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

Among steelmaking raw materials, the prices of pig iron, scrap, zinc and aluminum have seen big gains in the past three months. Pig iron and scrap prices have seen significant increases compared to the late summer months. Iron ore and coking coal prices had widened through mid-September but have since declined, with coking coal prices nearing a multi-year low.

Table 1 summarizes the price changes through Nov. 6 of the five materials considered in this analysis. It reports the month/month, three months/three months and year/year changes on a percentage basis.

Iron Ore

The Chinese import price of 62% Fe content iron ore fines soared to a multi-year high in August, slightly declining since then but remaining strong. Figure 1 shows the price of 62% Fe delivered North China since January 2018, currently at $117.2, up 39.0 percent over levels one year ago.

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia jumped from mid-September through mid-October, but has since declined near the mid-2020 low, currently at $108.6 dollars per dry metric ton as of Oct. 28 (Figure 2). The seaborne coking coal price has not been able to fully benefit from the strong demand in China due to import restrictions. Recent coking coal prices remain at their lowest levels seen in SMU’s limited history. 

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 October shows an average pig iron price of $365 per metric ton, up 33 percent from the May 2020 low of $275. Pig iron prices had declined erratically since mid-2018, but have risen each month since June 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, both priced in dollars per gross ton in the Great Lakes region.

Figure 5 shows the recent spread between the price of iron ore, at $117.2 per dry metric ton, and shredded scrap at $285 per gross ton. Ore has moved higher since May, lending some support to finished steel prices.

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. As the 2.43 ratio shows, the increases in the price of ore, in contrast to smaller changes in the price of scrap, have added to the minimills’ competitive cost advantage. This ratio hit an all-time low of 1.86 in late-August 2020 (in our 12+ year limited data history).

Figure 7 shows how the price of hot rolled steel generally tracks with the price of shredded scrap. Shred rose by approximately $50 from August to September, remaining unchanged in October, while hot rolled prices have risen $260 per ton over since August.

Zinc and Aluminum

Zinc, used to make galvanized and other products, has steadily risen since March, reaching a 16-month high at the end of last week (Figure 8). The LME cash price per pound of zinc as of Nov. 6 was $1.1892, up 38 percent from the mid-March low of $0.8236. The price of zinc factors into the coating extras charged by the mills for galvanized products. Many mills had revised their coating extras upwards in August and September to reflect the higher zinc price. Aluminum prices, which factor into the price of Galvalume, have also been trending upwards over the last few months. 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 per pound of aluminum was $0.8537 as of Nov. 6.