Raw Materials Prices: Iron Ore, Coking Coal, Pig Iron, Scrap, Zinc

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Prices for all but one of the steelmaking raw materials tracked in this SMU analysis increased from May to June, with most products following large gains seen in previous months. Over the last 30 days, coking coal prices have increased 31%, shredded scrap prices rose 11%, and busheling scrap increased nearly 9%.

Table 1 summarizes the price changes of the seven materials considered in this analysis. It reports the month/month, three months/three months and year/year changes as a percentage.

Iron Ore

The Chinese import price of 62% Fe content iron ore fines has been moving upward for over a year now, since June 2020. Figure 1 shows the price of 62% Fe delivered North China at $210.8/dmt as of June 24, up 31% over three months prior and more than double the June 2020 price.

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia has ramped up in the last few weeks, surpassing the 2020 high earlier this month and reaching $175.5 per dry metric ton as of June 26 (Figure 2). The last time coking coal prices were this high was in July 2019. Although up, recent coking coal prices are low compared to those seen from approximately 2017 to mid-2019.

Pig Iron

Most of the pig iron imported to the U.S. currently comes from Russia, Ukraine and Brazil. This report summarizes prices out of Brazil and averages the FOB value from the north and south ports. The latest data through June shows an average pig iron price of $640 per metric ton. Pig iron prices have remained historically high for the past seven months and are up 117% from levels one year ago. Pig iron prices reached a low of $275 per metric ton in June 2020, with prices increasing each month thereafter through January 2021. After February’s slight dip, pig iron prices resumed their upward climb in March and have remained strong since (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, both priced in dollars per gross ton in the Great Lakes region. June scrap prices remain at historically high levels, up 9-11% from the month prior and ~95% higher than June 2020 prices. Prior to 2021, the previous record for scrap prices over the last decade occured in December 2011 at $510 per ton for busheling scrap, and in February 2012 at $473 for shredded scrap.

Figure 5 shows the similar uptrend in the prices of mill raw materials over the past year as the price of iron ore surpassed $200 per dry metric ton in May and shredded scrap hit $500 per gross ton this month.

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 2.37 ratio shown below, minimills continue to hold a cost advantage. This ratio hit an all-time low of 1.86 in August 2020 (within SMU’s 12-year limited data history).

Figure 7 shows how the price of hot rolled steel generally tracks with the price of busheling scrap. Bush rose by $50 per ton from May to June, up $128 from January. Hot rolled prices continue to rise each week, with the latest SMU average at $1,760 per ton as of June 22; this is up $170 over the past four weeks and up $750 since the start of the year.

Zinc and Aluminum

Zinc, used to make galvanized and other products, has been on the rise since March 2020 and recently neared record-high levels (Figure 8). The LME cash price zinc as of June 28 was $1.3115 per pound, down 6% from the June 2 peak of $1.3883. The latest zinc price is up 3% from three months prior and up 42% from the May 2020 low of $0.8236. The price of zinc factors into the coating extras charged by the mills for galvanized products. California Steel recently revised its coating extras upwards to reflect higher zinc prices, and many mills had adjusted their extras on the sharp rise in zinc back in late-2020.

Aluminum prices, which factor into the price of Galvalume, have been trending upwards since June 2020 and reached a multi-year high on May 11. Note that aluminum prices often have large swings and return to typical levels within a few days, as seen in the graphic below. The LME cash price of aluminum was $1.1284 per pound as of June 28, up 11% over three months ago and up 56% over one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com