Ore Composition’s Impact on Smelting Profitability: An Optimum Pricing Index Model for Long-Term Nickel Ore Feedstock Purchasing Agreements

Abstract

Global Nickel (Ni) smelters’ have been experiencing profit losses for nearly a decade due to the 2008 recession still impacting the industry, oversupply, and fluctuating ore quality. This paper proposes to aid the Ni smelters with the lattermost issue, presenting an optimum pricing index model for purchasing raw Ni ore materials. The model is developed using data from a major Ni smelter in operation in Korea, including parameters such as revenues, investment expenses, and ore purchasing costs and the impact Ni and Iron (Fe) content variation has on them. In contrast, existing published Ni price forecasting models are based on external variables (e.g., GDP) and are intended for profit forecasting versus contractual agreements. In executing a Monte-Carlo simulation of 1000 possible life-cycle costs analysis with and without the use of the proposed model, the model increased the likelihood of the smelter earning a profit by approximately 5% with an average approximate increase of $50 million. As such, the proposed index model provides new Ni and nonferrous metals smelters material quality fluctuation risk mitigation. Although this model is presented for the Ni smelting process, the findings could theoretically be applied to any long-term procurement activity with variable quality and market conditions.

The Efficacy of the Tolling Model’s Ability to Improve Project Profitability on International Steel Plants

“…The impact of changing the risk ownership structure of a steel plant project through a tolling agreement will be different than other sectors. There have been publications dedicated to solving the economic pressures felt by steel producing companies including optimal risk-assessment processes [28], optimal investment timing [29], risk-sharing feedstock agreements [30], and creating financing [31] but minimal on the impact of differing SPC agreements. The lack of publications on the tolling agreement's use on steel projects represents a gap in the literature.…”

Special Issue on Applied Engineering to Lean Manufacturing Production Systems

“…Realyvásquez-Vargas, et al [6] apply the plan-do-check-act (PDCA) cycle to identify the sources of defects and reduce the proportion of the defects by up to 65%, integrating tools such as the Pareto diagram and flow chart. In turn, Jeong, et al [7] propose a purchase price index model for South Korean nickel smelters integrating variables such as revenue, investment expenses, and material purchase costs, and the findings indicate that the risk of quality fluctuation is mitigated.…”