Raw Material Procurement

“My job is to source raw materials such as iron ore, coke and alloys. We need to make sure that our plants have secure and sufficient supplies. These raw materials form around 70% of our plants’ production cost so it is critical that we lower their costs as much as possible.”

Securing a stable supply

A stable supply of various raw materials is necessary for our production process. Iron ore, for example, is used in our blast furnaces in different forms such as pellets, lump ore and sinter, and in different amounts depending on the steelmaking process (short or long). To meet our raw material needs, we base our procurement on our ability to purchase high quality iron ore and other materials, as well as to minimise costs.

We now have a pellet plant with an annual production capacity of 6 million tonnes, which commenced operation in May 2013 and produced 710,000 tonnes by year end. The pellet plant has begun to use iron ore concentrate from CITIC Pacific’s iron ore mine in Australia. We also completed a new coking facility at the end of 2013, giving CITIC Pacific Special Steel a total coke production capacity of 3.3 million tonnes, sufficient for meeting our steel-making needs.

Reducing input costs

A centralised procurement strategy strengthens our bargaining power. Continued improvements in operating efficiency have also helped us reduce our raw material inventory and shorten the inventory cycle. Both of these are essential in our effort to reduce raw material input costs. In 2013, we shortened the iron ore inventory cycle from 60 days in 2012 to 40 days, which not only released additional warehouse space but reduced inventory risk caused by price fluctuations.

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