Over the last few days I've been wondering if Northshore sold any of its tonnage from Silverbay to Canada. This would be significant as the tonnage could then move from Canada to China in large dry bulk carriers and sold on the spot market. In the past almost all of Northshore's tonnage went off to a few customers in the nearby Great Lakes (e.g., Arcelormittal in Burns Harbor, and Essar Algoma near Sault Ste. Marie). However, Cliffs mentioned in their Q1 conference call that they wanted to sell up to 2MT from the Great Lakes to the spot market this year. So the question I wanted to answer is, what if any of this tonnage would come from Silverbay.
After doing a lot of digging, I found that three ships (2 so far, and one is en route) have made the trip from Silver Bay to Canada. Total max tonnage for these ships in Q1 should be about 100k tonnes. I'll keep an eye on this and update the numbers at the end of the month.
IO trading from north America is an interesting topic. Years ago I was on a O&G project in Europe and wanted to purchase 22 000 tons of pipe. The English, French, German and Italian bitted the job. I was not able to interest the US steel makers, too small of a order. The Italian got the job, this was in 1978. Today, France production of steel is less then halves what it was. English steel same if not more. The French and English steel were always more expensive, because of the sulfur content in the IO. The Italian were OK but QA was a problem. The German add the biggest slice of the pie. If you remember the original Russian pipeline, the German were able to produce the million ton of 46 inch pipe in 6 month, without QA problem. Today the Russian in a capitalistic model can produce, by enlarge, their need.
Today Europe does not produce carbon steel in the quantity of 30 years ago. The European as well as the North American market are high tech, stainless steel and high nickel alloy steel. The carbon steel market in India and China. The "fe" requirements in stainless steel is very limited as in SST 304 to traces in SST 316. The carbon steel is required for heavy machinery and the car manufacturing. Car manufacturing is losing sales in Europe and the US as these markets are "mature".
The steel production is in the new markets, China, India and Brazil. The British have open a new state of the art steel mill in Brazil last month, that will take 25% of Vale IO production. CLF new marketing model is the only way to increase market share. China and India are the new markets, but transportation cost is disadvantageous if your mines are in Minnesota. CLF competition is BHP and RIO with a transport advantage. I also understand that their IO quality is not equal to the CLF IO. Transportation is standard in 160,000 ton bulk carrier, I believe Vale has on order 12, 450,000 ton bulk carrier and has taken delivery on 1.
CLF has to tackle the transportation from Minnesota to China, the St Laurent been limited to 33,000 ton. Until the solution is found, CLF cost per ton will be high, around $30 FOB Qingdao. I believe the Northwest passage is good for 6 to 8 weeks in the summer, with good escorts to handle the ice. Convoy of 4 bulk carriers can be cost effective.
Thanks for your thoughts OUS. My largest position is in a company named New Millennium Capital (nml.v) which is part owned by Tata Steel. New Millennium is set up to be the sole provider of iron ore pellets to Tata's European Unit Corus Steel. Corus, to my knowledge, is the largest steel producer in Europe and has a need for 40-50MT of iron ore. New Millennium in about 5 years time will be set up to produce around 40-50MT. Currently they are a junior, and haven't produced a tonne of iron ore yet, but should have their first production phase on-line by the middle of 2012. Personally I think they are a better bet than Cliffs. I post quite a bit on their yahoo board, and on their stockhouse board. If you're interested come find me there and I'd be more than willing to discuss their potential. Sorry for the plug, but I'm a big fan of their company.
Regarding the quality of product, you are correct. Cliffs on average has a much better product than Vale or BHP. Both Vale and BHP produce mainly hematite lumps and fines which are around 60-63% Fe. Most of Cliffs mines produce a high quality taconite pellet that has low impurities and an Fe concentration of around 64-67%.
In my opinion the shipping disadvantage for Cliffs is probably offset by the quality of their product.
Regarding the Northwest Passage, I'd be interested to see what happens there. There are a few companies in Northern Canada that could take advantage of this. The Canadian Juniors that come to mind are Advanced Explorations (AXI.V), Oceanic Iron Ore (FEO.V), and Zone Resources (ZNR.V). There are a handful of Canadian Juniors right now that I didn't mention with potential production in the next 5 years as well.
James, very interesting comment. Looking at the map, the Hudson Bay is at 560 miles from Silver Bay (bird eye). It is a mountainous road. From the mouth of the Moose river on the Hudson bay you have an excellent route to China, a long route and the short cut through the Northwest passage which is accessible probably 6 month a year. 2 bulk carrier per month at 160,000 tons will cover 2,000,000 tons. These carriers are the standard bulk tonnage used in seaborne trade. Rio has build 450,000 tons carrier for their trade from Brazil to China. The distance between Qingdao and Moose bay is somewhere around 8000 miles. From Eastern Australia to Qingdao it is around 7000 miles. This Northern route is competitive with Eastern Canada and Brazil.
There is a road in Canada from Moose bay the 634 that connects with the Canada 11. This Canada 11 goes by Thunder Bay. The IO pallet would have to be trucked to Moose bay. There is a factory at Moose bay, I guess the factory goods have to be shipped? Could be by boat?
None the less, you may have uncover an big potential trading advantage with CLF. I have always like the way you think.
Thanks for the comment, I appreciate the kind words. The boats from Silverbay that I tracked are heading up the St. Lawrence and are unloading their ore at the Port of Quebec. It took some trial and error but I figured out that you can track this by reviewing the vessel log of the Iroquois locks, which feeds into Quebec. The total trip from Silverbay to Quebec looks to take 8 or 9 days.
Once the iron ore reaches Quebec, I'm not really sure where it goes. I figure that Cliffs would probably want to try and sell it in China, as it would probably fetch a high price there. A month or so ago I saw that Wabush pellets (another Cliffs mine in Canada) were selling for about $210 CFR. Even if you deducted $40 for shipping from Canada, you'd still get a sales price of around $170 per tonne.
As far as the path the ship takes to get to China, I believe that they go through the Panama Canal locks. I have heard that the Northwest Passage opened up around 2007, but from what I've read the ice melt is very sharp and can pierce through most boats hulls. Several special ships have been made to navigate these waters, but I think they are very pricey and hard to come by. I noticed that Arcelormittal is trying to build one or two of these vessels for it's Baffinland Mary River Mine. Also Advanced Explorations in Nunavik may be trying to do the same as they have two Chinese off-take partners lined up for their ore.
All the best,