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

Raw materials prices have seen varying trends in the past month or two as the coronavirus has had varying effects on different commodities in different parts of the world. Iron ore prices have stayed relatively high due to strong demand in China, where COVID-19 restrictions have been eased. Virus-related disruptions to Brazilian mining operations have added to the tight supplies and uptrend in iron ore. Strong steel production in China also has boosted demand and prices for pig iron. In the U.S. scrap collection has rebounded as more businesses have gotten back to work. Thus, the price of shredded scrap has declined as supplies have grown. Prime scrap supplies remain relatively tight, however, as automakers continue to ramp up, keeping busheling prices elevated.

Table 1 summarizes the price changes through June 12 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 bounced between $82-$97 per dry metric ton in the first quarter, now up to $102.8 as of June 10, a 10-month high. Figure 1 shows the price of 62% Fe delivered North China since January 2018.

Coking Coal

The price of premium low volatile coking coal FOB east coast of Australia declined to $109.0/dmt as of June 10, down over the late-May bump and in line with early-May prices (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 are at their lowest levels seen in our 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 June 10 shows an average pig iron price of $295 per metric ton, up from $275 in April, but down from $325 in February and March. Pig iron prices have declined erratically since hitting a peak of $400 per ton in June 2018 (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. Prices for prime/busheling scrap increased in recent weeks as supplies remained tight, while prices for obsolete/shredded weakened as supplies increased due to greater scrap collection as coronavirus restrictions eased. Figure 4 shows the widening 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 $102.8 per dry metric ton, and shredded scrap at $257.5 per gross ton. Ore has moved higher in recent weeks, 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 2.50 ratio shows, the recent increases in the price of ore have outpaced the increases in the price of scrap, adding slightly to the minimills’ competitive cost advantage.

Figure 7 shows how the price of hot rolled steel generally tracks with the price of shredded scrap. Most recently, the two diverged. Shred fell by approximately $15 from May to June, while hot rolled prices rose $45 per ton over that same one-month period.

Zinc

Zinc, used to make galvanized and other products, declined in price for much of the first quarter but rebounded a bit in the second quarter (Figure 8). The LME cash price per pound of zinc as of June 12 was $0.9005, up over the mid-March low of $0.8239 but down considerably from the mid-January peak of $1.1186. The price of zinc factors into the coating extras charged by the mills for galvanized products. Nucor and Steel Dynamics have revised their coating extras downward, effective in July, to reflect the lower zinc price. Aluminum prices, which factor into the price of Galvalume, had been relatively flat since early-April but rose slightly over the last few weeks The LME cash price per pound of aluminum is up to $0.7062 as of June 12.