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NZ Steel 'emotionally committed' to coal from Solid Energy

Tuesday 25th September 2012

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New Zealand Steel is "emotionally committed" to renewing its coal contract with the troubled state coal miner, Solid Energy, says the Australian-owned steel manufacturer's chief executive, Simon Linge.

With a rash of closures, redundancies and cost-cutting by other big industry players like Solid Energy, KiwiRail, Norske Skog's Kawerau pulp and paper mill, and Rio Tinto's Bluff aluminium smelter, Linge told BusinessDesk the business was "as secure as we can be for our future."

Some 1,000 people are directly employed by NZ Steel.

"The fundamental premise is we are small scale globally, but we're punching above our weight and have a history of being successful," said Linge.

Asked whether the subsidiary of ASX-listed Bluescope was committed to coal supplied from New Zealand rather than offshore, Linge said "we are emotionally committed."

"We are paying Solid Energy significantly more than in 2005" under contracts renegotiated in 2008, and "the price we are proposing is well above where the current rate is."

"We're hopeful we'll be in a position to renew our contracts."

Chasing a stretch-target to treble NZ Steel's profitability in the next five years, Linge said the Glenbrook steel mill and its associated manufacturing and other businesses had competitive advantages from the low cost local ironsands used in steel-making, and the mill's high capacity utilisation.

Glenbrook runs at above 85 percent utilisation, an international benchmark for profitable steel-making.

Its earnings come mainly from fulfilling demand from the New Zealand domestic market, although around 20 percent of last year's A$755 million revenue came from direct exports of Taharoa ironsands.

However, that figure would be "challenged" this year as ironsand prices fall in line with the drop in the value of iron ore in recent months as the Chinese economy has come off the boil.

The same price fall has hit the global coal market, forcing Solid Energy to cut 440 jobs, mostly by mothballing its Spring Creek underground mine near Greymouth, and halting new development on the Huntly East mine, which supplies some 770,000 tonnes of thermal coal used at Glenbrook annually.

Huntly East has struggled after losing coal supply contracts for Genesis Energy's nearby Huntly power station to Indonesian imports, and faces a contract renewal with NZ Steel which chairman Mark Ford indicated was critical to Huntly East's future.

Solid Energy said yesterday Huntly East's workers would reduce to 171 from 234 with final decisions made next month.

"Any decision to increase mine effort or invest in longer-term development will depend on the company securing satisfactory long-term contracts with major North Island customers, such as New Zealand Steel.

"Almost all Huntly East Mine's coal is supplied to New Zealand Steel's mill at Glenbrook. The decision will not immediately affect the company's ability to supply New Zealand Steel."

Meanwhile, Linge confirmed New Zealand Steel is backing a second experimental low-carbon technology created by New Zealanders, in its drive to reduce operating costs and environmental footprint.

The company has ordered 9,000 tonnes of so-called "green coke" from Blenheim-based CarbonScape, which took second prize and a 100,000 Euro grant in a global competition co-sponsored by the Clinton Global Initiative.

CarbonScape has patented a carbon dioxide-reducing continuous-flow microwave technology to produce material from wood waste that can be used as a supplement to coal in steel-making.

NZ Steel already hosts the first demonstration plant built by Auckland-based Lanzatech, a world leader in bio-fuels production with its process using carbon monoxide, a waste gas produced by steel mills, to make transport fuels and other chemicals.

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