Raw Materials Prices Ease in May

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Following record price increases in March and April, prices for six of the seven steelmaking raw materials tracked in this SMU analysis declined over the last 30 days. Through May 23, iron ore prices decreased 16% compared to one month prior, zinc prices fell 15%, shredded scrap prices were down 13%, busheling scrap prices declined 10%, aluminum prices fell 8%, and pig iron prices were down 4%. In that same time frame, coking coal prices increased 2%.

Table 1 summarizes the price changes of the seven materials considered in this analysis. It reports the percentage change from one month prior, three months prior, and one year prior for each product.

Iron Ore

After rising to record levels last summer, the Chinese import price of 62% Fe content iron ore fines declined through November to reach an 18-month low. Prices then increased through April but have since began to decline. Figure 1 shows the price of 62% Fe delivered North China at $129 per dry metric ton as of May 18, levels last seen in January. Iron ore prices have decreased 16% in the last 30 days, down 13% compared to three months prior, and down 42% from the price this time last year.

Coking Coal

The price of premium hard coking coal FOB east coast of Australia surged in March to a record high of $660 per dry metric ton, with the latest figure down 22% from that peak to $516 per ton (Figure 2). Prices have increased 2% in the last 30 days, up 17% compared to three months prior, and up 341% from prices one year ago. In 2021, coking coal prices reached a record-high $405 per ton in October/November. Prior to that, the average coking coal price in 2019-2020 was $151 per ton, and the previous record for coking coal prices was $400 per ton in July 2008.

Pig Iron

Most of the pig iron imported to the US had come from Russia, Ukraine and Brazil. This report summarizes prices out of Brazil and averages the FOB value from the north and south ports. Pig iron prices had been elevated but relatively stable for most of 2021 and early 2022. Prices jumped 60% in March following the invasion of Ukraine by Russian forces – which limited or halted supplies from both nations. The average pig iron price for May is now $940 per metric ton, down 4% from last month’s record high of $975 per ton. Recall that pig iron prices had reached a multi-year low of $275 per metric ton in May 2020 (Figure 3).

Scrap

Hot rolled steel prices fluctuate up and down with the price the mills must pay for their raw materials. Changes in the relationship between scrap and iron ore prices offer insights into the competitiveness of integrated mills, whose primary feedstock is iron ore, versus the minimills, whose primary feedstock is scrap. Figure 4 shows the spread between shredded and busheling scrap, priced in dollars per gross ton in the Great Lakes region.

Scrap prices declined $75 per ton in May but remained historically high; busheling scrap prices fell to $700 per gross ton and shredded scrap prices declined to $575 per ton. Recall that April saw record-high scrap prices, with busheling reaching $775 per ton and shred $600 per ton. Prior to 2021, the previous record for scrap prices over the last decade was $510 per ton for busheling in December 2011 and $473 per ton for shredded in March 2012. Our scrap sources expect prices to ease $30-50 per ton in June.

Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are 42% below the May 2021 peak of $221 per dry metric ton, while shredded scrap prices are up 17% year over year.

To compare the two, Steel Market Update divides the shredded scrap price by the iron ore price to calculate a ratio (Figure 6). A high ratio favors the integrated/BF producers, a lower ratio favors the minimill/EAF producers. At the current 4.09 ratio shown below, integrated producers currently hold the cost advantage and have since early March. Six months ago we saw a ratio of 5.84, the highest seen since mid-2018. The scrap to iron ore ratio reached a record low of 1.86 in August 2020 (within SMU’s 12-year data history).

Figure 7 shows how the price of hot rolled steel generally tracks with the price of busheling scrap. Bush fell $75 per gross ton from April to May, back in line with March levels and up $110 per ton from one year ago. As of last week, the SMU hot rolled price average decreased $15 per ton week over week to $1,350 per ton. This is a decrease of $130 per ton compared to one month prior, nearing prices seen in mid-March, and down $220 per ton from this time last year.

Zinc and Aluminum

Zinc, used to make galvanized and other products, had rapidly increased in price in March and April, causing many mills to adjust their galvanized coating extras higher. The LME cash price for zinc surpassed $2 per pound on April 13 and peaked at $2.04 per pound as of April 21. Zinc prices have since declined, with the May 13 price falling to a four-month low of $1.61 per pound. The latest price as of May 23 is up to $1.73 per pound, up 5% compared to three months prior and up 29% from levels one year ago (Figure 8).

Aluminum prices, which factor into the price of Galvalume, have also been on the rise, reaching a record-high of $1.76 per pound on March 23. This is the highest price recorded in our 10-year history. (Note that aluminum spot prices often have large swings and return to typical levels within a few days, as seen in the graphic below. We do not consider those surges in our overall high/low comparisons.) Aluminum prices began to decline in late March, reaching a low of $1.34 per pound on May 9. The latest LME cash price of aluminum is $1.43 per pound as of May 23, down 19% from the March record, down 6% compared to three months ago, yet up 33% from one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com