Steelmaking Raw Material Prices Fall Further in September

Prices for each of the steelmaking raw materials tracked in this SMU analysis decreased over the last 30 days, further declining from the record-high levels seen in March and April. Through the latest data available as of Sept. 21, zinc prices decreased 12% in the last month, busheling scrap and aluminum prices fell 7%, pig iron and shredded scrap prices declined 5%, coking coal prices decreased 2%, and iron ore prices eased 1%. Compared to levels three months prior, all raw material prices have declined, with multiple products down by 30% or more.

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-high levels last summer, the Chinese import price of 62% Fe content iron ore fines receded to pre-Covid levels by the end of 2021. Prices increased from late 2021 through April of this year but have steadily declined since. Figure 1 shows the price of 62% Fe delivered North China at $100 per dry metric ton as of Sept. 31. Iron ore prices reached a 10-month low of $97 per dry metric ton earlier this month. Prices have decreased 15% compared to levels three months ago and are 6% less than prices one year ago.

Coking Coal

The price of premium hard coking coal FOB east coast of Australia surged in March of this year to a record high of $660 per dry metric ton. Prices quickly declined in the following months, falling to a 13-month low of $193 per dry metric ton in early August. The latest price as of Sept. 21 is $260 per dry metric ton, up 35% from the early August low, but down 61% from the March peak (Figure 2). Prices are down 31% compared to three months prior and down 30% from prices one year ago. For comparison, the average coking coal price between 2017–2020 was $172 per dry metric ton.

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. April saw record-high pig iron prices at $975 per dry metric ton.

Prices have eased each month since, falling 20% in July, another 38% in August, and now declining 5% in September to $440 per dry metric ton. Prices are down 53% compared to three months ago and down 14% from one year prior. Recall that pig iron prices had reached a multi-year low of $275 per dry metric ton in 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, compared to 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 have declined each of the last five months. Busheling scrap prices fell $30 per gross ton to $405 per gross ton, while shredded scrap prices declined $20 to $405 per gross ton. It is not often that busheling scrap does not carry a premium price to shred. Recall that March and April saw record-high scrap prices, with busheling reaching $775 and shred hitting $600 per gross ton. Prior to 2021, the highest point for scrap prices over the last decade was $510 per gross ton for busheling in 2011 and $473 per gross ton for shredded in 2012. Some SMU sources expect scrap prices to flatten out soon, but others think there is still room to move lower.

Figure 5 shows the prices of mill raw materials over the past four years. Iron ore prices are 55% below the May 2021 peak of $221 per dry metric ton, down 6% from this time last year. Shredded scrap prices are down 33% from the March/April 2022 high, and down 13% versus levels one year ago.

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 and a lower ratio favors the minimill/EAF producers.

At the current 4.07 ratio shown below, integrated producers currently hold the cost advantage and have mostly held this position since March. In November 2021 we saw a ratio of 5.84, the highest since mid-2018. The scrap-to-iron ore ratio reached a record low (within SMU’s 12-year data history) of 1.86 in August 2020.

Figure 7 shows how the price of hot-rolled steel generally tracks with the price of busheling scrap. Bush has declined $370 per gross ton (48%) from the April peak and is in line with late 2020 levels. As of Tuesday, Sept. 20, the SMU hot rolled price average decreased $15 per ton week-over-week to $770 per net ton. This is unchanged compared to our HRC price one month ago, down $710 per net ton (48%) from the April 2022 peak.

Zinc and Aluminum

Prices for zinc, whichi is used in galvanized and other coated products, have fluctuated dramatically in the last year. The LME cash price for zinc reached a record high of $2.05 per pound in May, then declined through July to reach a ten-month low of $1.35 per pound. Zinc prices have picked up again since then, rising as high as $1.68 in August, but have again begun to decline. The latest price as of Sept. 21 is $1.42 per pound, down 12% compared to 30 days prior, down 15% compared to three months prior, but up 4% from levels one year ago (Figure 8).

Aluminum prices, which factor into the price of Galvalume, had also been on the rise in 2021 and into early 2022, reaching a record-high of $1.76 per pound on March 23. (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, held steady in July and August, then declined further this month. The latest LME cash price is $1.09 as of Sept. 21, the lowest price since June 2021. Aluminum prices are down 7% from one month prior, down 12% from late June, and down 16% from prices one year prior.

By Brett Linton, Brett@SteelMarketUpdate.com