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Steelmakers turning to mining over refining

By Colin Richardson with Joe Innace in New York

May 23, 2012 - The board of the Washington-based American Iron and Steel Institute on May 21 elected Joseph Carrabba to a one-year term as AISI chairman; Carrabba is chairman, president and CEO of Cleveland-headquartered Cliffs Natural Resources, a global iron ore miner and metallurgical coal producer.

Perhaps a nod to the expanding influence of raw materials on the production and pricing of finished steel, Carrabba is the first mining executive in a long time to lead the influential, largely steelmaking member-company trade association. (In fact, AISI was still checking its historical records at the time of this writing to determine the last mining executive who led the organization.)

Carrabba succeeds US Steel's CEO John Surma as AISI chairman. Other recent chairmen were all top executives from the ranks of primary steelmaking: Nucor’s Dan DiMicco; Steel Dynamics Inc’s Keith Busse; AK Steel’s James Wainscott, and Ward ‘Tim’ Timken of The Timken Company.

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Carrabba wasted no time expressing his thoughts about the early-May launch of a physical iron ore trading platform in China. "There is going to be some trading done [on the China Beijing International Mining Exchange (CBMX)]," Carrabba said during a press briefing at the American Iron and Steel Institute's joint annual meeting with the Metals Service Center Institute in Cambridge, Maryland.

"Whether it gains prominence or not, I think has a long way to go. Trying to find a counterparty for that trade is pretty difficult to do," Carrabba said, adding: "I think it is wait-and-see at this point and time. We are exploring all avenues."

Steelmakers focused more on mining

In early April, Australia’s OneSteel became the latest steel producer to declare that it will focus more on iron ore mining, intending to rebadge itself as Arrium Ltd.

Similar moves and announcements in recent months reflect the tough period that has afflicted the global steel industry over the past few years — and also point to a structural shift by some mills looking beyond vertical integration to cash in on the raw materials boom.

Since the global economic crisis of 2008-09 and subsequent illiquid credit and financial markets, there has been shaky steel demand, even weakening in some developed regions. Austere budgets designed to tackle sovereign debt, particularly in Europe, have seen civil construction work dry up. In China, government attempts to curb the property market have also dampened steel demand.

Margins have been slim to non-existent for significant periods of time and as a result many steelmakers have shifted focus away from commodity grades to high-value added products.

Those with sufficient financing have also made upstream integration a priority to secure raw material supplies at a time when iron ore and coking coal costs have been disproportionately high compared to steel prices. Integrated steel mills fall into one of three groups, according to SteelConsult International: those with captive raw materials, those close to raw material resources and "the rest." Those with their own resources, such as Russia's Novolipetsk and Brazil's CSN, are toward the bottom of the cost curve.

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