Coal is formed from plant remains thathave been covered by a layer of sediment and are subjected to geologicalforces over time. The forces of the sediment overlaying the plantmaterial cause chemical changes that create a carbon rich substance knowas coal. Coal is a readily combustible black or brownish-blacksedimentary rock that is composed primarily of carbon, along withvariable quantities of other elements such as sulphur, hydrogen, oxygenand nitrogen. Based on its properties, coal can be classified by rank,from lowest to highest, into the categories of lignite, sub-bituminous,bituminous and anthracite. Lower rank coals contain less carbon, moremoisture and have lower calorific values.
In general terms, based on the rank,coal can be classified as either “thermal” coal or “metallurgical” coal.Thermal coal is lower in carbon content and calorific value, higher inmoisture value, is the world’s most abundant fossil fuel and isprimarily used to produce energy. Metallurgical coal is less abundantthan thermal coal and is primarily used in the production of coke whichis an important part of the integrated steel mill process.
Metallurgical coal is primarily sold to steel mills and used in the integrated steel mill process.
When making steel, two of the key rawingredients are iron ore and coke. Coke is used to convert the iron oreinto molten iron. Coke is made by heating coking coal to about 2000°F(1100°C) in the absence of oxygen in a coke oven. The lack of oxygenprevents the coal from burning. The coking process drives off variousliquids, gases and volatile matter. The remaining solid matter formscoke, a solid mass of nearly pure carbon. Approximately 1.5 tonnes ofmetallurgical coal are needed to produce one tonne of coke. Onlycertain types of metallurgical coal have the necessary characteristicsrequired to make coke. These characteristics include caking properties(the ability to melt, swell and re-solidify when heated) and lowimpurity levels (e.g. moisture, ash, sulphur, etc.).
There are three main categories ofmetallurgical coal: (i) hard coking coal that forms high-strength coke;(ii) semi-soft coking coal that produces coke of lesser quality; and(iii) PCI coal. PCI coal is generally not considered to be a cokingcoal, rather it is used primarily for its heat value and is injectedinto a blast furnace to replace expensive coke. Semi-soft and PCI coalsnormally have lower sales values compared to hard coking coal due tothe relative availability of these products. Integrated steel millswill optimize the use of semi-soft and PCI coals in order to reduceoverall costs. However, there are technical limits to the ability ofintegrated steel mills to substitute semi-soft and PCI coals for hardcoking coal in their coking coal blend. During periods of high steeldemand, high productivity and high PCI-rate furnaces require higher cokequality, for which more high quality hard coking coal is required.
The following schematic outlines how steel is produced in an integrated steel mill.
The principal market for Grande CacheCoal Corporation's hard coking coal is the seaborne hard coking coalmarket. The seaborne hard coking coal market is defined by the globalnature of international steel-making, the relative concentration ofquality metallurgical coal deposits in Australia, Canada and the UnitedStates and the relative low cost of seaborne transportation. Totalworldwide production of higher quality metallurgical coal was reportedto be 150 million tonnes in 2006 and expected to increase to 169 milliontonnes in 2007. Australia was the largest exporter at 62% while Canadafollowed at 17%. Australia, Canada and the United States account for93% of total world seaborne trade.
Trade in the seaborne hard coking coalmarket is influenced by crude steel production that, in turn, is largelydependent on the overall state of regional and global economicconditions. The global trade of steel products is very large andfluctuations in supply and demand in various regions throughout theworld are common. Although there are fluctuations in the total amountof steel produced worldwide, the amount of steel produced by theintegrated steel mill process has been steadily increasing, until veryrecently. In turn, the volume of hard coking coal used in this processhas not experienced the same variability as total steel production;however, recent price stratification has, in the short term, resulted inincreased volume volatility of hard coking coal used in the process.Canadian hard coking coal is competitive in the seaborne market due toits high quality, its suitability for blending with coking coals fromother countries and the desire of steel producers to diversify theirsupplier base in order to create competition and security of supply.