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Fastmarkets MB completes Kogi Iron Limited market study

Steel News - Published on Fri, 18 Jan 2019

Image Source: Golden Dragon Capital
Kogi Iron Limited and its Nigerian subsidiary KCM Mining provide an update on its ongoing studies to build a steelmaking facility and produce steel billet for sale to the domestic Nigerian and regional markets. In August 2018 the Company advised the market that it had retained Fastmarkets MB to provide a comprehensive a market feasibility study that would be of a bankable standard and would form part of the ongoing Agbaja Cast Steel Project DFS. In conducting this study Fastmarkets was required to give a detailed analysis of the steel industry in Nigeria and West Africa, including:
• Steelmaking raw material costs and substitutes
• Competitor and customer analysis
• Existing and future market demand for Kogi cast steel billet products
• Recommend an appropriate product mix and plant size
• Price forecasts

The objective of the Fastmarkets study titled Kogi Iron Market Feasibility was to confirm the overall level of potential market demand for the Cast Steel Product that Kogi intends to produce from the Agbaja Cast Steel Project. The information from the study will be fed into the DFS which will amongst other things determine the sizing of the Agbaja Cast Steel Project's processing facility.

Fastmarkets confirmed that based on bulk sample process work undertaken by Mintek/Tenova for Kogi, the Agbaja iron ore produced a high quality steel product having minimal impurities with the following metallurgical properties:
• 99.61% Fe (iron)
• 0.0939% C (carbon)
• 0.003% Mn (manganese)
• 0.015% Si (silicon)
• 0.0194% P (phosphorus)
• <0.0632 % S (sulfur)

An extensive review of Nigerian and regional steel demand was undertaken by Fastmarkets including Fastmarkets' analysts travelling to Nigeria to interview potential customers and steel market participants. A summary of their key findings is provided below.

Economic & Market Outlook Highlights
The study evaluated a number of growth scenarios for Nigeria based on the following macro-economic forecasts:
• Economic growth in Nigeria is accelerating after the 2016-18 recession.
• Implementation of the Economic Recovery and Growth Plan 2017-2020 should accelerate after elections in early 2019.
• Economic growth is expected to recover to 2.8% in 2019 and 4-4.5% in medium term in line with historic levels1
• Construction growth rates (the major market for long products made from billet) will rise at 5-7% per annum in the medium term.
• Billet demand expected to return to previous levels of 2.3m tonnes by 2022-23 and rise to 2.9m tonnes by 2030.
• Risks to economic growth include a downturn in Chinese demand and a shift to a more generalised protectionist environment (led by the USA).
Billet Pricing Forecast
Based on the above scenario analysis Fastmarkets were able to reach the following conclusions on long term pricing of steel products in Nigeria:
• Fastmarkets forecasts a long-term average billet price over the period from 2019 to 2030 of USD 476/tonne with a range of USD 428/tonne to USD 513/tonne ex-works Lokoja, Nigeria.

This is based on:
o a long-term international price of USD 441/tonne fob Black Sea (compared to 2018 average price of USD 489/tonne) and a 5% billet import tariff (expected to be imposed from 2019). o Nigerian demand outlook.
o Balance between forecast Nigerian supply and demand.
This is conservative compared to current prices of:
o Lagos local rebar USD 468/tonne and CARES rebar (International quality) US$620/tonne. o Abuja local rebar USD 509/tonne, and CARES rebar USD 708/tonne; and o Port Harcourt local rebar USD 468/tonne and CARES rebar USD 675/tonne.
CARES is a United Kingdom based standards organization that provides impartial quality control review of rebar product. Kogi believes its billet will be of a quality which will assist future offtake partners in reaching CARES quality criteria.
Market Billet Demand and Kogi

Fastmarkets were then able to examine the potential billet market available for Kogi:
• Based solely on forecast market demand for steel billets Fastmarkets considers the Nigerian market has a capacity to handle additional new billet production of up to 1.5m tpy. The DFS will include a determination of the optimum sizing of the plant to be built by Kogi.
• Fastmarkets also recommended export markets in Cameroon and Ghana be considered with forecast market capacity of 100-250,000 tpy.
• The bulk of sales will be to domestic steelmakers as a more profitable option than ferrous scrap.
• If technically possible, Fastmarkets recommended the sale of Direct Reduced Iron (DRI) as an option, notably during the start-up phase or if billet demand is below the base case scenario.

In the longer term, Fastmarkets forecast that if Nigeria were to reach per capita consumption of 21kg in 2030 (still less than the 2017 average of 28kg), billet demand could be ~4.5m tpy. Given the low levels of current per capita demand and the potential for upside growth in steel demand, Fastmarkets recommended that planning of the Agbaja Project take into account a potential Phase II to cater for additional output.

Source :

Posted By : Joykumar Irom on Fri, 18 Jan 2019
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