to behave in an opportunistic manner so contracts are

more of an indication of intent versus being a binding commitment. Therefore, before Teck Coal

increases its participation and exposure to the Chinese market it needs to perform an independent

evaluation of the potential new customers and ensure they have a history of stable behaviour in

the market. A major hurdle that Teck Coal would need to overcome if it were to attempt to

increase its presence in the market by selling to more customers is the steel companies get smaller

and smaller and have different levels of capacity. The smaller the companies get the greater the

potential risk and increased logistical challenges. One way around this would be to sell or work

through a trading company like Sinomet that would look after buying large cape size shipments

and then parcelling it up into smaller lots for sale to smaller steel companies. Current margins

could easily support a distributor that provided access to smaller mills. In addition, if Teck Coal

were to push more and more products into the market then the potential of product

cannibalization increases.

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6.2 Develop Coals in the Top Tier Valuation

The ability to do this would probably have the single biggest impact for Teck Coal in

China. Developing another coal that steel mills in China view as irreplaceable and are willing to

pay a premium for would separate Teck Coal from the majority of the hard coking coal producers

servicing the Chinese market. The method of achieving this is to find a steel mill willing to

invest the time and work at fine-tuning there blends. They would need to be open to developing a

test program and be open to allow a Teck Coal technical manager to work with their operations

group and potentially educate them on how best to utilise the coal. Of the Teck Coal products

listed in Table #3 the Premium product would be the coal to target as being the one to elevate into

the Tier One category to be as valued as the Saraji and Peak Down coals. Premium coal has a

rank that fits nicely in most steel mills blends and presents multiple substitution options for the

steel maker. The combined lower ash and VM levels allow the premium coal to replace an

greater portion of high rank or low rank coals. It really depends on the individual mills blends

and where they are looking for increased flexibility or even replacement options. It ultimately

comes down to finding how the steel mills blend could be better optimized by using the Premium

product. This optimization can be achieved in a number of different ways like allowing more

readily available lower value coals to be used, or eliminating a high cost limited supply coal from

the blend, or produce better quality coke therefore lowering blast furnace coke consumption rates,

just to name a few. Selecting the customer should be based on technical capacity and desire to

find another option to the coals in their respective blends. The enticement for a customer to

participate in a test program is that a testing discount could be offered on pricing to encourage the

participation. Once a successful test program has been achieved, it could be leveraged with other

steel mills to at a minimum test the coal as a Tier One coal replacement. From an internal Teck

Coal perspective the Premium product coal quality would need to be protected and the use of

filler seams kept at a constant predetermined level to ensure there is minimal variation in the

coking coal properties. Also blending practices at the port would need to be “locked down” to

ensure no deviation from the agreed upon technical blending process. This coal would then not

have any discount and would be able to achieve top pricing in the market. As stated previously in

the “Weakness” section a $4.00 per MTCC premium is paid for the top tier coals. If Teck Coal

were to sell one million tonnes of Premium product into the Chinese market that would generate

an additional $ 4 million tonnes of sales revenue, which would ultimately flow directly through to

the bottom line as profit.

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6.3 Maintain Market Share

Possibly the most straight forward thing that Teck Coal could do would be to try and

maintain a similar market share to their overall position in the Seaborne market. For example, if

Teck represents 9 % of the Seaborne metallurgical market then Teck should strive to have a

minimum of 9 % share of the import Chinese market. For Teck to be able to increase its market

share in China it would need to reduce its market share in another market. As seen in Figure 10

Teck reduced its sales into Europe and moved them into China. A further reduction in any of the

markets would reduce the amount of diversification Teck Coal currently enjoys with its sales

book. If however, at any time the financial situation deteriorates in any market region then

moving coal sales into China would be the best strategic option. In regards to the expansion

tonnes like Quintette, the Chinese market may present special opportunities to meet a specific

demand or niche in the market. If through the previously described coke oven blend optimization

a higher value could be develpped for the coal then increasing market share in China would make

obvious sense. Otherwise balancing the expansion tonnes across all markets would be the logical

approach to keep the diversification of the sales book.

6.4 Develop More Markets for Complimentary Products (Semisoft, PCI and Thermal)

Instead of pushing to develop more customers and increase the metallurgical coal sales

into China, Teck Coal could pursue increasing sales in the complimentary products such as

semisoft, PCI and thermal coal. The margin on these products is significantly less than the hard

coking coal so efforts in this market segment must not take away from the hard coking coal

market. The semisoft and PCI coals are a much more competitive market due to the increase in

supply. Price competition is very prevalent in this segment so increased participation by Teck

Coal should be for purpose and only done if again it doesn’t displace hard coking coal logistic

capacity. Teck Coal currently sells regular thermal coal into China but has the opportunity to sell

more by-product material like pond coal or spiral middling’s. During a recent visit to China there

was an expression of interest from one customer regarding purchasing pond coal. Pond Coal is

actually the fine refuse material from the process plant and it currently generates no value for

Teck Coal. The key issue that needs to be resolved is that the logistic capacity on the railroad and

the ports cannot result in hard coking coal movement being displaced by these lower margin

products.

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35

7: Conclusion

The Chinese market is the driving force behind commodity markets around the world.

The market for metallurgical coal has experienced recent and significant increases in demand due

to the growth of the Chinese markets. Teck Coal as the number two supplier in the Seaborne

market has maintained a presence in the Chinese market for the last three years and needs to

continue doing so. The analysis and discussion above have identified a number of different

opportunities that Teck Coal could pursue as a marketing strategy for the Chinese market. In the

end the best approach for Teck Coal is as follows:

Maintain market share similar to share of the seaborne market and maintain that

share as the Chinese market grows. Effort should continue to try and increase the

customer base to provide options for coal sales to provide insurance for

maintaining market share in the event a specific steel mill experiences some sort

of unplanned disruption.

Develop an additional product most likely the Premium product into a highly

valued coal that customers view as irreplaceable because of the versatility

provided by the coal and because of this versatility are willing to pay top value

pricing.

Increase participation in complimentary markets like semisoft, PCI and Thermal

markets provided it doesn’t reduce the capacity of the hard coking coal sales by

impacting the logistics. Although this is a lower margin market there is still a

fair amount of potential upside to generate additional revenue for the company.

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Appendix – Alternate Steel Production Methods

Corex process: commercialized by the European steel maker Voest Alpine, employs an

iron melter/coal gasifier vessel with a pre-reduction shaft to produce a liquid product that

is very similar to blast furnace hot metal. Coal, oxygen, and pre-reduced iron are fed into

the melter/gasifier to melt the iron and produce a highly reducing CO-H2 gas mixture

which is then fed through a pre-reduction shaft furnace, where lump/agglomerated ore is

reduced to over 90 percent for feeding into the melter/gasifier. Voest Alpine and Posco

of South Korea jointly continued to develop the original commercialized process, leading

to several important modifications including the limited direct reduction and smelting of

ore fines. The Corex process requires a relatively high fuel rate as compared with a blast

furnace and requires a high capital cost investment compared with the traditional Blast

Furnace route.  However, so far the Corex method is the only smelting process to be

operated on a commercial scale.

 

IFCON process: developed by the South African steel maker ISCOR, is capable of

producing steel directly from coal and iron ore. In this method, coal and ore are added

continuously to a channel type induction furnace containing a slag-metal bath. Electrical

energy is supplied by the induction furnace for heating and stirring the bath. Oxygen is

added for post combustion of hydrogen and carbon monoxide released from the iron

reduction reaction and the coal.

 

FASTMET: method is based on the utilization of a rotary hearth furnace to convert steel

mill wastes and iron oxide fines to a highly metallized Direct Reduced Iron (DRI). the

Carbon contained in the wastes or added as coal, charcoal, or coke is again used as the

reductant. The iron-bearing materials, carbon (reductant), and a binder are mixed and

either pelletized or briquetted. The pellets are first dried at 160-180º C, then fed to the

Rotay Hearth Furnace.

The FASTMELT method uses the same principles as the FASTMET process above

but employs a melter to produce hot metal. The hot direct reduced metal is released

from the rotary hearth furnace mentioned above and melted in an electric furnace or

coal-fired melter. Midrex Technologies and Kobe Steel now manufacture FASTMELT.

37

38

Reference List

Works Cited

Michael E. Porter, Competitive Strategy, Techniques for Analyzing Industries and Competitors, 1980 by The Free Press, 1230 Avenue of the Americas, New York, NY, 10020

Lindsay Meredith, A diagrammatical template for business market demand estimation, Indus-trial Marketing Management 35 (2006).

Lindsay Meredith, Scanning for market threats, Journal of Business and Industrial Marketing 22/4 (2007) 211 – 219.

Oliver Melton, Understanding China’s Five Year Plan: Planned economy or coordinated chaos? GaveKal Dragonomics, China Insight Economics, Nov. 2010

Interviews

Phone interview with Mr. Real Foley, VP of Marketing Teck Coal, March 14, 2011

Phone Interview with Mr. Tayfun Zehir, General Manager Marketing, March 22, 2011

Websites Reviewed

1. www.bhp.com

Macquarie Australia Conference, Presentation: Prerequisites for Metallurgical Coal Growth, Hu-bie van Dalsen, President Metallurgical Coal, May 2010.

2. www.angloamerican.com

Download: 2009/2010 Fact Book Metallurgical Coal PDF

3. www.teck.com

CIBC Whistler Institutional Investor Conference, Presentation, Ron Vance, SVP Corporate De-velopment, January 2011.

4. www.riotinto.com

UBS Iron Ore and Coal Seminar, Presentation: Rio Tinto Coal Australia, Bill Champion, Man-aging Director, November 2010.

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5. www.xstrata.com

6. www.vale.com

2010 Vale Day NY, Presentation: The journey to sustainable value creation, Roger Agnelli, Chief Executive Officer, Oct 2010

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