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Supply Chain of Iron Ore

SUPPLY CHAIN OF IRON ORE With the increasing demand in iron ore due to rapid industrialisation and increase in demand of steel, the need for a proper distribution network or a supply chain has been realised. The following section takes into account the supply chain system of iron ore with some examples quoted from the Australia-China supply chain, which is one of the most important supply chains due to Australia being the largest exporter and China being the largest importer of iron ore. Logistic System: The iron ore logistic chain is comparatively simpler as compared to some other commodities.

Ore is transferred directly from the mine site to the steel plant refinery through various transportation sources like rail, sea or road and conveyors. The transport of iron ore forms 15-45% of the total cost of the exported ore and more than 60% of the cost of domestic consumption of coal. Iron ore’s high density and large volumes make the transportation and handling more expensive and time consuming. Hence, the efficiency of the total supply chain of iron ore is very important for the overall profitability of a mining operation.

The basic supply chain of iron ore can be depicted as follows: Fig. 1 International supply chain for iron ore Fig. 2 Domestic/inland supply chain for iron ore 1. Mine Site: A mine site is an area from where the iron ore is mined in it’s most basic and natural form and is not ready to be used in the steel industry or refinery. The ore is extracted from open cut mines using drilling and blasting techniques. There are three main types of iron ore deposits. a) Magmatic Magnetite ore deposits: It is the most magnetic of all the elements present on the earth surface.

Some iron ore deposits in Chile, formed from volcanic flows are known to have magnetite ore deposits in them. Metamorphic accumulations of the ore at Tasmania also are a rich source of magnetite form of iron ore. b) Hematite ore: This ore is found on every continent except for Antarctica, with great intensity in South America, Australia and Asia. Although rarer to find, it is cheaper to process as it does not require any beneficiation process. But being harder than magnetite they require more energy for crushing. ) Banded Iron Formation (BIF): These are metamorphosed sedimentary rocks composed of thinly blended iron minerals and silica. The mining involves moving tremendous amounts of ore and waste. The waste comes in two forms, bedrock in the mine (mullock) that isn’t ore, and unwanted minerals which are an intrinsic part of the ore rock itself (gangue). The mullock is mined and piled in waste dumps, and the gangue is separated during the beneficiation process and is removed as tailings. Taconite tailings are mostly the mineral quartz, which is chemically inert. This material is stored in large, -regulated water settling ponds.

The key economic parameters for magnetite ore being economic are the crystallinity of the magnetite, the grade of the iron within the BIF host rock, and the contaminant elements which exist within the magnetite concentrate. The size and strip ratio of most magnetite resources is irrelevant as BIF formations can be hundreds of metres thick, with hundreds of kilometers of strike, and can easily come to more than 3,000 million or more, tonnes of contained ore. 2. Stockpiling and Blending: After the impure ore is extracted from the mine, it is stored on a plot which may be on the same place as the mine or away from it.

To transfer the ore to the plot, road transportation is used. The stored ore for purification undergoes beneficiation. It is the process of separating the mineral from the unwanted waste or gangue. The mineral is then transported further in the supply chain. The gangue is mainly dumped as it of no use. A recent technical breakthrough in the mining industry has made the beneficiation process much cheaper as compared to before. The new technology, ESS, not only is useful for the extracted iron ore but also for the iron ore obtained as a by-product from copper production.

This moves the iron ore directly into the semi-processed higher value market. The technology is basically a low-cost furnace that works on self-regulating basis to produce pig iron from the iron ore. The grades of iron that are available and required for the purpose of production are: a) Low grade iron: 45-50% iron content b) Medium-grade iron: 50-55% iron content c) High-grade iron: 55-65% iron content The semi-processed iron is then passed on to the next stage 3. Rail/Road Transportation: – Most of the mines have a direct rail connection. For those who have a rail connection near-by, the material is transported using trucks or conveyors.

Trains are indexed into the loading point automatically one or two wagons a time. The material is then transported to the desired port in case of an international transfer or a steel refinery or a nearby rail station for a domestic transfer. After reaching the port, the ore is stockpiled again and lower quality of ore is treated with that of higher level to attain a consistent desired level. This is the second level of blending. 4. Ship loading and Sea Journey: When ready to be exported, the ore is collected from the stockpile by a reclaimer. This is controlled from ship loader and manoeuvres about on rail.

The ore travels to the ship loader via a conveyer. The loader is located on the wharf which is several hundred metres from the reclaimer. Direct loading or the DSO have three types of loaders: * Fixed pedestal i. e. the least expensive, but limited range due to fixed pivot. The ship needs to move during the loading process. * Quadrant/linear quadrant consist of a fixed point at the rear of the loader and a rail at the wharf face. A bridge spans between the pivot and the rail, supporting a shuttle, luffing ship loader. It can only serve a single berth. Travelling(linear)/long travel type: Most versatile but also most expensive. It can travel along the wharf and perpendicular to the wharf. Length of travel is only is only limited by the length of the rail on the wharf. It’s capacity is 16000 tonnes/hour. At ports that are shallow (and not economical to dredge) and the export volumes are relatively low, a transhipment method may be used. A smaller vessel of about 60,000t capacity will ferry loads out to a capesize vessel up to 12 nautical miles out of the sea. The loaded ore is then shipped to the destination port in vessels. The essels are supplied under one of the four different types of contractual arrangements: 1. Voyage charter: Transport for specific load from source port to the destination port for a fixed price on a specific day. 2. Contract of Affreightment: Series of cargoes between the two ports( source and destination)at a fixed price rate. The ship owner/operator is able to plan the use of their ships in the most efficient manner. 3. Time Charter: Charter has operational control of the vessel over a fixed period. 4. Bare boat Charter: Charter has complete operational control over the vessel. Shipping cost and Global Competitiveness:

As discussed earlier, one of the major cost for extraction of iron and delivering it to the steel industries is the transportation cost with shipping cost being one of the major contributors to this cost. Thus, the shipping cost plays a vital role in determining the final price of the output and also decides the global competitiveness of the mining firm or the country in the market. Let’s take the example of shipping iron ore from Brazil and Australia (the two major exporters of iron ore) to China (the major importer of iron ore). The country having a lower landing cost for the same grade of iron ore would be preferred over the other.

Landed cost of iron ore to China in 1999 Landed cost of iron ore to China in 2004 The difference of the landing cost of Brazil and Australia in China in the year 1999 was around 7. 5 million USD, while that in the year 2004 was 13. 5 million USD. Although the FOB cost in both the years was less for Brazil as for Australia, but the freight costs for Brazil-China was much more than that for Australia-China because of the distance between the two countries. While looking at the production of iron ore, Brazil can produce it at a much lower price as compared to Australia.

But the shipping cost of ore from Brazil to China is much more than that from Australia to China. Thus, with the inclusion of shipping costs, not only does Australia’s ore become more competitive but also the difference is quite large. The extent of the difference is dependent on the shipping rates. Due to this difference in landing price of the iron ore in the Chinese market, BHP Billiton, an Australian mining company, in March 2010, negotiated with Chinese steel makers to sell ore for a ‘landed price’. This gave the Australian mining companies a further advantage over the Brazilian corporations.

The concept of bulk shipping market in 2011 is quite different from that in 2004. During the commodity boom from 2004 to 2008, many new capsize ships were ordered which are all coming online now. In other words, the orders made during those four years are impacting the bulk shipping market now. According to Blas, 307 capsizes are due for completion in the year 2011, one in every 29 hours. Also, due to the low scrapping rates of older ships, it would lead to lower freight rates. These freight rates are expected to lower the ever increasing rate of iron ore to an extent of 10%-20%. 5.

Post-shipment processes: After the vessels reach the destination port, the iron ore is again transported to the nearby plots for beneficiation and storing. This is the third level of beneficiation (if required) and the higher grade of ore is treated with the lower grade to attain a consistent desired grade again. The ore is then stored in these plots till it is not required for the steel refinery. These days, using ESS the iron obtained here is pig iron and can be used directly for steel refinery. In many cases, by this time the ownership of the goods lies with the client and also does the risk.

The process of unloading is generally similar to that of loading at the source port. The unloaded goods are then either loaded onto a conveyor or truck, if the rail network lies away from the port or directly to the rails if it lies near to it. The rail/road network then carries forward the goods to the steel refinery for it to be used there. SUPPLY CHAIN OF FORTESCUE METAL GOURP LTD. : A Case Study Fortescue Metal Groups Ltd. (FMG) is the fourth largest exporter and producer of iron ore in the world. Ever since it’s first export to China in 2008, it has become the third largest producer and exporter in Australia.

A study of FMG’s supply chain would help us understand better the working of the distribution and transport of iron ore. 1. Mine site and mining: Mining at Fortescue’s first minesite, Cloudbreak, began in 2008 with more than 28 million tonnes of iron ore mined in the first full year of production. Since then, mining and processing at Cloudbreak has increased to more than 100,000 tonnes of ore each day. Fortescue has also established it’s second minesite, Christmas Creek, which is 50 kilometres east of Cloudbreak. Together, the two mines make up the Chichester Hub.

In 2010, Fortescue will extend its rail line through to Christmas Creek and construct a second ore processing facility at the site. FMG Mining Sites, Current Scenario Mining Breakthroughs Overburden Removal The ore at Cloudbreak sits below a layer of overburden with an average thickness of around 20m (starting at 0m and reaching more that 60m in depth). Initial overburden removal consists of a conventional truck and shovel stripping method. A substantial reduction in the use of conventional methods will occur when the overburden removal system is introduced, however, conventional methods will always form part of the process.

Fortescue has teamed with FLSmidth Rahco to design, engineer and fabricate an overburden removal system that takes existing technology to another level. The revolutionary system, capable of removing 50 million tonnes of overburden per year, will deliver true continuous removal of overburden with costs below other less-efficient methods. The system’s design affords the mine team exceptional control over the repositioning of overburden, allowing them to mimic the natural form of the landscape and begin the work of environmental restoration almost immediately.

Being able to create an extremely flat bench of stripped overburden means that the top soil is far less likely to wash away, making revegetation more successful and allowing cattle to eventually return to the area. Overburden Removal System Mining the Ore The flat lying nature of the deposit has led Fortescue to elect to use a fleet of Wirtgen surface miners rather than traditional drill-blast-excavate mining techniques. Wirtgen 2500 surface miners weigh over 100 tonnes and have over 1000 horsepower, which gives some idea about the size of the operation.

Surface miners have been used for a quarter of a century in soft rocks such as coal and salt and in hard rocks such as limestone and granite that are up to 10 times harder than the average ore at Cloudbreak. Results using this innovative technique have been very encouraging and the benefits of using surface miners on this particular deposit are numerous. 2. Rail Transport: FMG operate one of the heaviest trains and use wagons carrying up to 137 tonnes or ore with each wagon having an axle load of 34 tonne, the highest axle loads of any railway in the world.

Between 2006 and 2008, FMG built a completely new port facility on 2 million sq. metres of reclaimed land AT Anderson Point. Here all the facilities are centrally located and include: train unloading, ore blending and ship loading. After a fully laden train arrives at a port, a rack and a pinion indexer takes control of each loaded rake of FMG wagons and pushes it into the train unloader cell two cars at a time. The tippler works by rotating each car by 150 degrees, tipping the ore onto hydraulically operated apron feeders 20 metres below the cells.

The apron feeders control the delivery of iron ore onto a tunnel conveyor travelling to the stockpile. FMG train wagon unloader 3. Stockpiling and Blending: Following unloading from the train , conveyor belts transport the ore at 5. 5m/s to the stackers. The stackers build the ore into stockpiles. The FMG tracker has an operational design of capacity of 11,080t/hr. FMG’s stockyard contains 12 stockpiles typically designed to hold 5-10% of the total annual throughput volume of the port. Each individual stockpile is usually quivalent to a typical capsize ship load of 180,000-200,000t). These stackers are capable enough to traverse the width of the stockpile and are rail mounted. FMG Iron Ore Stockyard 4. Ship logistics: Shipping began at Fortescue’s port in Port Hedland on schedule on 15 May 2008. Since then, the rate has steadily increased in line with Company targets. The port infrastructure consists of train unloading, ore blending and ship loading facilities, centrally located within the port. The port was engineered for scale and expandability.

The greenfields site means that both the present and the future can be accommodated in one low cost, high tech design because the ‘bolt on’ design of the facility allows future expansion to proceed without hindrance to the existing operations. Since operations began a second berth has been constructed and commissioned and a second stacker installed. The site also has the capacity for huge increases in the amount of stockpiled materials. Trains arriving at this facility from the mines are unloaded using a rotary dumper, which unloads a pair of wagons at a time, in a continuous process.

The ore passes from the dumper via a conveyor to a transfer point, then to a travelling stacker for stock pile blending and quality analysis. The product stockpile configuration and equipment proposed will allow the maximum flexibility in the manner in which ore product is arranged in stock piles and reclaimed. Chevron stacking, together with a bucket wheel reclaimer, provides the best blending capabilities at this time, however other modes of stacking, such as wind rowing, can be adopted to improve blending control and flexibility should this be required. FMG capesizes 5. Unloading in China: Shen Yang

Shen Yang is one of the most important cities in China due to it having many of the steel refineries. But it is land-locked and thus direct unloading of iron ore from Australia isn’t possible. It has to source it’s iron ore from three main ports namely Qinhuangdao , which is the largest dry port in China , Dalian and Bayuquan. Connection with key ports Steel companies in this region are faced with different delivery times, issues and costs depending upon which port are used. Quinhuandago, although the port itself has adequate capacity, is some distance from the steel plants.

The rail journey requires an hour long stop and a crew change. It also passes through two rail jurisdictions making a continuous trip difficult. The railway lines serving the port are heavily congested . The available capacity of coal trains is only one-third of the demand and also the transportation costs are $11. 40/t. Dalian is slightly closer to the industry hub, but has a heavily congested port and the rail connections are saturated with passenger traffic. It is within the same province as Shen Yang so the scheduling of trains is made easier.

The transport costs are at a low of $7. 35/t Bayquan is the closest port but it lacks a rail connection and is of limited capacity. The port charges are higher but better priority is offered for iron ore shipments. Steel manufacturers use company owned trucks to keep the costs down. The transport costs are less with $7. 15/t. This shows that rail transport may always never be an answer to the land transportation. Shen Yang also shows that various factors need to be taken into account while investigating alternative supply chains like regulatory issues and human factors.

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